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There are not many US-based fintech companies that are global from day one. Nearly every company starts in the domestic market, gets established and after a few years starts looking at overseas markets. That was not the case for today’s podcast guest.
My next guest on the Fintech One-on-One podcast is John Mitchell, the CEO and Co-Founder of Episode Six. John started the company, which is based in Austin, in Hong Kong in 2015 and they are global-first, currently operating in 40 countries around the world. What they do is provide next generation payments infrastructure to large banks and non-finance brands.
In this podcast you will learn:
- The founding story of Episode Six.
- Why they decided to start the company in Hong Kong.
- The financial infrastructure that they provide today.
- How they built their technology to work in any region of the world.
- Why it was so important to build their systems to evolve.
- How their infrastructure is able to interface with legacy banking cores.
- Why, in ten years time, legacy banking cores will still be in production in most places.
- The number of countries where Episode Six is working today.
- How easy it is to embed card issuance today.
- Why applying for a credit card form a large bank is still basically the same as it was 20 years ago.
- Why Episode Six mostly works on new programs when working with traditional banks.
- How they are working with Japan Airlines and why the airline invested in Episode Six.
- What John thinks about the new payments rails that are developing.
- Why he is bullish on programmable money.
- The work they are doing in instant payments.
- What he has learned from other countries that could be implemented in this country.
Read a transcription of our conversation below.
FINTECH ONE-ON-ONE PODCAST NO. 530 – JOHN MITCHELL
John Mitchell: What’s changed since we started? You know, the cloud became a thing, and then API became a thing, and then crypto and distributed ledger. Now AI, there’s always some new idea that is surfacing, but based on what we have right now, the infrastructure needs to be able to support all of these different new ideas. So our system sits at the foundation level, and all of these new types of ideas need data and, in some cases, vast amounts of data to be able to perform, and we provide all of that. So we really have built something that, as times change, as technology changes, our system can change with it and provide longevity for our clients.
This is the Fintech One-on-One Podcast, the show for fintech enthusiasts looking to better understand the leaders shaping fintech and banking today. My name is Peter Renton and since 2013, I’ve been conducting in-depth interviews with fintech founders and banking executives. On the show today, I am delighted to welcome John Mitchell. He is the CEO and Co-Founder of Episode Six. Now, Episode Six is a global fintech infrastructure company for cards and payments. They have built technology that makes it simple to create a new payments program, whatever the use case. Their flexible cards and ledger infrastructure is trusted by more than 50 enterprise customers around the world. Now, let’s get on with the show.
PR: Welcome to the podcast, John.
JM: Thank you, thanks for having me.
PR: My pleasure. So let’s kick it off by giving the listeners a little bit of background about yourself. I know this is not your first rodeo. Why don’t you give us some of the highlights of your career today?
JM: I entered the payment space in 1999 when I started working with some colleagues on a prepaid idea that was one of the early pioneers of prepaid processing and program management. That was a company called NetSpend. By the 2001, 2002 timeframe, it had become one of the largest processors of retail prepaid on the planet, and it stayed that way until 2004, 2005. I was there until 2007, and then some of my colleagues and I worked in another company where we built other types of prepaid processing, but gravitating around multi-wallet and FX in different parts of the world, until 2015 when we decided to build Episode Six. So I’ve been at payments really since 1999.
PR: Okay, so what was the impetus to found Episode Six? What’s the story there?
JM: As we worked in different parts of the world and we saw that customization was critical to allow for our platform to fit within the ecosystems of the places where we were doing business, it became clear that over time, what we were building was becoming like other platforms that over time become calcified or hard-coded. Technology was shifting. The idea of the cloud was really starting to ramp up. The whole idea of exposing systems via API was really taking off as well. So my co-founders and I decided, why don’t we build something from scratch that can be easily configured into local environments, is born in the cloud, uses the latest, greatest in technology, doesn’t have all of the legacy volume and business on the platform, so that we could really build exactly as we wanted to and something that was purpose-built for change. And we decided to do that. And that’s led us to where we’re at today.
PR: So this was going to be a global business from the outset, it sounds like. You weren’t just focusing on the domestic market.
JM: We were not. In fact, we started in Asia. So 2015, we went over to Hong Kong, set up a company in a day. You could do that back then, probably still can. It was really an inviting environment in terms of support for fintech. And so we started in Asia and actually it’s still our strongest region today, even though we’re headquartered in Austin and we have a large percentage of our employee base is in Texas.
PR: Right. Interesting. Interesting. Okay. So, maybe you could describe the core offerings that you have today. You provide a whole bunch of infrastructure, but maybe you could talk about exactly what that is and the types of products that you’re providing to market.
JM: We provide a payments infrastructure that essentially consists of account hosting and transaction processing. Account hosting, in some places you could call that ledger, you could call it side core, there are different words for it. But the fundamental principle is that we host accounts, we manage balances, and then we process transactions from one account to another. And then, through a thin integration layer, we integrate into ISO 8583 for payment rails, ISO 20022 for real-time payment, and then a variety of other integrations so that our customers via API can build products that revolve around prepaid debit, credit, lending, P2P, peer-to-merchant, and a variety of other types of products. So it’s quite flexible. Everything is configurable, and it’s available anywhere in the world. We’ve essentially distributed this across, I think it’s 16 AWS regions now, and we built it so that we can easily fit into onshore requirements. We can easily provide the local coverage that many of our clients want and need and it provides comfort. So really, although we’re global, we’re also local everywhere.
PR: That brings up a good point, right? Because a lot of the local markets have their own unique infrastructure, their own unique card systems in a way. You’ve got the core Visa, MasterCard technology, and American Express technology, obviously, happens all around the world. And it goes through those rails, but there’s very different technology when it comes to operating in, say, China versus operating in Latin America versus operating in Europe, right?
JM: The integration points are different. So you’ve got different local switches. You have differing rules around velocity, KYC, and AML. But they’re all based on the same principles. And that is that you need to control credit and debit and velocity. And you need to make sure that the financial institutions and the regulated parties understand what’s happening on the platform. And you need to make sure that you provide mechanisms so that the users of the platform can know who their customers are. And so I think if you start with those principles, and then you make everything configurable, you have what we have, which allows us to configure into these local environments. And because we’ve become so good at integrations, we are almost in a constant, perpetual state of integrating into some local switch somewhere.
PR: Right, of course.
JM: And it’s just ongoing and we’ve integrated into local switches in Asia, in Europe, the unaffiliated debit networks in the United States, in Japan and the local switch, which, what we’re told, is that no issuer processor from outside of Japan has successfully done. So we’ve become quite good at it and it allows us to provide for that local mile, which as you call out is critical.
PR: So, you started this company 10 years ago, 2015. It doesn’t seem that long ago, from my perspective, but if you look at the payments world, I mean, there have been such dramatic changes that have happened in the last 10 years. And I’m curious about how you kind of, when you started the company, you talked about things moving towards API, things moving towards the cloud. But just the amount of, like there’s the amount of real-time payments that are now happening, which weren’t happening much at all. Although there were some regions, I guess, in the world in 2015. But how have you evolved as the payments technology has evolved?
JM: Our system was built to evolve. So our CTO and Co-Founder has designed a framework that abstracts out all of the challenging code and inserts it into plugins that, through runtime mechanisms, assemble all of this in the behaviors that our clients want. And so what does that mean? That means that the system is built to evolve. And while the payments landscape is evolving and the way people pay is changing, the infrastructure is not. And the need to modernize is still there, and it’s a long way from changing. So what I mean by that is that in 2015, financial institutions and their infrastructure needed to be changed. In 2018, it needed to be changed. In 2022, it needed to be changed. In 2025, financial institutions need to upgrade and modernize. And most of the technology that is processing most of the payments on the planet is decades old. What’s changed since we started, you know, the cloud became a thing, and then API became a thing, and then crypto and distributed ledger, now AI. There’s always some new idea that is surfacing, but based on what we have right now, the infrastructure needs to be able to support all of these different new ideas. And so our system sits at the foundation level, and all these new types of ideas need data and, in some cases, vast amounts of data to be able to perform. And we provide all of that. And so we really have built something that as times change, technology changes, our system can change with it and provide longevity for our clients.
PR: Right. It’s interesting you say that, you know, it is true that the vast majority of payments transactions still happen on decades-old technology, probably with COBOL code at the core of it. You must integrate with the existing cores. You’re not a core replacement, right? I presume you’re integrating with this old technology.
JM: That’s right. When we started, this whole idea of rip and replacing the core, especially around the fintech world, seemed to be a great idea. And from what we see from our vantage point, it’s not a great idea. It’ll take a long time and more money than most institutions are prepared to spend. What we see now is that the idea of containing the core so that it can handle fundamental aspects of holding money, and we allow for many of the processes around that to remain the same so that there’s not huge training sessions and different ways of performing daily tasks that need to be implemented. But providing a mechanism that sits next to that, that virtualizes everything so that our clients’ clients, we’re a B2B provider, can offer up via API, all of the digital products and services that all of these other competing companies add. And so it’s sort of the best of both worlds. It enables the continuation, in a reduced fashion, of existing infrastructure but then opens everything up to the digital world. That’s what we’re seeing more and more of, and we’ve had a lot of interest around that concept. And then when you apply our progressive modernization discussions to that, it seems to be a winning strategy.
PR: So do you think, say we’re chatting in 10 years time, do you think we’ll still have the same legacy core infrastructure that we have today, that it will still be in place and we will not have moved to sort of a next generation of core technology?
JM: I think in 10 years time, much of the planet will be close to where they’re at right now with metalware or some sort of wrappers around some of this. We saw in Europe that many financial institutions translated ISO 20022 into whatever they were using rather than changing their infrastructure to adapt to ISO 20022, which limits the use cases around that. I think 10 years ago, everything was moving to distributed ledger. How much of the financial transactions that we see today are on traditional, on a distributed ledger 10 years later. I don’t know, to answer the question, but this is not all changing in 10 years.
PR: Yes, it’s a small percentage, very small. So then, who is the core customer for you guys? Are you working with banks and fintechs? Obviously, you’re working around the world. Are you working with the enterprise-type end of the market?
JM: We are mostly enterprise. We work with some of the world’s largest banks. We work with also tier three and tier four banks. We work in transit ,and we work in fleet, and we work with some financial technology companies. We’ve got about 200 employees. So that’s sort of the extent of what we can actually apply ourselves to at this point. But that’s what we see now.
PR: How many countries are you operating in?
JM: 40ish?
PR: Wow.
JM: Well, that’s a testament to our technology because it’s highly leverageable because it’s this singular code base that, again, is distributed across this sort of mesh around the planet. So, we need fewer people to operate. It’s much more efficient. And our clients need fewer people to operate the platform as well. Much more efficient. The operating leverage is huge.
PR: Right, okay. Let’s just talk about card issuance for a minute. It used be controlled by just a relatively small number of very large banks. You can now embed that sort of offering. So that’s one of your offerings, right? How easy is it today to embed something like that into an existing product offering?
JM: I think it’s very easy. It’s a lot easier than it was even 10 years ago. So there are multiple solutions for somebody who wants to embed. And some of it is complete end-to-end, easy to attach to, and easy to use. I think for many of the companies that we see who are getting into embedded finance, the challenge is not necessarily around the technology. The challenge might be having the financial strength to get approved by the financial institutions that need to support this. Or if we’re talking about a financial institution that’s running these programs, oftentimes the biggest challenge is to just change the way of thinking because most of the folks on the other side of the table are likely used to the way things used to work in processing. And with Episode Six and in some ways, a couple of other companies, that way of thinking, it’s just legacy and it’s not necessary and there are easier, better ways to do things. But from what we see, I think just being able to connect to an API and create a card program is not nearly as challenging as it was even 10 years ago.
PR: I’m just curious: you’re working with some of the larger banks, but when I go and apply for a new credit card today from the large banks, the process is pretty much the same as it was 20 years ago. You get sent a physical card in the mail. You might have a slightly faster underwriting time. Occasionally, it’ll even happen instantly, but most of time, it, you know, it takes a few days and then, and it just feels like there’s been very little change in a very important part of the market. I would have thought that everyone would have a virtual card by now. You could use it right away, put it into your digital wallet automatically, or very, very simply. But that doesn’t seem to have happened. There are some fintechs that really tout this latest technology. But when you look at the banks themselves, they’re still using, as far as the customer experience goes, the same, it feels like the same processes as it was 20 years ago.
PR: It really does. And it probably is. I mean, there might be some peripheral changes. There is so much infrastructure that is calcified. It’s hard-coded. It’s piecemeal. It’s just, it’s a massive challenge for some of these larger organizations, these larger banks that have 40 years’ worth of stuff, which they probably don’t even know everything that they have, to change it. And then, when you get through the idea that we need to change, how do I change? Do I use existing assets? How do I put this together? These are all questions that are part of the challenge. I think if you look at some of the fintechs or some of the newer issuers, you see much more streamlined eKYC, push provisioning, and all the things that you’re talking about. But it is startling to see the number of institutions that are still pushing out, say, debit cards and the way they were when I first got my first debit card.
PR: Right. Could Episode Six go into a large bank and just rip that out and put new technology in? Would that be a project that would be possible by someone like you?
JM: Probably the more feasible route would be for the bank to start new programs on Episode Six and then, over time, migrate over. The programs that can be built on Episode Six are going to be far more robust, and they’re going to provide a lot more optionality for product teams and for marketing folks. And so there’s just a lot more that can be done. And what we would see is that we would see the financial institutions will start to get more creative. Given the compliance and the rigor around regulation, it would have these banks approach the market from a position of creative and innovation strengths that we don’t really see today. But ripping everything out, it depends on the size of the bank. Ripping everything out is not a good option.
PR: Right, right. But creating a new product. So you could go into a large bank with a new product and have that be completely created by Episode Six.
JM: Yeah, 100 %, or if there’s a product that needs to be overhauled, migrating that over to Episode Six. I think we’ve done four or five migrations just in the last few weeks. And so we’re getting really good at that as well. And so moving portfolios over is part of the service that we provide. I don’t think many of the modern providers are in the game around migration, at least to the same extent that we are. And so that opens up some possibilities too, for some of these larger financial institutions.
PR: Right.
JM: And everything that we see in these larger financial institutions exists in insurance, it exists in transit. There’s just a world of opportunity out there for modernizing issuer processing or modernizing ledger for virtual accounts, sub-ledgering and other things that we provide for.
PR: So speaking of transit, I noticed in the news just a week or two ago, that you received an investment from Japan Airlines, which, you know, fintech companies often get funding from different types of sources. I can’t remember another time an airline has invested in a fintech company. So, can you talk about why they invested and what you’re doing with them?
JM: We started with Japan Airlines in 2018. So they’ve been a client for a long time. During that time, we’ve shown the power of our platform by enabling a transition from a traditional type of payment product, a card, into what is now called JAL Pay. And so JAL Pay is a QR code-based payments system. It allows for variants around a conversion of miles and points, depending upon user, depending upon usage, and overall behaviors. And it’s being offered to their entire frequent flyer base, which I think is 28 or 30 million people. They’re rolling it out across that base. And so over time, we’ve become very good partners. And over time, these types of systems rely more and more on Episode Six. And so the idea of investing into a long-term strategic partner was interesting to them, and it was interesting to us. And so this wasn’t just a strategic investment into a fintech. This was a re-upping of a relationship that started, you know, six or seven years ago. And so, as their programs grow around finance, the requirements on Episode Six grow. And it’s just really been a win-win, and it’s really been a showcase, I think, to…how these strategic partners and fintechs can really work together for the long run. You know, oftentimes there’s issues around scalability. When you talk about smaller companies, there might be issues around resilience. But our system was built from scratch to scale and be resilient. And it’s really afforded us the ability to work with these large clients. We’re working with another megabank in Japan. Can’t say who it is just yet, but it’s one the largest banks in the world.
PR: Okay. And so do you work with many non-financial brands like Japan Airlines? Is that sort of part of your strategy?
JM: We do. I think our pipeline today is probably 40% financial institutions. And the rest can range from brands to, I mentioned that we’re in transit and fleet and just travel in general.
PR: But providing the payments infrastructure for the most part, or the financial infrastructure.
JM: Yeah, that’s what we’re doing. We’re providing the infrastructure for at least a segment of their payment strategy.
PR: Okay, so we touched on this briefly, but I want to dive into alternative payment rails. We’ve maybe thought like six, seven years ago that we were all going to be using blockchain-based rails by now, and there is some volume flowing over those rails, particularly when you look at stablecoins. They’re in countries where the currency is often not very stable. That’s a major form of payment. I presume you’re agnostic on payments rails, right? I mean, what are your thoughts on some of these newer types of things that are emerging?
JM: The integration points for some of these newer technologies into sort of mainstream finance are a challenge. And we’ve always looked at it as if we’re sort of a bridge between the old and the new. And so that’s one way to look at it. Our system, and we talk about this in our patents, is asset class agnostic, meaning that a content of an account or a wallet or a database entry, whatever you want to call it, is called a value unit. And so we’re processing Fiat. We’re processing some digital points, loyalty, coupons, and rewards, and we treat them all the same. So you can integrate all that into your MasterCard transaction, for example, or your P2P transaction. And then we allow for controls around that. Programmable money is a big idea. We’ll have an announcement, hopefully in April, when I’m in Hong Kong about a massive programmable money account deal that we’re in the middle of a conversion right now from a legacy provider. So, you know, I think that things are changing. I think there is a place for DLT. I’m not sure if the transaction speeds. My crypto friends will disagree. And I think with some of the changes in the administration around crypto, we might see more adoption more quickly. But yeah, things are changing. What is AI going to do to all this? We’ll find out. There’s a lot of different viewpoints around that. But I think some of the interesting viewpoints are akin to developers in Silicon Valley who recreate, using AI, these massive code bases that we see these giant financial technology companies sitting on. And how disruptive will that be? There’s a lot of change in front of us. I don’t know if anybody can predict it.
PR: No, I don’t think they can. It’s going to come at us fast. That’s one thing that we can be pretty certain of.
JM: Life comes at you fast.
PR: Yeah. So, you mentioned programmable money. Are you bullish on that as a technology?
JM: I mean, with our system, anything could be, if you program just sort of controls and configuration around different aspects of the account, the payment instrument, the flows in and out. And am I bullish on it? Yeah, I think it’s been limited because most of the processing technology doesn’t have the configurability around that. And that’s why you see so many of these other fintechs create these middlewares that do all of this. But that creates the need to have a seam, and wherever there’s a seam, there’s something that can break, breakage around connections of components is bad, obviously, for many reasons. But as soon as money cannot be reconciled and settled to the penny, there’s a problem. And so we’ve sort of solved for a lot of that. I think programmable money in Asia-Pac is massive. I think spending controls in the US can be enhanced significantly. I think it’s the exact same thing, these are just different phrases.
PR: Right, right. Gotcha. Okay. So, what about instant payments? Because you mentioned in Europe, some of them have just kind of bolted it onto their existing technology. We’re trying to move to instant payments very slowly in this country. But there are other countries around the world where instant payments, Brazil, for example, has a massive amount now of payments flowing through their infrastructure that’s instant. I imagine that you’re looking at this really closely. You’ve probably done some implementations, right? How much harder is it for, particularly for banks, to really bring this in to take advantage of the speed of commerce that can come with the rollout of instant payments?
JM: You mentioned Pix in Brazil. That’s a great example. UPI is another great example. And in some ways, they may have leapfrogged certain infrastructure that we, for example, in the United States have in place. I think that there are risks associated with instant payments, as people are discovering. But as technology changes and allows for these real-time payments, technology is also improving dramatically in terms of the ability to monitor for fraud and have risk controls in place. And you just have this cat-and-mouse game that’s always existed. It’s just accelerated now and uses more technology. So I think around the risk and the fraud, there’s just a lot of oversight that needs to be had. But the actual processing of instant payments, it’s more of the rails than anything else. And we integrate into these different rails. In Hong Kong, we’re integrated into their faster payment system, for example. You know, we’re processing a high volume of instant payments every day between consumer to consumer, consumer to commercial, from any bank in Hong Kong through the HSBC Pay Me program. It’s coming, I mean, in commercial demand real-time payments. And there’s really no reason not to have it in this day and age except for the ability to sort of clear out legacy processes and tech and install something that’s a little more modern.
JM: Okay, so last question. You’ve got a really interesting perspective here because you operate around the world. I used to go to China quite a bit and I used to sometimes think that I was traveling to the future when I’d go to China because things just happened at a much faster pace than it does in other parts of the world. So when you look across the world at some of the more you talked about the work you’re doing in Japan, and how do you think the nature of payments are going to change? I’d be more interested in this country, given everything that’s happening around the world; what are some of the best things that you’re seeing that you think will be implemented in this country and make a real difference in the payment space, say in the next five to 10 years?
JM: You know, we talked about what’s going to really change in 10 years, and is it even feasible for all of these thousands of institutions to dig out their tech and replace it? Probably not. But what is happening, and I think that it’s accelerating, is the usage of on-demand everything and real-time everything. And these two concepts apply to payments, like they apply to other lifestyle items. That’s just going to have to be something that is offered. Otherwise, consumers will go somewhere else. Commercial will go somewhere else to get on-demand and in real-time. And I don’t think we’re too far away from offering that anyway. So, much of the existing technology can support it. You just have to have some changes around, some foundational changes that are doable if, for example, we’re talking a lot about banks, but a financial institution approaches this in a way that is a little more streamlined, a little more sort of thoughtful and less sort of old processes interfering with how they need to put something together. So that’s what I see. I see the same problem statement everywhere in the world. There are different adaptations to solutions around some of these problem statements, but they all revolve around the exact same thing, which is why our system is ubiquitous. We allow our clients to modernize and to offer products and services that their customers demand. And that’s something that isn’t changing, in the near future anyway.
PR: Yeah, yeah, for sure. Well, John, it’s been fascinating chatting with you today. Thanks so much for coming on the show. I appreciate you sharing your thoughts with us.
JM: I appreciate you having me.
PR: I think John hit the nail on the head with that last point. There is no doubt we are moving to on-demand everything and instant everything, even in financial services. And the technology that was created decades ago is just not going to cut it. But for a large bank to rip out its core banking technology and start from scratch is an impossibility. So, new programs can and should be created with the newest technology, like what Episode Six can provide.
Anyway, that’s it for today’s show. If you enjoy these episodes, please go ahead and subscribe, tell a friend or leave a review. And thanks so much for listening.