After Swiss retail giant Coop shut down its banking product just nine months after launch, we discuss with industry expert and Finmesh co-founder Borut Hrobat why retailers fail or succeed in embedded finance, sharing crucial insights about implementation strategies, common pitfalls and future opportunities in the European retail sector.
Key Insights on Coop's Banking Product Closure:
- Launched in October 2023 with planned offerings including bank accounts, debit cards, investments, and insurance products
- Most additional financial products beyond basic banking never materialized
- Decision to exit after only 9 months suggests possible strategic misalignment or implementation issues
- Product reportedly lacked proper integration into customer journeys and daily retail operations
Best Practices for Retailers Entering Embedded Finance:
- Adopt a step-by-step approach rather than launching multiple products simultaneously
- Start with closed-loop payments, then progress to open-loop cards, charge cards, and credit products
- Secure strong top management commitment and cross-departmental support
- Focus initially on younger customer segments (Gen Z and millennials) with a digital-first approach
- Partner with license holders rather than pursuing own banking licenses
- Ensure proper integration with existing customer journeys and digital touchpoints
Embedded Finance Benefits for Retailers:
- Potential to reduce payment processing costs by 0.5%, significantly impacting net profit margins
- Opportunity to enhance customer loyalty through integrated financial services
- Access to valuable customer behavior data both in-store and external
- Ability to create personalized offerings based on transaction data
- Possibility to improve marketing efficiency and customer retention
Common Challenges:
- Internal organizational silos hampering implementation
- Need for strong data analytics capabilities
- Requirement for technical infrastructure investments
- Importance of maintaining long-term management support
- Challenge of properly embedding financial products into existing customer journeys
Future Outlook:
- Larger retailers expected to lead the way in embedded finance adoption
- Smaller retailers likely to follow once successful examples emerge
- PSD2 services in Europe making implementation easier than in US markets
- Growing importance of data analytics and customer behavior understanding
- Increasing demand for embedded finance solutions across retail sector
Expert Recommendations:
- Don't treat financial services as a standalone profit center
- Focus on supporting core retail business objectives
- Ensure proper integration with loyalty programs
- Invest in digital capabilities and data analytics
- Take time to build internal support and capabilities
- Learn from successful examples like Target's RedCard