Banks beware, outsiders are cracking the code for finance

Global brands from Mercedes and Amazon to IKEA and Walmart are cutting out the traditional financial middleman and plugging in software from tech startups to offer customers everything from banking and credit to insurance.So-called embedded finance - a fancy term for companies integrating software to offer financial services - means Amazon can let customers"buy now pay later" when they check out and Mercedes drivers can get their cars to pay for their fuel.

"That is why this revolution is so important," he said."It means that all the good risk is going to go to these embedded companies that know so much about their customers and what is left over will go to banks and insurance companies."For now, many areas of embedded finance are barely denting the dominance of banks and even though some upstarts have licences to offer regulated services such as lending, they lack the scale and deep funding pools of the biggest banks.

Now the focus is turning to lending, as well as complete off-the-shelf digital lenders with a variety of products businesses can pick and choose to embed in their processes. Walmart launched a fintech startup with investment firm Ribbit Capital in January to develop financial products for its employees and customers while IKEA took a minority stake in BNPL firm Jifiti last month.

It provides software for merchants and its Shopify Capital division also offers cash advances, based on an analysis of more than 70 million data points across its platform.

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