Banks beware, Amazon and Walmart crack the finance code

Anyone can be a banker these days, all you need is the right code.

Global brands from Mercedes and Amazon to IKEA and Walmart are cutting out traditional financial intermediaries and connecting 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 integrated financing – a fancy term for companies integrating software to offer financial services – means that Amazon can allow customers to “buy now and pay later” when they upgrade. checkout and Mercedes drivers can charge their cars for their fuel.

While banks are still at the origin of most transactions, investors and analysts say the risk for traditional lenders is that they are far from the beginning of the financial chain.

And that means they’ll be further removed from the mountains of data others are collecting 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. They are built on an ongoing, software-based data relationship with the consumer and the business, ”said Matt Harris, partner of investor Bain Capital Ventures.

“This is why this revolution is so important,” he said. “This means that all the good risks will go to these integrated companies who know so much about their customers and what is left will go to the banks and insurance companies.”

For now, many areas of integrated finance are barely shaking the dominance of banks and although some new entrants are licensed to offer regulated services such as lending, they lack the scale and funds to build on. deep funding from the biggest banks.

But if fintech firms, or fintechs, can match their success by capturing some of the banks’ digital payments – and ramping up their ratings in the process – lenders may have to respond, analysts say.

Stripe, for example, the payments platform behind many sites with customers including Amazon and Alphabet’s 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 grown in the past year as the pandemic has boosted digital payments and impacted traditional payments, Alan McIntyre, senior director of banking at Accenture, mentioned.

Now the focus is on loans, as well as off-the-shelf digital lenders with a variety of products that businesses can choose from and integrate into their processes.

“The vast majority of consumer-centric businesses will be able to launch financial products that will significantly improve their customer experience,” said Luca Bocchio, partner at venture capital firm Accel. “This is why we are so excited about this space.”

So far this year, investors have invested $ 4.25 billion in integrated finance startups, nearly three times the amount in 2020, according to data provided to Reuters by PitchBook.

Swedish buying company Now Pay Later (BNPL) Klarna, which has raised $ 1.9 billion, is leading the way.