By Steve Cocheo, Executive Editor at The Financial Brand
Source: thefinancialbrand.com, April 2021
These days it seems like everybody wants to get into banking one way or another, from Google with its Plex project to Walgreens with its 9,000+ store presence. Experts probe why this is happening and if, and how soon, it will begin to hurt traditional players.
One couldn’t blame financial institution executives if they felt like nerds who suddenly found they are “cool.” All sorts of companies want to get into banking in some way.
Some go about it through co-branding or white labeling or making use of a banking as a service relationship. Others might attempt to acquire or originate a bank charter. Or the means could be through an ecosystem play, like Google Plex. Or it might be through a fintech or banking partnership, or some combination.
Drug store giant Walgreens, for example, is launching both a credit card relationship with Synchrony and a debit card relationship with MetaBank. Both moves are part of a phased plan for getting into the banking business via partnerships and expanding those efforts into digital banking accounts. Both programs will tie into the loyalty program Walgreens revamped in late 2020. The intent is to offer banking products digitally as well as through the company’s roughly 9,000 U.S. pharmacy locations.
H&R Block, which in 2015 actually sold a savings bank it owned, wants back in. Initially it has linked its Emerald Card to Apple Pay and Google Pay, to make it digitally active for cardholders. But through a series of future steps, in partnership with MetaBank, the company hopes to provide affordable banking services to millions of underbanked consumers who use its services. While in recent years Block’s financial services have centered on tax refunds, the intent now is to broaden this to a year-round relationship.
Meanwhile, Walmart is building a fintech with partner Ribbit Capital. The retail giant has a patchwork of financial services partnerships and has tried to enter banking directly over the years. The new proposed operation, currently called “Hazel by Walmart,” is the subject of an April 2021 trademark filing with the U.S. Patent Office. In a kitchen-sink list of potential services it could offer, the retailer indicates plans to offer not only many payments services but also financial counseling and planning, a financial portal, and much more.
What Drives Banking/Commerce Evolution (and Why Now)?
Multiple causes are at work here, but a key one is technology.
“Industries tend to get disrupted when incumbents are heavily reliant on technology and the technology they use is outdated,” says Alyson Clarke, Principal Analyst at Forrester, in an interview with The Financial Brand. She says another factor is that retailers and other nonfinancial firms tend to have more brand appeal than most financial institutions, so as barriers have eroded, new combinations and offerings have centered on those companies.
Digital is Table Stakes:
The attempt to build financial combinations with nonbank players underscores that there’s nothing special about simply being digital anymore. As digitization became standard, it ceased to be a differentiating factor.
Broader trends are also at work. “This stuff is cyclical and the space has never been hotter, so I am not surprised in the slightest that Walgreens and H&R Block is entering it, ” says Scarlett Sieber, Managing Director and Chief Strategy and Innovation Officer at CCG Catalyst Consulting. “We are seeing this move — and it is more pervasive in Europe — of every company becoming a fintech company. I’m not sure every company should be a fintech company.” She says it depends on whether they have a unique value proposition for customers, and if adding banking services benefits them when integrated in a way that is a natural fit to their lives.
Sieber points to the growing movement to create “super apps,” which she sees as a rebundling of existing services. “But not every company or app can be a super app.”
Ron Shevlin, Director of Research at Cornerstone Advisors, suggests that no players are showing all of their cards at any time. He points to Amazon as a company that will test financial services in a limited way, maintaining a corporate poker face, and then bring in a partner or partners to handle a particular activity once the company believes there is potential.
Shevlin says an important wrinkle to notice is that being a consumer’s primary financial account is not in the sights of many newer players. They don’t care. This is important to remember in trying to compete with them.
