‘Embedded finance comes with monumental challenges’: OpenPayd founder Ozan Özerk

“If you take a normal black cab in London,” he explains, “at the end of that ride you’ll either pay with cash or reach for your credit card and hope that the POS – point-of-sale – terminal will work. Usually they don’t.” This is different from services such as Uber, “where you order from an app, jump into the car and then jump out when you reach your destination. The payment sequence happens in the background because Uber has at some point gathered my card data, will have verified that I am the person ordering the service, and will have taken funds from my card. This is an embedded payment. It happens in the background.” Companies such as his own OpenPayd, he continues, provide this service for both regulated (such as banks) and unregulated (e.g. rail ticketing) organisations, “allowing them to supply a regulated service”.

That’s the regulatory part of it, says Özerk, before stating that “the interesting part is the technology. We work mostly with digital-first companies, who are gathering most of their clients and revenues from digital platforms – an app, website or electronic service. I’m not talking about the pub on the corner that has a POS terminal. I’m talking about marketplaces such as FX companies, blockchain services, huge airlines and other e-commerce providers.”

The difference between organisations like this and ‘the pub on the corner’ is that their offering takes place in the digital environment, “where there is no cash involved. You can’t physically put cash through your screen, so at some point there needs to be an exchange of data that relates to your payment service. And that’s where we come in. We provide the connection via the API – application programming interface – to allow the two platforms to talk to each other. Which means the providers don’t speak with the client. They speak with us. We translate the information and exchange data with our merchant. That’s the embedded service and through this we can enrich the offering.

“Instead of just taking payments we can offer loans, insurance and so on. Up-sell and cross-sell. In other words with the software that we write we can offer more services at a lower cost with less friction”.

Because the financial services sector is regulated, “you must have a licence, and that is a fundamental for providing these services. But on top of that – the exciting part – is that you need a technology that works well, and we write the software for that. However, what makes us different from traditional software companies is that we also have financial licences allowing us to provide regulated activity. This happens to be consumed through our technology that gets locked into the client’s system and can be used as part of their own offering. The interesting part of our philosophy is that our services are meant to be embedded, in the background, not to be seen. If we are seen, we have done a bad job.”

Embedded finance is part of the new landscape in fintech that has come about due to several factors. “It’s now legal to do this,” says Özerk, “whereas in the past – say 20 years ago – there were big questions over this. Should you do it? Could you do it? If you do it, is it legal? Today there are very clear regulations in the UK, across Europe and most developed countries that regulate the fintech space.” Second is simply the uptake in internet and mobile phone penetration, “which means that the number of services that are consumed digitally have gone through the roof. Today cash is something that very few people use, and when we do use it, it is spent in a limited range and a limited space.

“Also our habits have become more digital, and we have arrived at a place where people expect things just to happen, and this expectation would have been unbelievable a few decades ago. When you pick up your mobile, you expect the internet connection to be there. You don’t log into it. When you turn on your computer now, you don’t ‘boot’ it to get it started”.

The digital landscape Özerk describes is one we take for granted, and yet he maintains that “payments and other digital services are only now starting to catch up”. This has been brought about in part by market demand: “When consumers see a marketplace that is trading 24/7, they expect to be able to pay 24/7, get refunded 24/7 and get their product 24/7. If you have this kind of marketplace, you also need a system that can run it on the payments side. And this has been lacking. When you trade on an exchange, waiting for funds to settle, waiting weeks for a refund… these are not accepted by today’s generation.”

Özerk thinks that, while the time has come for the financial services sector to catch up with what can be achieved in terms of technology, “there are still some legacy problems that we haven’t solved yet, and that’s something the regulators and big banks need to look into. Yet what companies like OpenPayd are doing is looking at the space between what the incumbent system allows us to do and what the end user wants us to do. We can fill in that gap.”

Özerk is cynical about the way so-called challenger banks present their offerings as a solution to legacy issues: “All they are doing is maintaining a 24-hour phone presence so there’s always someone there to help sort out a problem. They haven’t addressed how the big banks settle funds between themselves or what they do. It’s a lot to do with presenting a front-end proposition, which is why they’ve been so successful. Yet it is companies working on embedded finance that are helping challenger banks.”

From the consumer perspective, an issue of at least equal importance is security. “Different generations have different sensitivities around payments,” says Özerk, explaining that Boomers (born 1946-64) will be sceptical about digital financial transactions and wary about scamming and the kind of data being exchanged. “They will either be aware of personal security and do something about it”, or they will be like the Silent Generation (1928-45) and “know nothing about it at all”. Yet when it comes to Gen Z, “which grew up with the internet, had an iPad when they were 10 years old, are on Instagram, TikTok, Snapchat and so on… for them, payments have always been part of their world and they’ve hardly touched cash. They trust the value of cryptocurrencies, digital money, in-game purchases and so on. These people have an incredible trust in the system: borderline naïve, dangerous even.”

Irrespective of these trust profiles, “from our standpoint, as a regulated entity, there are certain standards, expectations and principles related to how to protect the data of an individual, corporate data, transaction data: how you secure a system from penetration or redundancy. All these issues are about how to protect your business from harming others, and this is very serious stuff, and the regulatory bodies are aware of these challenges, and they are governing them very hard.”

And yet, for OpenPayd, “security by itself is not the biggest challenge we face”. Özerk thinks that the cyber-security challenge in the fintech space is “pretty much fixed. Security has been worked on by so many different parties: credit card companies, government bodies and so on. Are all companies successful in this? Far from it.” But by far, the bigger challenge is the pace at which technology moves, raising the question: “How do you build something today that’s going to be relevant three months, six months, a year down the line?”

Over the past four years Özerk has been behind OpenPayd’s expansion that has taken it from an Old Street hub fintech start-up to having an international presence, with offices from Hong Kong to the US. He is also the entrepreneur behind other fintech start-ups including Ozan SuperApp, European Merchant Bank (EMBank) and Eurotrader, all of which operate in the fintech sector.

However, there was little in his early career to suggest that the Norwegian (of Turkish-Cypriot descent) entrepreneur had a future ahead of him that would lead to his recent acceptance onto the Forbes Finance Council. Until he was 30, Özerk was either studying medicine at the University of Oslo or serving in the Norwegian Armed Forces. It wasn’t until 2005 that he showed the first signs of the commercial success that was to follow, when he co-founded Norsk Ideutvikling, an online media company known for its social-networking site Biip.no, which was “an early version social media endeavour similar to Facebook which was successful in Norway, reaching almost the entirety of the young population it targeted”. Biip.no was eventually bought by Egmont and Nettavisen for 100+ million krone (£8.3m) in 2008. Özerk remained with the company until 2010.

After the Biip.no exit, Özerk worked as a medical doctor until 2015, holding positions as an emergency room doctor in the cities of Narvik, Bærum and Moss. These far-flung places – “where there wasn’t much to do” – were in diametric contrast to the crowded metropolitan atmosphere of Oslo. But they gave Özerk time to consider what the next phase of the future might have in store: a phase that was to lead directly to the establishment of OpenPayd.

There are many ways of looking at the road to becoming a successful entrepreneur, says Özerk, and it is a road that has many abandoned vehicles on its verges. You can forget what you see in programmes such as ‘The Apprentice’ and ‘Dragon’s Den’ because they are essentially for entertainment and won’t teach you anything much about how to develop the ecosystem for a successful tech start-up. The most important thing to realise, says Özerk, is “that failure is a part of your path to success. People feel that you should go all in, and if you don’t succeed in whatever it was you thought you were going to succeed in, then you have failed, so give up. You need to accept that you will keep on failing. The plan won’t work out. The time wasn’t right. You will find reasons for not seeing it through, and you will give up. You need to be able to change the plan; you can still have the same goals, but there are different ways of reaching them.”

Another problem is that most potential entrepreneurs have “no idea of how hard you have to work”. There is an idealistic cliché of what being an entrepreneur is, says Özerk, which he calls the “Instagram version – and it’s nonsense. You must work all the time and there’s a lot of suffering, and you need to find pleasure in the suffering. Far too often I see people hype-up talent too much, almost creating the perfect setting to fail. Talent matters, but hard work and perseverance is much more important.”

More “nonsense” for Özerk comes in the form of the assumption that motivating factors for the successful entrepreneur are the external signs of wealth such as clothes, cars and watches. Far more important is the compulsion to contain the fear of losing. So how do you know when you’ve won? “I don’t think you ever feel that you have won. But maybe you get to feel like you haven’t lost. If you set out your business to get your dream car, what will happen when you get the money? Will it be the same car? You can always raise the bar. If you have one dream car, why not have 10? If you get a boat, why not have a yacht? This isn’t a motivational factor for me because you could at some point become content.”

Özerk says that the challenge for him as a fintech entrepreneur is “more abstract. I’ve never met a successful entrepreneur that is doing this for money. I have never found money enough to motivate me to be successful. Fear of failure is far more powerful.”

Originally published at E&T Magazine