How brands like Home Depot, Coach and Playstation will make millions selling financial services


Integrated finance has become a popular topic in the banking and retail industries. What is that? Integrated finance is:

“The integration of financial services into the websites, mobile applications and business processes of non-financial companies.”

The theoretical value of embedded finance is based on the assumption that consumers will choose their favorite brands’ financial products if the brands offer them.

A new report of Cornerstone Advisors, commissioned by Bond, titled The flywheel of integrated finance, confirms the theory. The study revealed that:

  • Three quarters of the players are interested in an in-game account where they could deposit money and use it to buy and sell virtual in-game items and collect rewards for their in-game achievements/progress.
  • Two-thirds of home fitness fans expressed interest in obtaining health insurance from home fitness providers with rates based on their personal fitness habits.
  • Almost two-thirds of fashion aficionados would consider opening an investment account with a luxury brand allowing them to easily invest in the shares of that company.
  • Six out of 10 car enthusiasts would investigate car insurance — with rates based on their personal driving history and behavior — directly from a car manufacturer.
  • Half of the handymen (DIYers) are interested in a savings account that automatically sets aside money to save for big home improvement projects from a Home Depot or Lowe’s.

The flywheel effect of integrated finance

However, the impact of integrated finance goes beyond the income generated by the financial product. According to Matt Harris of Bain Capital Ventures:

“Integrating finance functions into the software enables new functionality, leveraging persistent connection to go beyond transactions to relationships. These relationships are data-rich, leading to cross-selling, pre-qualification and smarter risk mitigation. The monetization opportunities are not only significant, but actually much larger than the original software opportunity.”

Of consumers who already get a financial product from a non-financial brand, one-third say the product has caused them to spend more money with the brand, three in 10 say they now choose the brand more often over competitors, and just over a quarter feel more brand loyal.

The end result of brands providing financial products to consumers is a flying effect— financial products not only generate revenue in themselves, but they encourage consumers to spend more money on the brand’s products and services than they had before obtaining the financial product.

Embedded finance may be a relatively new term in financial services, but consumers have been turning to non-financial brands for financial products and services for some time.

The impact on loyalty has been very positive.

Of consumers who have obtained financial products from mainstream brands, 32% said the financial products have caused them to spend more money with the brand, 30% said they now choose the brand more often over competitors and 27% said they felt more brand loyal. Mark.

Brand revenue potential through integrated finance

What is it, financially, for a brand to provide integrated financial products and services? The Cornerstone report estimated the potential impact on revenue for a few major consumer brands: Playstation, Home Depot and Coach.

Playstation Payment Opportunity

About 100 million Americans are “gamers”, generating $14 billion in in-game purchases each year, or $140 per gamer.

A third of US gamers consider Playstation their favorite brand in the category. Of this group, 79% expressed interest in getting a payment account that rewards them for in-game purchases.

If just 10% of them accepted a payment card offer from Playstation, they would make about $365 million in in-game purchases per year, which would earn about $6.4 million in interchange fees ( that would be shared with a bank as a service provider).

Home Depot Home Equity Equity Opportunity

Home improvement is a favorite product category for 42% of Americans, or about 105 million consumers. Among the top home improvement brands, Home Depot was cited as the most popular company by 49%, or 51 million.

Among Home Depot DIYers, 53% said they would be interested in getting a home equity loan directly from Home Depot. If just 1% of them took out a home equity loan of $40,000 (the average home equity loan size according to the Cornerstone Advisors benchmark database), that would produce about $11 billion in loans. .

According to data from Cornerstone, the interest rate on a $40,000 home loan would average between 4% and 6% with a cost of funds of around 50 basis points. This would produce net interest income of $1,800 per loan per year (assuming the sponsoring bank collects the $50 loan origination fee).

If half of the full line is borrowed, Home Depot would generate $900 per loan. Assuming half of the revenue is shared with the sponsor bank, Home Depot could raise $120 million in annual revenue through an integrated fundraising strategy.

Wealth Management Opportunity for Coaches

A third of survey respondents cited fashion and luxury goods as one of their top three shopping categories. Coach was the most popular brand in the category, with 15% of fashion fans citing the company as their favorite fashion brand.

Among Coach enthusiasts, 68% indicated an interest in an investment account integrated into the brand’s mobile app that would allow them to invest in the brand’s stocks, crypto and other assets.

If only 5% of Coach’s 12.8 million followers opened this account and the resulting 637,500 customers invested $2,500 in the account, Coach would have $1.6 billion in assets under management (AUM).

If these assets produced revenue at 1% of AUM – and Coach shared them with a bank as a service provider – the fashion brand would generate an additional $8 million in revenue.

The revenues projected in these scenarios do not include revenues that will be generated by increased spending on existing products.

Development of an integrated financing strategy

It’s not a “build it and they’ll come” proposition, though. Consumer brands seeking integrated finance should:

  • Drive mobile app engagement. Cornerstone’s survey revealed strong consumer interest in financial products from their favorite brands. Converting interest into account openings must start with driving mobile app engagement with the brands’ already loyal customers. Consumers who use merchants’ mobile apps and load funds are the best prospects for brands’ in-app financing offers.
  • Develop strong product value propositions. Differentiating a brand’s integrated finance offering requires a combination of convenience and rewards. Making it easier to integrate a financial product into the way customers already interact with the business is key to the value proposition of an integrated financial product. Designing a structure of rewards and incentives is the icing on the cake.
  • Personalize product offerings. Although younger consumers have shown greater interest in embedded finance than older consumers, this has not always been the case. For example, many Gen Zers don’t own a car or home, making them unlikely candidates for an integrated car or home loan. To be successful with integrated finance, brands need to offer different products that appeal to different segments of their customer base.

To download a copy of the report The Built-in Financial Buffer: How Financial Products Can Help Brands Generate Millions in Revenue and Build Customer Loyalty Click on here.

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