- Speaker #0
Hi there and welcome to Toqio's Embedded in the Market, the show that talks about embedded finance and exactly what's happening in the market today. So I'm Frank Robledano, your host as usual, and today we're speaking with Manuel López Antón. Manuel López Antón comes from Madrid Capital Partners. Why don't you tell us, Manuel, a little bit about... who you are, what you do, what your role is at Madrid Capital Partners, etc.
- Speaker #1
Sure. Thank you, Frank. So as Frank introduced, I'm Manuel. I founded Madrid Capital Partners back in September 2023. Today, my role is I'm the chairman of the company. I'm not in the executive board of the company anymore. I handed over to the team that is today running the business, but I'm still the founder of the company. I'm still involved in the strategy and in the business as it was created back in last year. Madrid Capital Partners is a company that tries to help organizations in their embedded finance projects where we believe strategy, product design, and obviously the structuring, the financial structuring of those products is essential to succeed. So we believe that on top of technology and on top of the processes and the implementation of the project itself, this previous step of the strategic... And this custom and the product design link to the business goals of this project are key. And that's why we do, again, combined with the financial structuring of all these products that in the end then will be implemented and will be deployed in a technological stack.
- Speaker #0
So just to be clear, I looked at your website. The Madrid Capital Partners website says you offer a simple and comprehensive solution for the implementation, management and financing of embedded finance. So I understand how that works. But how would you say a project starts at MCP? What I mean is, do clients come to you with a use case that they want to evolve or develop? Or does it start with a specific problem that they would like to address? And then perhaps you offer them the proper use cases that would be appropriate to them. How does that actually work?
- Speaker #1
We always try to adapt to the customer. There are very sophisticated customers that know exactly what they want to do and why they want to do that. But there are many other customers that just know, they realize they have a problem, they have a strategic issue. And then they need to understand what embedded finance offers to tackle those problems and to build solutions on that. We always say what we typically do is we listen to the customer. We understand first what the business of the customer looks like and what the business needs are. And then based on that, we do strategic consultancy for embedded finance specifically. And that's how we typically start.
- Speaker #0
With regard to the market, you mentioned that some customers come in and they're very clear on what they'd like to do. How does that process actually evolve? Can you give me some examples of maybe something that you folks have worked on?
- Speaker #1
Absolutely. So embedded finance today, in my opinion, is something like it's a hyper trend. I'm very sure that in five years'time, everybody will be talking about embedded finance, and many companies will be deploying embedded finance projects. Today it's still something really very disruptive and very known for the vast majority of the corporates and for the vast majority of the clients we find. My opinion on the market today is we're in the phase where there are some, there was a few people that really understand the power and the potential of these initiatives and many others. They know there's something in there. But they want to see or they need to see something more tangible to start to realize the applications and the real potential of these initiatives. This is something probably like generative artificial intelligence or like machine learning or many other technologies that are disruptive today. So many CEOs and many board of directors, they know they need to be in there because these megatrends, obviously, they exist because they offer really solutions and competitive advantages. But the complexity that they imply makes it quite difficult to really understand. What exactly, how exactly can those megatrends be translated into one specific business or in one specific business need? That's where we are today. We need to still run initiatives in as, you know, as MVPs, as pilots. We need to show with very complete examples and for very specific issues and problems that embedded finance can deliver competitive advantages that can deliver value. And then it will become more and more popular, more and more demanded, and probably more and more widespread.
- Speaker #0
One thing that I find interesting is that we're talking about exploiting, in the best sense of the word, the competitive advantages of embedded finance. What are they? I don't need a laundry list. Just off the top of your head, what would you say some of the most compelling advantages are for creating a corporate embedded finance system?
- Speaker #1
Every company in the world possesses and controls lots of information about their ecosystem, no matter what it is. So embedded finance can leverage on that to offer financial products and services to that ecosystem based on this information first and based on that knowledge. The competitive advantage relates to that. In the end, it's about exploiting. capacities, data and information in a way that can be transformed in financial products and services which will complement what the financial institutions traditionally do. And we'll offer more custom design products and services, financial products and services for that specific ecosystem. And that makes it a fantastic competitive advantage in my opinion, because corporates can deliver perfect financial products and services to the perfect, well, there's a perfect fit, a perfect match between those financial services and products and that specific ecosystem, that specific group of companies or customers or whatever it is.
- Speaker #0
Some people listening may not know. Just to be clear, who is a part of that ecosystem? When we're talking about embedded finance, we're talking normally about corporates, large companies, large corporations, offering some kind of embedded finance solution to who specifically within that ecosystem?
- Speaker #1
It doesn't necessarily need to be a large corporation. It can be any kind of company. It needs to be a company that plays a role in an ecosystem. For instance, we're talking to people that run a franchise business and they own a group of franchisees, 20, 30 franchisees. Those businesses, they need financial products and services that sometimes cannot be delivered by peripheral financial institutions due to the lack of knowledge of that particular ecosystem. And then the master franchise... can play that role and can offer those products and services to their ecosystem for very specific needs. And that is a real example we're analyzing today. There are also large corporations that can offer this in a much larger scale and that can obviously do that in an international fashion. And there is distributors that have an ecosystem that run B2B to see businesses. And in those ecosystems, it's also very typical that there is funding needs and there is... specific financial services needs that can be offered by the corporate ecosystem. But it can be any business, in my opinion. It is typically more demanded by B2B2C businesses.
- Speaker #0
In terms of corporate embedded finance adoption, how far along would you say we are? You said that maybe in about... five years, this will be a more commonplace concern. How mature is the market in terms of adoption?
- Speaker #1
I think now we're in the very early stages of this market. So we are talking to the early adopters, we're talking to the very disruptive people. As I said before, I think there's people that understand really well, first, obviously, which are their needs, but also which is the potential of these initiatives and what can be exactly delivered via an embedded finance project. And these are the people we're talking to now. Even though, you know, being the first ones, being the early adopters, being the disruptive group of people, they try to run very small initiatives, control projects. They tend to run limited MVPs. And once they prove the case of views, once they prove a value, then they will ramp up and they will start to move forward in a faster way. But that's the group of people that we're talking to today. Now. I think there's a second group of followers that are just waiting to see how these first projects perform, how these disruptive people do, and then we'll jump into this arena. But honestly, I think today the uncertainty and the risk is perceived as bigger as the opportunity and the payback of such initiatives. But I'm really sure that once there's one or two large initiatives running and once there's a big one, it's People really start to see that this is a reality and this is something that can be quite fast implemented and deployed and the demand will grow immensely. So we're in the very early stages to answer your question more precisely. I think we will still need probably the next year, 2024 will be a... An early adoption year, and probably next year we'll be seeing more moves and more people wanting to face an initiative and wanting to explore this space. As I said before, I really believe it's a huge opportunity. And I also think that the first movers will be the ones that will take the biggest part of the pie. I don't think there's, you know, the real disruption is the one that will drive success and competitive advantage. Then the followers will come afterwards, they will be defensively moving towards embedded finals, but I think the competitive advantage of the first movers will be really large.
- Speaker #0
Yeah, I agree. And that's something that I wanted to ask about. You know about this more than I do. At the moment, for the early adopters, embedded finance, setting up an embedded finance project for a specific business ecosystem is absolutely a competitive advantage. But in future, when decentralization of finance in the corporate sphere is pretty much inevitable, what will be the competitive advantages then? Will there be an advantage to doing an embedded finance project or is it simply going to be, this is the way that business is now done, you need to get on board?
- Speaker #1
Well, I think like many other innovations, there will be a point where obviously this is really about... attracting customers, retaining customers, and making customers happier and becoming fans. So I think there will be a first wave where competitors will see that the first mover is going forward in a faster path and they will be defensively moving into that space. But there will be a second wave where this will be probably just a matter of efficiency and best practices. Well, this enables to be more efficient in banking transactions, in financial costs. financial expenses. So once this is widespread and once this is something that is common, it will be a must. Companies won't be running on hybrid models among embedded finance and traditional financing structures. They will be less efficient in terms of costs and therefore it will be less competitive. So I think... You know, like I said before, in many innovations, we will see the same life cycle. We will see the first moment of disruptive innovation and competitive, let's say, turmoil in the market. Then it will be commoditized and it will be more about, you know, efficiency costs and bottom line competitivity.
- Speaker #0
Yeah, yeah, exactly. And we've seen the same sort of thing happen in a variety of industries with regard to innovation and technology on several occasions. Fintech, for example, which we're, Toqio is really close to fintech. Someone comes out with a great idea and you have a bunch of companies that jump on the bandwagon and try to carry out the same idea. And then after a while, the market decides who's doing best. And then they tend to hang around. They tend to be the ones that are picked up. You know, a lot would happen with Salesforce, for example. Salesforce came in with a great product, a lot of copycats, but they plowed through and became the dominant market leader in their space. The same kind of thing in terms of technology. So yeah, fair point. I get that. I'm just all about the explanations and metaphors for some of our listeners who may not exactly know exactly where we're going with it, but that makes total sense. So speaking of where it's headed, and you talked a little bit about where corporate embedded finance is headed. Why don't we talk about the actual players? So in embedded finance, you can have BAS providers, you can have the corporates who may sponsor the actual corporate finance project. You have perhaps SMEs who are part of that merchant network or franchise chain places that are part of that network. You've got platforms like Toqio, you've got consulting firms and specialist firms like Madrid Capital Partners. You've got the incumbents who are part of the traditional finance system. What do you think their role will be in embedded finance in the future?
- Speaker #1
Well, to be very honest, I don't think it will change much because in the end, Embedded finance is something that always existed, it was always there. The thing now is that technology and regulation allow to make this happen faster, cheaper. You know, it's all about the speed of implementation, the costs of the platforms, and then the go-to-market and the, let's say, the user experience of things. So now I think, again, technology and regulation make this... Way easier, faster, tangible, more straightforward for everyone. But we've always embedded finance models in many ways. So I don't really think the roles of the banks, of the technological companies, the consultants or the financial providers will change much. The thing is, there will be a reshape. There will be probably new players coming in. Like fintech companies or like platforms like Toqio, like ourselves, which are specialized in this specific need. But I think this is just about making the market bigger. This is creating new ways of solving problems that were not feasible before due to the costs or due to the regulation constraints. But I think that there will always be companies demanding financing and financial products and services. Those companies will be first by traditional financial institutions as they have been doing in the last years. But now there are specific problems that were not tackled, that were not solved by those financial institutions before, you know, that we can solve today. And that creates a new space for all of us. So I think this ecosystem is just growing with new players, with additional players that we... We'll probably keep their space very much alike and now it's all about coexisting in this ecosystem and probably there will be a period of transition where all these players will need to reshape a little bit their interactions and their positioning. But in the end, I think this is about making a broader and bigger financial market where all of this people have enough space. And I think obviously, as I mentioned before, there's many, many financial products and services and solutions, specifically for middle-sized companies that are being created new. And this is This is just good news. This is good news for everyone because we make financial products and services more affordable and more accessible to any kind of companies. And I really believe that this is positive for all the players in the ecosystem and will be in the future.
- Speaker #0
That's been a running theme with many of the guests that have been on the show. that have talked about market decentralization and making sure that there are more players in the system, market inclusivity to make sure that small businesses who are unbanked and have thus far been traditionally underserved are receiving the attention that they deserve. We've talked about the intersection. I mean, this is very philosophical, but we've talked about the intersection of benefit and ethics of embedded finance and capitalism. what's good for people and what's good for business don't necessarily often intersect. But in this case, they actually do. In this case, this is one of those places where, you know, SMEs, especially medium-sized businesses, as you well said, can get the help that they need to grow and to be part of a broader economic ecosystem. That sounds like a good thing. Finally, Manuel, just last question, which I think will be interesting. And based on your experience, obviously, you have a lot of experience in the field. What gets you excited about embedded finance? Can you give me perhaps some examples of use cases that you've encountered in the market that make you think, yeah, this is absolutely amazing. Embedded finance is exactly where we need to be.
- Speaker #1
Well, I've been, as you know, I've been working in financial roles for all my career. So this is like 20 something years now. And in the last years, I've seen the possibilities of technology combined with finance. Well, this enables massive solutions and really imaginative and disruptive things to be done in businesses. In my last role as CFO, I had the possibility to design and set up one of these initiatives where the potential to attract and to retain and motivate our ecosystem was really amazing. So we set up a project with a platform, with the Tokio platform, we set up MVPs and specific financial products with our ecosystem. First of all, the speed of deployment that these technologies enable. Secondly, the the very bold product design given the information and the knowledge we have in our market and third the enthusiasm of the users in the end that were using the solutions and that were really interacting with us made me understand the huge potential of this embedded frame as a concept in general. So I'm very enthusiastic. I really do believe, as I said before, that there's a huge, massive transformation in how companies interact with their customers and with their ecosystem in terms of the financial products, services and products, on top of the traditional businesses that they run. And I really believe that, again, like any other innovation and like any other new product lifecycle, this is something that is complete. It's a three-way concept. between finance, technology, strategy, and that makes it quite complex. But again, this is a huge opportunity for businesses to transform themselves and it's a huge opportunity for the financial market to grow and expand to new categories that were probably not even imagined a couple of years ago.
- Speaker #0
Just to comment to our listeners, when I asked the question, I had no idea that Manuel was going to give us a plug, but thanks for that Manuel. That's very nice of you. I'm glad to hear that you had a positive experience working with Toqio. A simple statement of fact that things work well here. So thank you for that.
- Speaker #1
Very smart.
- Speaker #0
That's all I have to ask about Manuel. I'm really glad to have had you on today. That was actually very enlightening. Thank you very much for joining me today. I appreciate you jumping on the call.
- Speaker #1
It's my pleasure. Thank you very much, Frank. Have a good evening. Bye bye.
- Speaker #0
Thanks, Manuel.
