More retailers partner with ‘fintechs’ to offer financial services

While many retailers have long offered credit cards, a growing number are providing a wider range of financial services, often partnering with a financial technology company (“fintech”) to make the shift. The goal, says WSL Strategic Retail CEO Wendy Liebmann, is “to build loyalty when shoppers are buying anywhere and everywhere.”

In January 2021, Walmart announced a partnership with fintech investment firm Ribbit Capital. The venture, Walmart said, would bring together Walmart’s retail knowledge and scale with Ribbit’s fintech expertise, and deliver tech-driving financial experiences for Walmart’s customers and employees.

In June, Ingka Group, the largest Ikea franchisee with operations around the world, received approval to become part owner in Ikano Bank. The deal should allow Ikano to offer financial services to Ikea shoppers in a handful of markets. “Consumers today expect flexible and simple banking services regardless of if they are shopping in stores or online,” says Leyre Azcona Munarriz, new retail business manager in financial services with Ingka Group.

These are just the latest ventures; T-Mobile has partnered with BankMobile, a division of Customers Bank, to offer its customers a no-fee, mobile-first checking account since 2019.

Driving customer engagement

Behind these shifts are large numbers of retailers that are “thinking about building much more integrated relationships with their shoppers,” Liebmann says. Their goal in providing a broader range of services, often including financial and health services, is “to keep shoppers more engaged and connected,” she says — an essential move as many goods become commoditized.

Moreover, faith in many large financial institutions is ebbing. Consumers might decide they have more trust in the grocery store they visit each week than in a faceless global financial institution, Liebmann says, so retailers must show they’re trustworthy. For a start, that means being transparent.

They also must provide relevant services: Along with payment options that can help consumers manage holiday spending, retailers might offer savings tools for back-to-school purchases.

Ingka Group “wants to create a finance offer that meets the needs of many and makes home furnishing dreams affordable,” Munarriz says. Moreover, consumers today expect flexible, simple banking services whether they’re shopping online or in stores. As Ingka transforms its retail business, she says fintech is a prioritized area.

At the same time, the fintech sector — which combines expertise in financial services, software development and network operations — seeks greater access to customers, says David Ball, president of retail consultant The Grayson Company. “Digital retailers and fintech firms are developing increasingly intertwined ecosystems,” he says.

The growth of buy now, pay later

Most of these partnerships are new enough that it’s too early to assess the extent to which they’re building credibility and loyalty, Liebmann says. One exception might be the ever-growing array of payment options, especially buy now, pay later — essentially, a digitized update to traditional layaway programs. Grandview Research reports the BNPL market is expected to grow by more than 22 percent annually between 2021 and 2028, with 52 percent of customers aged 18-24 having used buy now, pay later in the past 12 months, according to a Mercator Advisory Group survey.

That’s one sign that the merging of finance, technology and retail appears likely to stick around. For instance, “IKEA Retail wants to offer financial services as part of its future customer ecosystem,” Munarriz says.

The digital nature and ease of use of BNPL options drive their appeal, says Hemal Nagarsheth, associate partner in the financial services practice of global consultants Kearney. The buy now, pay later process is mobile-friendly, requires no paper or phone applications, and offers real-time credit decisions and simple payment models. Consumers with no or limited credit histories can use BNPL to access credit and demonstrate they’re responsible users of it, he says.

Younger consumers, many of whom watched their parents struggle during the recession of 2008 to 2009, are more skeptical of credit products, says Silvija Martincevic, chief commercial officer with Affirm, a provider of financial products that include BNPL solutions.

Retailers can benefit as well: Martincevic says BNPL is “payment technology that acts as a business growth driver.” Shopify merchants that used Shop Pay Installments, an Affirm system, saw average order volumes about 50 percent higher than those offering other payment options.

Klarna, a provider of payment services with 20 million U.S. customers, has seen similar results: The average order values of Klarna users are 45 percent larger than those of non-Klarna users, says Matthew Suraci, head of business development and partnerships.

Where data privacy is a concern, Nagarsheth says one way to address it is to rely on banks and other financial institutions to help safeguard data. As services offered by non-financial services firms gain greater adoption, additional regulatory oversight might be required.

The challenges notwithstanding, interest in BNPL and other digital payment options appears likely to increase. “Ninety percent of consumers who increased (their) use of emerging payment methods expect to maintain increased use,” Nagarsheth says.

Retailers can take several steps to capitalize on the trend. Nagarsheth suggests preparing to take action to incorporate payments and credit into the customers’ journeys, focusing on the role of payments and credit both in-store and online, exploring partnerships and driving differentiation that meets customers’ needs.

New skills and technology are key

To be sure, success isn’t guaranteed. Providing financial services requires different skills and technology than retail, as well as compliance and operational expertise. Ball says startup costs are high, and “it’s easy for retailers to become distracted from their core merchandising businesses.”

The arrangements most likely to succeed might be partnerships between retailers and financial services firms, Ball says, “with retail providing access to an expanded customer set, along with its traditional capabilities in product and distribution, while financial services (firms) retain their traditional role as the facilitators of commerce.”