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How can embedded finance help protect client money in proptech?

In this episode of 11:FS Fintech Insider spotlight, we join Lettspay to discuss regulatory enforcement in the proptech sector and banking partnerships

Portrait of Nkechinyere Ogueri-Onyeukwu
Nkechinyere Ogueri-OnyeukwuTuesday 7 November 2023

As the UK's proptech industry evolves to meet regulatory requirements, our CCO, Adam Moulson sat down with David Barton-Grimley (Embedded Finance Director, 11:FS) and Garrett Foxon (CEO & Founder, LettsPay) to discuss how proptech companies can leverage their banking partners to stay compliant.

Garrett explained what’s changing for his company, Lettspay‍—‌a client accounting solution for the property sector. The company had a regulatory stumbling block because they were holding client funds with an electronic money institution (EMI). EMIs aren’t licensed to hold client money and the new rules emphasise that proptech companies must hold this money directly with a bank.

Introduced through a mutual contact, Garret and Adam recognised that increased regulatory emphasis on this requirement was about to become a widespread problem in the UK proptech market. LettsPay needed a bank that could not just offer them client money accounts, but the right technology and embedded finance capabilities to support their product. This realisation laid the foundation for the Griffin and Lettspay partnership‍—‌and a wider banking solution to the proptech industry’s pain points.

Lettspay bridges the gap between two previously disparate layers within client accounting for property companies: the accounting itself and the banking layer that facilitates the transfer of funds. Recognising the operational inefficiencies, LettsPay developed an automation solution.

Traditionally, letting agencies collect rent on behalf of landlords. This money is deposited into a pooled account and is then disbursed. To make sure daily transactions in the pooled account are in sync with their accounts, the letting agents typically need to download CSV files from their bank, upload these to their accounting software, and then manually reconcile payments‍—‌a tedious process that needs to be repeated every day.

According to Garrett, this manual reconciliation is not just time-consuming but also costly, as letting agencies have to hire dedicated admin teams to handle these tasks. There is also high potential for error, which can negatively impact both landlords and tenants.

LettsPay’s existing integration with an EMI allowed it to provide real-time notifications to letting agents. They would receive immediate alerts when a tenant pays, facilitating instant fund transfers to landlords. This integration not only streamlined operations but also vastly reduced the chances of errors.

However, recent regulations now state that funds collected on behalf of landlords cannot be held in pooled accounts and must be managed directly with a bank. So LettsPay needed to integrate with a banking partner who could provide their customers with separate client money accounts for each landlord, which could be opened programmatically via modern APIs. This was the only option for LettsPay if they wanted to continue to provide a truly automated solution.

Garrett sees the consolidation of complex regulations as the core benefit offered by LettsPay (and the proptech sector more broadly), allowing agents to focus on their primary role of managing landlord-tenant relationships. If technology can efficiently and accurately handle the bulk of the regulatory and procedural work, these clients can benefit greatly from streamlined journeys, reduced wait times, faster communication, and integrated data (which in turn enables other services, like credit scoring offering directly to tenants).

Adam also paints a promising picture for the future of proptech. Renter numbers are rising, making the role of proptech even more critical. Adam also pointed out the huge potential of adjacent value pools, such as utility companies and credit services. He emphasises that while Griffin might not necessarily develop the embedded finance products here, the movement of funds between these services will rely on platforms like Griffin.

Collaborations between proptech and fintech have the potential to transform the future of real estate. As we move forward, partnerships like the one between Griffin and LettsPay hold the promise of driving meaningful change in the property sector for years to come.

Watch the full interview here: