London.- Today anyone can be a banker, you just need the right program.
Big global brands, from Mercedes and Amazon to IKEA and Walmart, are eliminating the traditional financial intermediary and incorporating software from technology companies to offer customers all kinds of services, from banking and credit to insurance.
For traditional financial institutions, the warning signs are intermittent.
So-called integrated finance – a fancy term for companies that incorporate software to offer financial services – means that Amazon can allow customers to “buy now, pay later” and that Mercedes drivers can make their cars pay for gas. .
Banks are undoubtedly still behind most of the transactions, but investors and analysts say the risk for traditional lenders is that they move further away from the public part of the financing chain.
And that means they’ll be further removed from the mountains of data that others are hoarding about their customers’ preferences and behaviors – data that could be crucial in giving them an edge over banks in financial services.
”Integrated financial services take the concept of cross-selling to new heights. It is built on programs that are grounded in the relationship between the consumer and the business, ”said Matt Harris, partner at Bain Capital Ventures investor.
“That is why this revolution is so important,” he said. “It means that all the lower risk is going to go to these integrated companies that know so much about their customers and what is left over will go to the banks and insurers.”
WHERE DO YOU WANT TO PLAY?
For now, many areas of integrated finance are just making a dent in the dominance of banks, and while some upstarts are licensed to offer regulated services, such as loans, they lack the scale and large funding pools of major banks.
But if fintech companies, or fintechs, can match their success in snatching a slice of digital payments from banks – and raising their valuations in the process – lenders may have to respond, analysts say.
Stripe, for example, the payment platform behind many sites, with clients like Amazon and Alphabet Google, was valued at $ 95 billion in March.
Accenture estimated in 2019 that new entrants to the payments market had amassed 8% of global revenue, and that share has risen in the past year as the pandemic boosted digital payments and hit traditional forms, said Alan McIntyre. , Senior Director of Banking Industry at Accenture.
Now the focus is on credit, as well as fully digital lenders with a variety of products that companies can choose from and integrate into their processes.
“The vast majority of consumer-centric companies will be able to launch financial products that will allow them to significantly improve their customer experience,” said Luca Bocchio, partner at venture capital firm Accel. “So we are excited about this area.”
Investors have poured $ 4.25 billion into integrated finance startups so far this year, nearly triple the number in 2020, according to data provided to Reuters by PitchBook.
At the helm is the Swedish “buy now, pay later (BNPL)” firm Klarna, which raised $ 1.9 billion.
DriveWealth, which sells technology that allows companies to offer fractional shares, attracted $ 459 million, while investors put $ 229 million in Solarisbank, a licensed German digital bank that offers banking services software.
Affirm shares, meanwhile, rose in August when it partnered with Amazon to offer BNPL products, while its US rival Square said last month that it was buying Australia’s Afterpay company for $ 29 billion.
Square is now worth $ 113 billion, more than the $ 105 billion of Europe’s most valuable bank, HSBC. “Big banks and insurers will lose out if they don’t act quickly and figure out where to play in this market,” said Simon Torrance, founder of Embedded Finance & Super App Strategies.
YOU NEED A LOAN!
Other retailers have announced plans to expand into financial services this year.
In January, Walmart launched a fintech startup with investment firm Ribbit Capital to develop financial products for its employees and clients, while IKEA acquired a minority stake in company BNPL Jifiti last month.
Automakers like Volkswagen’s Audi and Tata’s Jaguar Land Rover have experimented with incorporating payment technology into their vehicles, as have Daimler’s Mercedes.
“Customers expect services, including financial ones, to be integrated directly at the point of consumption and to be convenient, digital and immediately accessible,” said Roland Folz, CEO of Solarisbank, which provides banking services to more than 50 companies. including Samsung.
Integrated finance companies don’t just target end consumers. The companies themselves are being targeted and their digital data exploited by fintechs like Canada’s Shopify.
The company provides software for merchants and its Shopify Capital division also offers cash advances, based on an analysis of more than 70 million data points on its platform.
“No business comes to us and says: I want a loan. We go to them and say: we think it’s time for financing for you, ”said Kaz Nejatian, vice president of product, business services at Shopify.
”We don’t ask for business plans, we don’t ask for tax returns, we don’t ask for income statements and we don’t ask for personal guarantees. Not because we are benevolent, but because we think they are bad signs about the chances of success on the Internet, ”he said.
A Shopify spokesperson said the funding ranges from $ 200 to $ 2 million. The company has provided $ 2.3 billion in accumulated capital advances and is valued at $ 184 billion, well above the Royal Bank of Canada, the nation’s largest traditional lender.
However, Shopify’s lending business is still small compared to the big banks. JPMorgan Chase & Co, for example, had a consumer and community loan portfolio worth $ 435 billion at the end of June. Regulators could also limit big advances in finance for companies in other sectors.
Officials at the Bank for International Settlements (BIS), a consortium of central banks and financial regulators, warned watchdogs last month that they must deal with the growing influence of tech companies on finance.
Bain’s Harris said financial regulators were taking the approach that since they don’t know how to regulate tech companies, they insist that there be a bank behind every transaction, but that doesn’t mean banks are going to prevent the invasion of fintechs. “They are right that banks will always have a role, but it is not a highly paid role and it involves very little customer ownership,” he said.
Forrester analyst Jacob Morgan said banks have to decide where they want to be in the funding chain.
“Can they afford to fight for customer primacy or do they see it more profitable to become the rails on which others run?” He said. “Some banks will go both ways” And some are already fighting back.
Citigroup has partnered with Google for bank accounts, Goldman Sachs is providing credit cards for Apple, and JPMorgan is buying 75% of Volkswagen’s payments business and plans to expand into other industries.
“Connectivity between different systems is the future,” said Shahrokh Moinian, head of wholesale payments, EMEA, at JPMorgan. “We want to be the leader”
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