Business owners are often warned not to overreach. “Stay in your lane,” says Marcus Lemonis, entrepreneur, investor, and star of the hit TV show, “The Profit.” Likewise, prevailing business wisdom encourages businesses not to stray too far from their core competencies.
Given such sage advice, why then would Walmart, the world’s biggest omni-channel retailer, step into the world of finance by cashing payroll checks, transferring money, and offering bill payer software?
Well, the answer might surprise you. This article explains how these financial products are offered — and why so many companies are venturing out of their lanes and offering digital banking services via embedded finance to their customers.
Embedded finance vs. Banking as a Service (BaaS)
From our glossary, BaaS is a model in which licensed banks integrate their digital banking services directly into the products of other non-bank businesses. This is also referred to as providing the "rails" for bank-like functions. BaaS providers often serve as technology intermediaries between their customers and the licensed banks that actually provide the banking functions. For example, Walmart partners with FDIC-insured Green Dot for its banking account services and offers a credit card backed by Capital One.
For Walmart, offering these services is a way to win consumers using embedded finance. Walmart also offers complementary MoneyCenters in some brick-and-mortar locations to serve the customer through an additional channel. These services don't just provide additional customer services — they introduce a multitude of touchpoints between the retailer and the customer. Walmart can monitor customer transaction patterns and tailor new products and services based on their likes and dislikes.
What is Embedded Finance?
Embedded finance empowers brands to offer more and stay focused on their core business. Embedded finance allows enterprises to offer more diverse and robust financial services — while removing the need to rely traditional banks, or on third-party BaaS intermediaries.
When looking for an embedded finance partner, it's important to ask the right questions, especially as it relates to security and minimizing fraud and money laundering. Removing risk from the decision, licensed and regulated embedded finance providers have done the legwork when it comes to regulatory and compliance requirements. This means large corporations can quickly and easily adopt these financial services without adding new employees or taking on additional risks.
Adding financial products via Embedded Finance
Building your own financial services infrastructure can be complicated and costly to develop, but large companies look to leverage the ready-made platforms offered by innovative new businesses like Alviere.
To incorporate embedded financial services into a platform, a company partners with a provider like Alviere, which offers ready-made, plug-and-play embedded financial services—including banking services, payment services, branded cards, and global payments—with minimal infrastructure investment or upfront costs.
How does Embedded Finance benefit companies?
So, back to the original question: Why would Walmart, the world’s biggest omnichannel retailer, decide to offer financial services directly to their customers? First, embedded finance encourages customer loyalty by improving the user experience. Second, no matter how large or influential a company is, embedded finance provides the opportunity to reach an even broader market. Third, embedded finance allows companies to gather customer spending data critical to their business strategy. Lastly, by adopting an embedded finance platform, business can grow their revenue – and actually drive new revenue. Let’s take a closer look at these elements.
Boosts customer loyalty
According to a Harvard Business Review study, increasing customer retention by 5 percent can increase profits anywhere from 25-95 percent. While that's a big margin, the fact remains that a little increase in retention can have huge impact on overall profit.
By adopting embedded finance, and offering their own banking services without needing to rely on a partner bank, customers are encouraged to stay within the company's ecosystem and enjoy the conveniences of their financial services.
Captures new customer segments
The embedded finance model allows companies to attract broader markets like millennials, Gen Z, and teens.
The millennial and Gen Z generations want both financial and non-financial services to be accessible in real-time via a mobile app, which embedded finance accommodates. For example, the teen market was the initial target of the tech company Current, which began by launching a teen debit card that parents controlled. Current managed to access a largely untapped market through its card.
Serves the unbanked and the underbanked
The unbanked are people who don't use traditional financial services such as credit cards and bank accounts. These consumers rely on alternative financial services from online providers rather than loans and credit from traditional banks. The unbanked and underbanked are big markets. According to the Federal Deposit Insurance Corporation (FDIC), 5.9 million U.S. households were unbanked in 2021.
Younger generations and low-income earners can fall into this category. Often, they do not have a credit history (or high credit score) and cannot obtain financing through traditional means.
Provides insight into customer spending patterns
Offering banking and financial services strengthens a company's relationship with its customers and increases interactions exponentially. Companies can gain valuable insights into customer spending trends to improve their services, and provide more of what customers want.
When it comes to spending trends and data, finding the right partner is important. With most embedded finance platforms, the data is owned by the 3rd party provider, and not easily shared. With an embedded partner like Alviere, large enterprise companies own all the consumer spending data, and can easily incorporate it into their larger sales and marketing strategies.
Enhances fraud protection
Alviere is a licensed, regulated financial entity, meeting all required protocols to ensure ongoing compliance. Alviere's proprietary ledger provides a record when money is moved. Not only does this protect against fraudulent or illegal activity, it adds another layer of protection and transparency.
Serving your customers
Why should a company incorporate embedded finance into its infrastructure and product offerings? The simple answer is to strengthen your customer loyalty and drive more revenue. But there are other reasons to leverage embedded finance for more long-term opportunities.
Embedded finance technology provides knowledge that businesses can harness to develop tailored products in the future. This knowledge will shape business strategy to provide a more customized customer experience. As technology continues to evolve, companies must adapt and accelerate rather than get stuck in their lane and fall behind.
Whether it's branded debit, gift, and prepaid cards or global money transfers, embedded finance can deepen customer relationships expand your lane.
