Open Finance Community payment challenge: Modulr

Open Finance Community
29/11/2022 Interview
David Beach Modulr Head of content, brand and press

Qorus and Capgemini have identified the leading fintech companies for the payment challenges they organize for the Open Finance Community. One of them is Modulr and its Senior Product Manager Gordon Wilson tells us more about it.


About Modulr
Modulr is the leading embedded payments platform enabling businesses to build accounts and payments directly into their own platforms without needing to build complicated payment systems, become regulated, or manage complex payment network membership. As part of our mission to transform the speed, resilience, cost and flexibility of operating and launching payment services, our open banking capability plays a key role.

What business problem do you solve? Why is it important to your clients? 

We serve a broad range of different industries, including banking, accounting software providers and travel. While each industry faces distinctly unique challenges, the common thread revolves around inefficient and legacy payment processing, which limits economic growth, product development and the growing customer expectation for real-time experiences. 

In travel, online travel agents contend with complex multi-currency value flows from passengers through to airlines and hotels and bed banks, while trying to reconcile payments to bookings, while also keeping an eye on cashflow in real time. In banking, our clients are looking to us as a one-stop-shop, a multi-payment method partner with direct connectivity to key payment schemes accessible to them via a modern and robust API platform. Our banking clients rely on us to build exceptional customer experiences for their own propositions such as new money apps or lending products. In the accounting software space, accountants, financial controllers and payroll managers risk costly and time consuming errors when manually uploading payment files to legacy banking portals and it takes a lot of time to carefully reconcile payments. Using our API, these clients can automate processing end-to-end, reducing costs and saving time.

Can you briefly describe your product or solution and in which countries do you operate?

From within a client’s own app or website, our Payment Initiation API allows them to seamlessly redirect their customers to their familiar online banking service (typically a mobile app) where a payment can be initiated from one bank account to another. When the customer has authenticated with their bank and confirmed the payment, they are swiftly taken straight back to our client’s app or website from where they started. End users of the service may be making payments to themselves to ‘top up’ an account from another that they own, or they may be making payments to someone else (to pay for goods or services, for example). The solution is quick and easy and is often used where traditionally card payments are made. Card payments can cost as much as 0.5–2% of the transaction value and take up to three days for funds to settle. Using open banking, payments settle in near real time (using Faster Payments) and can be much more cost effective as there are no card scheme intermediaries. Our Payment Initiation service is available in the UK.

Money management app, HyperJar, and crypto micro payments app, BottlePay, are two publicly stated customers who use our open banking capability to make the account top-up process easier and more intuitive for their customers than slower alternatives such as card payments or manual bank transfers.

What is your core value proposition? What are the unique features you offer to your customers? 

The value of open banking is really unlocked when it is offered as part of a broader suite of services across the provision of accounts, payments, notifications and other services. We're payments experts and offer this as part of a tightly integrated comprehensive solution, all under its regulatory umbrella on a platform that has been proven at scale. 

Using open banking technology in isolation is problematic because there are gaps in its capability. For instance, it’s not reliably possible to determine if or when the funds actually arrive into the receiving account. This lack of certainty and reconciliation capability is a significant challenge for many use cases (such as in finance or e-commerce). With the Modulr solution, settlement accounts are provided into which collected funds are received via open banking. As soon as the funds arrive, we provide real-time notifications and reconciliation capabilities that give clients confidence that they can ship goods (in an e-commerce setting for example) or complete a transaction in a trading / money transfer service scenario, for example. 

The use of a Modulr settlement account also allows clients to easily offer refunds or ‘reverse’ the payment which can be received by their customers in near real time (via Faster Payments). This can be a point of differentiation for our clients and again is a capability that is not supported by native open banking. 

Why aren’t others offering open banking services built settlement accounts? Account issuance requires significant investment to become regulated, and then there’s the ongoing complexity and overheads associated with maintaining it and the technology platform to piece it all together. That’s why they, and other clients, turn to Modulr.

Providing that your solution has already been implemented in financial institutions, which companies have already adopted this solution?

Money management app, HyperJar, and crypto micro payments app, BottlePay, are two publicly stated customers who use our open banking capability to make the account top-up process easier and more intuitive for their customers than slower alternatives such as card payments or manual bank transfers. We are also live with a tier 1 open banking provider to provide them with accounts and real-time notifications of payment settlement. In the accounting space, we teamed up with Sage to offer accountants a better payment experience via Sage Salary and Supplier Payments, which removes the need to manage SME client payments through their legacy bank. We’ve used open banking to make topping up their accounts as easy and straightforward as the rest of the Sage Salary and Supplier payments experience.

Can you describe in a few words one of these collaborations (What was the objective? What were the main challenges? What results did your client obtain thanks to the implementation of your solution?)

In the case of HyperJar, they needed to boost account adoption and provide a competitive customer experience that aligned to their brand personality of financial mastery. Traditionally, customers would have had to top up their HyperJar accounts via card or bank transfer – manually keying in details and waiting to see when (and if) the money arrived. Through Modulr, HyperJar can seamlessly redirect their customers to their own banking app and when the top-up payment is approved, we can serve up an instant notification to inform that funds have arrived, offering reassurance and growing this payment method by 79% since June 2022. Likewise, working with a major open banking provider, Modulr provides the notification account layer which enables the partner to give its customers better visibility as to when funds arrive, and can automate, split and reroute funds automatically based on pre-configured rules for optimal efficiency.

What is your business model and how easy is it to duplicate to additional geographies? 

We provide an API platform that simplifies complex payment flows. The platform enables businesses to automate payment flows, embed payments into their platforms, and build new payment products and services that can be offered to their own customers, without the need to become regulated as an electronic money or payments institution. Modulr is connected to payments schemes in the UK (Faster Payments, Bacs, Direct Debit) and Europe (SEPA CT and Instant), with the former enabling the group to settle and hold funds at the Bank of England. Modulr is a principal issuing member for Visa and Mastercard (for card issuing services), has e-money licences in the UK and the Netherlands. The payments connections provide the basis for the service but where we create value is in combining this with a modern API led software platform allowing straightforward integration by customers while maintaining compliance, enabling firms to sell solutions to business problems rather than homogenous payments functionality. We’re soon to replicate our UK offering into the Netherlands and into Spain and France in 2023/4.

Where do you see your fintech company in five years? What impact or difference are you trying to achieve for financial institutions in your portfolio?

In five years, we think fintech will be a business layer. In other words, the ability to manage, issue and control payments and accounts within a business’ own software will become standard. We also expect to see the continued trend of embedded finance transforming the capability of many more non-financial services industries, and we’ll be ready to support the underlying core payments infrastructure. By giving better access to reliable payments and accounts infrastructure to as many businesses as possible, we ultimately hope to increase competition, encourage innovation and drive economic growth across the UK and our European markets.

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