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The Almighty Buck Businesses

Banks Beware? Amazon, Walmart, IKEA Experiment with Their Own 'Embedded Finance' Services (msn.com) 53

Posted by EditorDavid from the paying-later dept.
"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.
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Banks Beware? Amazon, Walmart, IKEA Experiment with Their Own 'Embedded Finance' Services More

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

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  • Oh noes!!!1 (Score:4, Funny)

    by DontBeAMoran ( 4843879 ) on Sunday September 19, 2021 @02:01PM (#61811083)

    After all the dangers posed by crypto-currencies, now banks also have to fight megacorporations?!

    Won't somebody think of the banks!!1 /sarcasm

    • Traditionally retailers have not been allowed to function as Banks themselves because of massive antitrust issues. The fact that this is even being discussed indicates how much are antitrust law enforcement is weakened in the last few decades. It's basically non-existent.
      • Don't think they actually want to be banks. More like re-sellers of financial services, like regular retail banks have traditionally done. So probably just more of a shift from banking with a human manager, who works in a building that you can physically go to & may have some kind of relationship & rapport with, to automated online services & endless waiting on the phone to call centers where you eventually talk to sales & marketing staff whose sole purpose is to stop you from cancelling ser

        • Re:You should be thinking of the antitrust issues (Score:4, Insightful)

          by ShanghaiBill ( 739463 ) on Sunday September 19, 2021 @03:22PM (#61811331)

          Sears tried to do all that with Discover Card, Allstate Insurance, Dean Witter Brokerage, and Coldwell Banker Real Estate.

          They were not successful.

          • Re: (Score:1)

            by I75BJC ( 4590021 )
            Yes, Sears was successful. Sear spun all those divisions off from their main business and Discover Card, Allstate and Coldwell Banker are still successful firms/businesses.
            Plus, Sears' Craftsman tool brand is alive and thriving.
            Sears did a lot of good in the USA.

            Sears shot themselves by being ahead of the curve in retail customer service and screwed themselves out of existence but many of their parts still exist and thrive..

          • Sears tried to do all that with Discover Card, Allstate Insurance, Dean Witter Brokerage, and Coldwell Banker Real Estate.

            They were not successful.

            Actually, those derived businesses were successful (and they still are, existing as independent companies.) Sears went kaput for other (and very distinct reasons.)

            #nonsequitur

        • Re: (Score:1)

          by I75BJC ( 4590021 )
          Wal-Mart set up their own bank. It took longer than they expected because of regulations and extra Federal Government scrutiny. According to the news reports at the time, Wal-Mart could set up their own, private, banking division and save costs over contracting with the banking system they used.

      • More antitrust issues than the banks themselves?
        I didn't think that was even possible! ;)

    • What dangers posed to banks by crypto? Currency that can't be used effectively as currencies, that is why crypto is not regulated (except till recently in China), If banks though it was an actual risk to them they would have immediately lobbied, and succeeded for it to be controlled. Now the likes of amazon, setting up their own financial services that is a real risk to them.

    • Can someone please explain why Walmart will shell out a few grand for a self checkout terminal, but they won't spend a few hundred dollars upgrading their card terminals to accept NFC? It feels like they are in the stone ages. Mag swipe and chip only. Other countries would laugh at this.

      • It's not about the cost of enabling NFC at the point of sale. It's that Walmart does not want to. Walmart loathes the card networks and has ended up in lawsuits with Visa, Mastercard and the other card networks multiple times (some initiated by Walmart, some initiated by the networks themselves).

        For example, Walmart suing Visa in 2016 over debit routing [archive.fo] (archive from the Wall Street Journal to avoid paywall). Walmart wanted to use PINpad logic to force all debit to go via debit mode with PIN (which is 21 c

  • "Anyone can be a banker these days," argues Reuters. All it takes it the right software:

    And the right country. ;-)

  • But it's not like Walmart, Ikea, and the like are doing this for YOUR benefit - they're doing it because it somehow benefits them.

    • Re: (Score:3, Informative)

      by ShanghaiBill ( 739463 )

      But it's not like Walmart, Ikea, and the like are doing this for YOUR benefit - they're doing it because it somehow benefits them.

      They are doing it because it lowers transaction costs. That benefits them. It also benefits you and me.

      Walmart is providing a useful service. Mastercard and Visa are not.

      • The US auto makers have been doing this for years. The novelty is this would be for everyday stuff not a large purchase.

      • Re: (Score:3)

        by bn-7bc ( 909819 )
        I disagree visa absolutely provide a useful service, to ne at keast, where ever I go in europe and most other developed countries I presume, I can use my visa (debit) card and pay for whatever without dealing with cash, and getting stupid change back. Yea i find cash an inconvenient anachronism, and I don't give a damn about being tracked, my phone us in my pocket at all times anyway, and I've git nothing to hide, if big brother wants to waist their time watching me, they may do so, nut they could use ther

        • where ever I go in europe and most other developed countries I presume, I can use my visa (debit) card and pay for whatever without dealing with cash

          I do the same in Asia with WeChat and AliPay.

          The difference is that you have to carry around a credit card and I don't, and you are paying a transaction fee* of about 3% while I pay 0%.

          *The fee is often incorporated into the price, but you are still paying.

          • Not to mention they get to keep all of the interest fees for people who carry a balance.

          • Re: (Score:2)

            by bn-7bc ( 909819 )
            Ok to be precise, I only oay a fee when abroad, when usage the card within Norway I pay 0 ( ok the payment is not processed via visa at all, still the same physical card tho)
          • If the fee is incorporated into the price, then the cost of said fee is borne by all who buy a merchant's goods or services, unless they offer a discount for other forms of payments.

            I readily acknowledge that so called "cash discounting" (which can apply to other forms of payments, including checks) does exist in the United States, albeit not very commonly. (Direct surcharging of credit up to 4% [either 4% or the merchant's average discount rate, whichever is lower] is now possible in the U.S. as well, a

            • Re: (Score:2)

              by bn-7bc ( 909819 )
              Well I can't speak for all of of europe, due to lack of numbers ( read laziness on my part) but I don't think cash discounting is much of a thing here,remember dealing with cash isn't free to the merchant either, counting the tills at opening an closing of business, getting cash to and from the bank, rusk of getting counterfeit notes etc.

        • Re: (Score:2)

          by larwe ( 858929 )

          Visas fees for credit on the other hand might be horrendous, but since I din't use credit i realty cant comment.

          It's not just the network's fee, it's also your bank's fees, which MAY be rooted in some regulatory stuff that differs between deposit accounts and credit accounts. My bank advises me to use my credit cards for foreign currency transactions at all times, as the fees on debit cards are higher and the exchange rate offered is worse. They did say in some fine print that the reason for the latter is that the exchange rate on credit cards is globally provided by the card network (i.e. it rides the entire transac

      • Re: (Score:2)

        by shanen ( 462549 )

        Ah, some substance, but I have to strongly disagree. They are doing it to make it harder for you to shop competitively. The valuable service provided by credit cards (and by cash) is that you can freely choose the best products from the best sources. Not the products Walmart (or Amazon) wants to ram down your throat based on the highest profit margin. (Not clear to me why IKEA wants to join this gang. I would associate IKEA more with Apple, and Apple has been holding the money for years already.)

        But we've b

        • From my recent understanding, the version in the movie is incomplete. It wasn't a command to Dorothy: "Surrender, Dorothy"-- it was a command to the citizens of the Emerald city to "Surrender Dorothy or die". Something like this [joshazzarella.com].

          I only recently discovered this after moving to DC area and seeing a reference to the "Surrender Dorothy" bridge [baltimoreorless.com] with a view of the imposing Washington D.C. Mormon Temple. Biting my fingers to avoid commenting on the "church" 'cause that would just get me killed. oops. too la

          • Re: (Score:2)

            by shanen ( 462549 )

            Interesting and plausible. A result of the adaptation for the movie?

            On the credit card topic, I forgot another thing provided by credit cards, though not uniquely in this situation. It's the relative security of not carrying cash, but the corporate cancers can afford to give you credit, too (and also pay for access to your credit rating).

      • Walmart is selling goods, if they provide a service for practical payment, that's fine, as long as they don't limit the options. Visa and MasterCard provide valuable services for payment, whether others can do it better or as good yet cheaper isn't clear to me. I welcome good competition, but it seems like there's a point to joining a big player, like with Facebook and WhatsApp. At least there I managed to stay out...

    • Basically owning the whole experience. [quora.com]

  • Some countries actually have pretty steep requirements if you want to call yourself a bank. I doubt that they want to be considered a bank in those places.

    • Yep, but living in such a country... That caused some kind of oligopoly situation.
      E.g. if you want to open a bank here in Germany, you HAVE to have a CEO with at least 10 years of experience in the banking industry. Meaning he HAS to be from the same shady old boys club, and hold the same ideologies. That's fucked-up.
      And it doesn't even do anything. PayPal just created its bank in Luxemburg... the bank whore of Europe (since before Germany even existed)... as the Luxemburgish call it*. Enabling PayPal to op

      • Well, at least it allowed those countries to navigate through the problems of the 2008 crash. Yes, some banks went up in flames. But at least the average saving accounts go out unscathed and with the people retaining their money.

    • I think the game here is - how much can we make collecting interest and fees on services... without being a quote-unquote bank. I've been getting constant offers to pay for purchases in installments from ebay and amazon for the last year or two.

  • Big Banks Are Smirking... (Score:5, Interesting)

    by ytene ( 4376651 ) on Sunday September 19, 2021 @02:30PM (#61811185)
    This isn't a new thing - since de-regulation, supermarkets in the UK have been offering their customers credit cards, insurance, and even savings accounts.

    In some senses, these massive institutions even have a good reason to think of "going it alone". For example, think what funds must flow in and out of Amazon's "wash accounts" on a daily basis. As they charge customers for products, they collect vast sums of cash. In their most recent financial year, Amazon's revenue topped $220 billion - roughly $600 million *per day*.

    This sort of cashflow needs to be managed really carefully - because the account balances are so huge that it is important for a company like Amazon to invest that cash wisely. They would typically employ the Treasuries service of a big bank - a Citi or JPMC - to do this for them and they would see surplus funds placed in "overnight" investments like the LIBOR market to generate some pretty lucrative revenues.

    The interesting thing comes when the non-financial institution believes that it doesn't need a bank and can "go it alone". In some cases, the company may be big enough to hire in some really good talent from a major bank, in other cases they might believe they have grown the skills in-house. Everything runs along swimmingly, especially in rising markets, where simple investments yield good results (because "a rising tide lifts all boats").

    Then the market crunches - which we know happens because we know that the biggest banks can help bring this about, since it's a mechanism to kill off smaller competition and buy them up at knock-down prices. But what if these retail giants have been making "big bets" with their portfolios, in markets conceived, created and run by the big banks? The answer will be interesting... but remember what happened when Wall St. Giant JPMorgan [wikipedia.org] thought they knew what they were doing? (Answer: $6 billion trading loss, $920 million in fines).

    Now picture what will happen when Walmart or Amazon or one of their ilk get taken to the cleaners by their "friends" on Wall St. It won't be pretty.

    If I were the CEO of one of the big banks I'd be cackling fiendishly after reading this news.
  • Do not let big corporations consolidate power. If we need services that they provide, keep them separate to minimize the power they exert.
    • Amazon mod on the loose on Slashdot.

      Here's conspiracy theory: The big tech companies have bots signed up on the major boards to mod down comments that aren't flattering to their companies, or say anything against their business practices.
  • ...arranging a mortgage plan following IKEA-like instructions.

    • It's a stupid joke. IKEA's instructions are as simple as you can make em. It's just that people get a mental blockage as soon as they think of it, due to a meme originally spread by people just plain too stupid to write instructions for. Try looking at those instructions while being aware and circumventing that mental blockade. No problem at all.
      Same as when old people think "computers" and instantly think "too complicated", despite the main problem with modern UIs being that they are too cumbersome and lim

  • So much funny money (Score:3)

    by Papaspud ( 2562773 ) on Sunday September 19, 2021 @02:53PM (#61811257)
    floating around, everybody wants in on the action... borrow money for free, lend it out at 25% interest= profit. Own that customer from birth until death... they used to call those serfs... not quite slaves. Slaves they would have to take care of, the serf... just work them to death and import new ones.

  • Amazon, Walmart & co VS Banks...

    On one side, shady business practices, laughable security, comically evil bosses.... on the other side... Amazon...

  • Are they going to actually make sure that the people who they are making loans to, can actually pay them off, or do they just want income from perpetual interest, making people "slaves" to the corporation. GE got into the business of being more of a creditor/financer than manufacturer, and look where it got them in the end.

    Are they going to be lending in such a way that all it does is create a huge shadow banking bubble issue ready to crash, taking down the whole financial market like what basically happen

    • GE made sense at first— primarily for aircraft financing. It got out of hand though.

      There are a lot of ways that individual merchants can control risk. The question is how much they can prosper, and where they are trying to make their money. Usury interest rates might not be a great idea, but they might be able to manage things to a point where they can be below 5% and adequately manage risk and return.

  • is still toxic pond scum.

  • Walmart wanted to own a bank because otherwise they have to pay interchange fees for credit cards...they thought being their own bank would save money. US Credit card systems are way too opaque and expensive for a 20th century method of clearing money...but they protect the turf very well. Letting only banks clear is one way. Walmart was unsuccessful in buying a bank for this purpose.

  • Will be interesting to watch. (Score:3)

    by aaarrrgggh ( 9205 ) on Sunday September 19, 2021 @05:37PM (#61811691)

    Amazon makes perfect sense; it surprises me that Apple hasn’t done more than just partner with Goldman Sachs on their system. At the same time, the implications of such systems expanding in scope over time will be interesting.

    For companies like Amazon, they can easily cut transaction fees by 90% with minimal additional effort— they are already managing fraud protection for their transactions, and the banking portion of what they are missing is “trivial.”

    Visa and MasterCard offer universal accessability, which is a pretty big barrier to entry— but for an Amazon focused on internal sales it is a no-brainer. I’m not quite sure how different it really is between a Macy’s or Target card though. There is a point at which I get “card fatigue”, and want to limit myself to ~3 different credit cards. The 7–8 I have now is just stupid, especially when you add the 8-10 different ones my wife has into the mix.

  • What's next; eBay with their own payment system? What a crazy concept!

  • I remember when major department stores had their own credit cards. When you shopped at Sears, you used a Sears credit card. If you shopped at Macy's, you used a Macy's credit card. The result was people having so many credit cards that they didn't realize just how deep into debt they had put themselves.

    I have exactly one credit card. I have no plans to get another. The one I have has a high enough limit that it should be more than enough for any emergency I might experience, e.g. car breaking down far

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