Banks Beware? Amazon, Walmart, IKEA Experiment with Their Own 'Embedded Finance' Services

'Anyone can be a banker these days,' argues Reuters. All it takes it the right software:
Global brands from Mercedes and Amazon to IKEA and Walmart are cutting out the traditional financial middleman and plugging in software from tech startups to offer customers everything from banking and credit to insurance.

For established financial institutions, the warning signs are flashing.

So-called embedded finance — a fancy term for companies integrating software to offer financial services — means Amazon can let customers 'buy now pay later' when they check out and Mercedes drivers can get their cars to pay for their fuel. To be sure, banks are still behind most of the transactions but investors and analysts say the risk for traditional lenders is that they will get pushed further away from the front end of the finance chain. And that means they'll be further away from the mountains of data others are hoovering up about the preferences and behaviours of their customers — data that could be crucial in giving them an edge over banks in financial services...

Accenture estimated in 2019 that new entrants to the payments market had amassed 8% of revenues globally — and that share has risen over the past year as the pandemic boosted digital payments and hit traditional payments, Alan McIntyre, senior banking industry director at Accenture, said. Now the focus is turning to lending, as well as complete off-the-shelf digital lenders with a variety of products businesses can pick and choose to embed in their processes... So far this year, investors have poured $4.25 billion into embedded finance startups, almost three times the amount in 2020, data provided to Reuters by PitchBook shows...

'Big banks and insurers will lose out if they don't act quickly and work out where to play in this market,' said Simon Torrance, founder of Embedded Finance & Super App Strategies.

Several other retailers have announced plans this year to expand in financial services. Walmart launched a fintech startup with investment firm Ribbit Capital in January to develop financial products for its employees and customers while IKEA took a minority stake in BNPL firm Jifiti last month. Automakers such as Volkswagen's Audi and Tata's Jaguar Land Rover have experimented with embedding payment technology in their vehicles to take the hassle out of paying, besides Daimler's Mercedes.

Some traditional banks are now working with the big tech companies, the article notes, with JPMorgan even buying 75% of Volkswagen's payments business.
And it also points out the other thing that could protect their business from encroaching new startups: the possibility of new rules from financial regulators.

Read more of this story at Slashdot.