FTT Embedded Finance


Retailers aim to win ‘the belt’ with embedded finance

Retailers Aim to Win ‘The Belt’ with Embedded Finance

No one has dominated the UFC cage quite like Connor McGregor. The notorious Irish “bad boy” barks as big as he bites, or in this case, punches and kicks as hard as he trash talks his opponents. As a result, McGregor has skyrocketed to fame, become a household name, and earned himself paychecks of up to $3 million just for showing up to a fight.

His most recent match with Dustin Poirier was the fight heard around the world. While McGregor took time off between big fights over the years and dazzled us with his signature attitude, Poirier spent years diligently working his way up to the top levels of the lightweight division. He arrived ready to pick up where McGregor left off years before – and won.

One could argue that big box retailers and banks have behaved like our Irishman fighter for many years. The likes of Walmart, Target, Home Depot, and Lowes, to name a few, have invested millions of dollars and resources into emerging technologies in order to keep pace with the heavyweight champion of all time – Amazon. Meanwhile, banks have been fighting in the octagon with fintech players – Stripe, Venmo, and PayPal – in an effort to increase revenue and customer retention. Against this backdrop comes embedded financial services working its way into the fighting cage with the focus and force of Poirier versus McGregor.

Hit Them with The ‘Ground and Pound’

Embedded finance, or banking-like services offered by non-banks, is nothing new. Stripe and PayPal have commanded this space with retailers for many years. The pandemic however; revealed a massive gap between retailers, financial services, and consumers. Demand for contactless payment technology skyrocketed overnight and as we soon discovered, so did demand for embedded card payments, lending, insurance, banking, and investing.

In mixed marital arts, the “ground and pound” technique refers to any form of fighting that gets your opponent to the ground, followed by an avalanche of strikes and blows until someone [hopefully] loses the fight. Embedded finance works similarly, if only more subtle and less aggressively so. Take down the “champion” with an ecosystem of cloud-based financial services and features, and hit them with greater efficiencies, ease and functionality.

To meet the demands of our digital world and its customers, embedded finance on the shop floor should include:

  • Cloud-based payments systems
  • Flexible payment options via digital wallets and apps
  • Seamless product discovery and personalization that can be managed to upsell shoppers

Starbucks has explored embedded finance well throughout the years with its app allowing customers to order and pay for their coffee through their mobile devices. The company is a model for digital ordering. Its app collects rewards for greater customer retention and satisfaction and captures future demand with automated tools that can personalize the customer’s experience.

Underdogs Will Win With Embedded Finance Strategies

In sports, nothing is as inspiring as a story about the underdog – overlooked and underrated –  rising to fame and fortune via grit and talent.

At least, that’s how we like to hear such stories.

McGregor’s allure is just like that – a rags-to-riches sports story with a big personality to match. His public persona as both villain and hero has cemented his place as a sports pop culture icon, and it may very well be the path that retailers take as they begin to incorporate embedded finance technology within their stores and e-commerce platforms.

Mom-and-pop retailers are the underdogs of the commerce story. Government-mandated shutdowns last year forced retailers to close their doors and small business owners to pivot and re-invest in an e-commerce model.

But a pivot like that does not come without its financial challenges. Merchants need better ways to manage cash flow and access capital. PayPal and Venmo issued credit cards to allow an individual to immediately access cash with a company cash card rather than wait days for a check to clear. When paying employees or contractors, this can be a much better solution for smaller merchants than having to cut a physical check or issue a direct deposit. Additionally, Shopify expanded its lending services, Shopify Capital, to help merchants access funds ranging from $200 to $1 million, rivaling retail banks and SME lenders.

Manic Mermaid, a brick-and-mortar store in Tacoma, Washington, that sells arts, crafts and jewelry navigated the pandemic successfully thanks to funding through Shopify Capital. Co-founders Janelle Elms and Charles Cox used the capital to purchase higher-value inventory to sell to their customers, offer international delivery and host Facebook Live events to sell online. As a result, Manic Mermaid doubled their sales during the height of the pandemic and found new ways to reach consumers outside the Washington area.

Shopify’s focus on expanding financial features is a threat to incumbent banks, lenders, and credit card companies, but it  also demonstrates the endless opportunities for retailers and their customers.

“We’ve heard some phenomenal stories of how independent businesses of all sizes have been able to access Shopify Capital and experience a record-breaking year in sales in 2020,” commented Daniel Weckend, Partnerships Lead, Banking Services, Shopify.

CUTS co-founders, Steven Borrelli and Carter Shae, sought capital from traditional banks and lenders to scale their businesses, but didn’t want to give up collateral. Since September 2017, CUTS has used ten rounds of Shopify Capital, including a $1 million round in 2020 in order to double down on marketing and expand their products without venture capital funding.

“We believe that it’s important to provide our merchants with access to critical financial tools to help them grow their businesses,” said Weckend. “Merchants and their customers are prioritizing accessibility, convenience and customized products, which requires us to provide innovative financial solutions that traditional banks have not made a priority for retailers of all sizes.”

Earlier this year, the company announced its Shop Pay checkout and payment processing system would now be available to Instagram and Facebook users. The move appeals to millennial shoppers who follow retail brands and want to shop products as they scroll their feeds. The line between shopping in-store and e-commerce are starting to blur as consumers demand more options and greater ease of use. Embedded finance technology enables this level of connectivity and ease that users gravitate to, and the underdog merchants are jumping on board to become the McGregor-like hero in their story.

Embedded finance is reimagining the way retailers, banks, and fintechs play together. If this were a UFC match, fintechs are in a weight class of their own as it focuses on reaching and engaging with customers in a frictionless environment. Merchants come out on top if they embrace cloud-based financial functions that appeal to their digital customer base. Incumbents, on the other hand, will continue to cash in like McGregor does just by “showing up,” but risk losing customers with legacy technology infrastructure or avoiding fruitful partnerships with fintech companies.

What we can be sure of is that whether it’s in the fighting cage or embedded finance there is always room for a new champion.

Written by Trish DaCosta, Communications Director, KCD PR