The Ten Year Reset: Highnote CEO Says Embedded Payments Need More Modern ‘Full-Stack’ Tech

We are moving toward the age of the super app, toward payments being embedded within experiences rather than being separate from them.  For the smaller firms and FinTechs that want to bring banking services to end users and extend their brands in the process, the technical bar can be high.

John MacIlwaine, former Braintree GM and co-founder and CEO of Highnote, the first issuer processor to launch in a decade, told Karen Webster that simplifying the connection to banking services, and embedded payments, is critical.

“I’ve been shocked at the amount of innovation occurring on the ‘front end’ of FinTech,” he told Webster. “There are digital banks and banking as a service, but ultimately, there’s so much legacy infrastructure that’s supporting it all.”

It’s become a truism in commerce that the payments experience can be a competitive advantage – or a disadvantage. They that don’t have the financial resources – or in some cases, the development teams – on hand to embed payments in-house can end up on the wrong side of innovation – and in this case, the most explosive shift to digital we’ve seen in the last decade.

All too often, these smaller firms with aspirations of embedded finance turn to legacy providers, whose platforms have been around for a while – but they don’t have the ability to get those smaller client firms up and running with new features, such as card programs, without long lead times and high costs.

As a result, there’s a disconnect between the pace of innovation at the front end of the consumer-facing experience and what’s needed all the way through the back office. The platforms that took shape earlier in the millennium go back to the days when there were no DoorDashes or Instacarts, where there had been no need to issue virtual cards to consumers.

As MacIlwaine pointed out, modern use cases demand that companies be able to tap into modern platforms to develop new services and products with speed and flexibility. Along the way, connected economies take shape, where consumers move seamlessly through their daily lives, picking and choosing among loyalty programs and cards that span their favorite retailers, restaurants and providers.

Looking to the ‘Entire’ Stack

“If we really think about the future and what companies are going to require to be competitive in embedded finance, there has to be a solution that extends through the entire stack – not just customer acquisition and great consumer experiences, but all the way down to processing and integrating with other companies that allow for these experiences to be brought to life,” MacIlwaine said. That’s a marked change from relying on legacy providers or embracing a DIY approach.

Highnote’s platform (the company serves as both issuer and processor, and MacIlwaine said it is in effect the industry’s first new processor in a decade) can reduce the time it takes for a client to launch a card and build its brand – down from several months to a few weeks – through its full-stack offering and APIs.

MacIlwaine maintained that one of the hardest parts of constructing that connected economy and integrated experiences is card issuance – but doing that successfully will open the door to a range of other possibilities down the line for a brand to cement the relationship with its end user. Highnote, with a “horizontal” focus, gives developers the flexibility to customize payments and offer, for example, earned wage access across general-purpose, reloadable cards.

The interest in having deeper, digital banking relationships with a range of non-bank providers is there. PYMNTS’ own research has found that a significant share of consumers – 41% of them, in fact – would be comfortable having a banking type of relationship with their employers.

And in other use cases illustrated by MacIlwaine, a customer at an eCommerce checkout with their favorite merchant could conceivably be offered a branded prepaid or debit card that would allow them to get a discount, while simultaneously accruing loyalty points and rewards.

Traditionally, those affinity programs were reserved for some of the largest brands, like hotels, airlines and very large retailers. Branded card issuance, or offering a buy now, pay later (BNPL) setup (without having to tap Affirm or other providers), can democratize financial services, he said.

And in a nod to true connectivity, MacIlwaine said that a fleet company can leverage telemetry and card issuance to create an earned wage access card to provide payouts as miles on the road are logged.

The conversation between MacIIwaine and Webster came against a backdrop where late last month, Highnote had raised a combined $54 million from Seed and Series A funding rounds and emerged from “stealth” status. Oak HC/FT led the Series A and co-led the Seed with Costanoa Ventures, and additional investments came from XYZ, SVB Capital and WestCap. Angel investors Bill Ready (the current president of commerce and payments at Google and former chief operating officer at PayPal), along with Renaud Laplanche, Upgrade CEO, also participated.

Eyeing the card issuance landscape as a whole, MacIlwaine said there is room for several players – for the platforms like Highnote as well as the incumbents like Marqeta.

“It’s a large, large market – a multi-trillion-dollar addressable market,” he told Webster of issuing and processing. And though the tasks of becoming PCI-compliant and integrating with the payment networks are hard work, he said, “once you have this platform and you ‘own’ the full stack, you can pivot quickly – and these firms can realize their dreams in terms of what they are trying to do for their employees or customers.”