Nowadays, almost everyone can become a banker; all you need is the appropriate code. Global companies ranging from Mercedes-Benz as well as Amazon to IKEA and Walmart (WMT.N) are bypassing the conventional financial intermediary and instead relying on software from digital firms to provide clients with services ranging from personal banking to insurance. The danger signals are blazing for major financial firms. Using integrated finance – a fancy phrase for firms that integrate software to provide banking services – Amazon may allow consumers to “buy today, pay later” whenever they check out, and Mercedes owners can have their vehicles pay for their gasoline.
To be clear, banks continue to be the driving force behind the majority of deals, but on the other hand, traders and experts warn that conventional lenders risk being pushed farther away from the front end of the financial chain.
And it implies they will be far away from the mounds of information others are gathering about their clients’ tastes and behaviors – data that may be critical in providing them an advantage over banks in finance.
“Embedded financial services take the notion of cross-selling to new heights. It is based on a long-term software-based data connection between the customer and company “said Matt Harris, a partner at venture capital company Bain Capital Ventures.
For the time being, a lot of sectors integrated with finance are scarcely challenging banks’ supremacy, and while some innovators have licenses to offer regulated services like banking, they lack the volume and large financing pools of the major banks. However, it should also be noted that if financial technology businesses, or fintech, can replicate their performance in capturing a portion of electronic payments from banks – while also increasing their values – lenders may be forced to respond, according to experts.
Another important consideration
A large number of consumer-centric firms would be able to offer financial solutions which will enable them to dramatically improve their service experience,” remarked Luca Bocchio, partner at Accel. Traders have spent $4.25 billion into integrated financial firms so far this year, about three times the number in 2020, according to data supplied to Reuters by PitchBook.
DriveWealth, which sells technology that allows businesses to provide fractional benefit from trade, received $459 million in funding, while Solarisbank, a certified German digital bank that provides a variety of financial service software, received $229 million. Affirm (AFRM.O) shares soared last month after the latter announced a partnership with Amazon to provide BNPL goods, while rival U.S. fintech Square announced a $29 billion acquisition of Australian BNPL business Afterpay last month.