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Hi embedded finance friend

a day later than usual but (hopefully) still the same insights. I spent the last few days at a vegan food fair for my wife’s startup, expecting a break from banking. Little did I know that a sustainable bank will have their booth very close to our’s 😀 

A few people have informed me that the link to my embedded finance intro deck from my October 10th mailing doesn’t work anymore. Thus, I have published a post on my website with a link to the deck. If you haven’t seen it yet, you can find it here.

Note that only subscribers can access the link to the deck. Feel free to share the link to the post with your network, but keep in mind that others need to subscribe before being able to access the deck.

And a big thanks and shout-out to Jeff Poole (LinkedIn) for referring six new subscribers!

My little newsletter has gained around 100 new subscribers in the past month. I know that quite a few of you keep sharing my newsletter even without the referral link. A big shout-out and thank you to you too!

But now let’s dive in 👇️ 

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John Lewis partners with Zopa Bank for an embedded lending offering

What happened: British department store John Lewis has partnered with Zopa Bank to offer personal loans directly to its customers (The Independent). Customers can apply for a personal loan up to £35,000 on the John Lewis website without any impact on their credit score.

My comment: In the past few months, we have seen the big British retailers Tesco and Sainsbury's getting out of their financial offering while selling the units to incumbent banks. John Lewis is doing the opposite; however, it is quite crucial to understand the model behind it. Tesco and Sainsbury’s had their own bank licence and publicly stated that the regulatory scrutiny and increased cost were one of the main drivers behind their decision, and not that it wasn’t interesting for them to offer financial products. John Lewis, on the other hand, is partnering with Zopa and thus is not being regulated themselves.

The partnership seems to make a lot of sense but as usual, the devil is in the details. There are two factors that will have a big impact if this partnership is going to be successful or not: the customer journey and customer benefits. Firstly, embedding a loan application into a non-financial brand’s website is not that hard. However, what’s important is that the customer journey is smooth and does not require the applicant to re-enter the same information multiple times. Or to put simply, if its just another website where a customer can go through the usual Zopa loan application process, then it will be tough.

Secondly, it will also be crucial why the customer should apply for the personal loan on John Lewis’ website. By now, there are a dozen digital banks and alternative lenders available where a consumer can apply for a personal loan. When embedding a financial product, it is always crucial to ask the question why the customer should come to you.

I have not looked at the offering in detail, but I hope that the John Lewis team has spent a good amount of effort on those two areas because they will be crucial for their success.

Shopify upgrades its banking product

What happened: Shopify has announced a few important updates to its banking product (LinkedIn) specifically aimed at their larger merchants using the Shopify Plus. The new features included rewards for account balance (aka interest, but they cannot call it that way), fast payouts, and high limits for transfers.

My comment: The Shopify Plus package starts at $2.300 per month; thus, it is built for brands with a substantial volume on the Shopify platform. Such merchants generate high fees for Shopify’s core product and it is expected that they will also have a higher bank balance and spending behaviour than Shopify’s customers on the normal plan. Therefore, it makes a lot of sense for Shopify to offer a tailored banking product for them, as this could generate substantial additional revenue for Shopify.

I also want to remind you that when Shopify introduced Shopify Balance, it always stated that they don’t aim to make a lot of revenue with the product itself but rather see it as a platform to launch more products. I would expect that when these larger merchants switch to Shopify Balance, they are also a lot more likely to use Shopify Capital, Shopify’s own lending product. This lending product will not only create additional interest income for Shopify but also impact the merchant’s overall volume on the Shopify platform.

My ask: Does any of my readers know somebody at the Shopify Fintech team and could introduce me? Maybe it’s time to invite them for a podcast episode :-)

British electronic retailer partners with BNP Paribas for new BNPL product

What happened: British electronic retailer Currys has partnered with BNP Paribas to upgrade its buy-now-pay-later offering (Finextra). Currys had previously already offered a BNPL product and it was used for approximately 20% of all purchases. In fact, Currys’ customers have used it’s BNPL product more often than a credit card. This has led the retailer to upgrade its offering and partner with BNP Paribas. With the new partnership, customers get more flexible in choosing the right payment plan and the payment option is available for a wider range of products.

My comment: It was probably an easy decision for Currys to upgrade their BNPL product after realising that the payment method has been used for 20% of all purchases. The partnership with BNP Paribas is a strong move, since it opted not to work with one of the big consumer brands in BNPL but rather build their product offering. I assume a a big brand like Currys has the resources and customer trust to pull this off. It might not work that easily for smaller merchants. But a brand like Currys, especially with their previous learnings, will likely see a substantial positive impact on their revenue.

TikTok launches a cash advance product in the US

What happened: British e-commerce financing provider Storfund has teamed up with TikTok to offer a cash-advanced product for its users in the US (PYMNTS). A creator or brand that is using the TikTok marketplace in the US to sell products to its followers can now use the product called Daily Advance to receive funds as soon as they have shipped the products to their customers.

My comment: Cash advance products are the new normal for marketplaces. Faster payouts mean merchants can re-stock faster and sell more products on the marketplace. But on the other hand, marketplaces need to ensure the merchants have a sufficient balance for returns. The two companies claim this is the first of its kind offering in the US, but likely they are referring to very specific product elements. Because Amazon and eBay are just two major examples of US marketplaces that have launched cash advance products in the past. I am not sure how many marketplaces are not offering a built-in cash advance product yet, but likely this number will continue to shrink.

Link section

• German online and offline optician Mister Spex partners with Hakuna for an embedded insurance product offering. Online and offline customers can get protection for eyeglasses worth up to €1.500. (Hakuna)

• Invex Ventures has acquired the British banking orchestration provider Manigo. The company went into insolvency a few weeks ago after a major project fell through. (Finextra)

• Unpacking Embedded Lending: Components, Risk, and Business Models (Rohit’s Newsletter)

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