Anyone can be a banker these days, all you need is the right code.

Global brands from Mercedes and Amazon to IKEA and Walmart are foregoing traditional financial intermediaries and plugging in software from technology startups to offer customers everything from banking and credit to insurance.

The warning signs flash for established financial institutions.

So-called embedded finance – a fancy term for companies that integrate software to offer financial services – means that Amazon can let customers “buy now and pay later” when checking out, and Mercedes drivers can have their cars pay for their fuel.

While banks are still behind most transactions, investors and analysts say the risk for traditional lenders is that they will be pushed further away from the front end of the financial chain.

And that means they’re further removed from the mountains of data that others are soaking up about their customers’ preferences and behavior – data that could give them a distinct advantage over financial services banks.

“Embedded Financial Services takes cross-selling to new heights. It is built on a deep software-based ongoing data relationship with consumers and businesses,” said Matt Harris, partner at investor Bain Capital Ventures.

“That is why this revolution is so important,” he said. “That means all that good risk goes to those embedded companies that know so much about their customers and what’s left goes to banks and insurance companies.”

WHERE WOULD YOU LIKE TO PLAY?

Currently, many areas of embedded finance barely dampen bank dominance, and while some start-ups are licensed to operate regulated services such as credit, they lack the size and deep funding pool of the largest banks.

But if financial technology companies or fintechs can achieve their success in getting some digital payments from banks and increasing their ratings in the process, lenders may need to react, analysts say.

For example, Stripe, the payment platform behind many sites with clients like Amazon and Alphabets Google, was valued at $ 95 billion in March.

Accenture estimated in 2019 that new entrants to the payments market accounted for 8% of global revenues – and that proportion has risen over the past year as the pandemic ramped up digital payments and hit traditional payments, said Alan McIntyre, senior banking industry director at Accenture.

Now the focus is on lending as well as full digital lenders with a variety of products that businesses can select and embed into their processes.

“The vast majority of consumer-centric companies will be able to bring financial products to market that can dramatically improve their customer experience,” said Luca Bocchio, partner at venture capital firm Accel.

“That’s why we are happy about this room.”

So far this year, investors have poured $ 4.25 billion into embedded finance startups, almost three times as much as in 2020, data from PitchBook to Reuters shows.

At the top is the Swedish Buy Now Pay Later (BNPL) company Klarna, which has raised $ 1.9 billion.

DriveWealth, which sells technology that enables companies to trade fractional stocks, attracted $ 459 million, while investors put $ 229 million in Solarisbank, a licensed German digital bank that offers a range of banking services software.

Affirm’s shares, meanwhile, rose last month as it partnered with Amazon to offer BNPL products, while rival US fintech Square (SQ.N) said last month it sold Australian BNPL company Afterpay for $ 29 Billions of dollars bought.

Square is now worth $ 113 billion, more than Europe’s most valuable bank, HSBC, at $ 105 billion.

“Big banks and insurers are going to lose if they don’t act quickly and figure out where to play in this market,” said Simon Torrance, founder of Embedded Finance & Super App Strategies.

Several other retailers have announced plans to expand into financial services this year.

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.

Car manufacturers such as Audi from Volkswagen and Jaguar Land Rover from Tata have experimented with Daimler’s Mercedes with embedding payment technologies in their vehicles to make payment easier.

“Customers expect services, including financial services, to be integrated, convenient, digital and instantly available right at the consumer,” said Roland Folz, CEO of Solarisbank, which provides banking services to more than 50 companies, including Samsung.

It’s not just end users that are being targeted by embedded finance startups. Companies themselves are patted on the back while their digital data is processed by fintechs like Shopify from Canada.

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

“No dealer comes to us and says I want a loan. We go to retailers and say we think it’s time for funding, ”said Kaz Nejatian, vice president, product, merchant services, Shopify.

“We don’t ask for business plans, we don’t ask for tax returns, we don’t ask for proof of income, and we don’t ask for personal guarantees. Not because we are benevolent, but because we think these are bad signals in the chances of success on the Internet, “he said.

A Shopify spokesperson said the funding would go from $ 200 million to $ 2 million. It has provided accumulated capital advances of $ 2.3 billion and is valued at $ 184 billion, well above the Royal Bank of Canada, the country’s largest traditional lender.

CONNECTED FUTURE?

However, Shopify’s lending business is still being overshadowed by the big banks. For example, JPMorgan Chase & Co had a consumer and community loan book worth $ 435 billion at the end of June.

Also, major advances in funding from companies in other sectors could be constrained by regulators.

Officials at the Bank for International Settlements, a consortium of central banks and financial regulators, last month warned the watchdogs to get a grip on the growing influence of tech companies in the financial sector.

Bain’s Harris said the approach taken by financial regulators is that they insist that there is a bank behind every transaction because they don’t know how to regulate tech companies – but that doesn’t mean banks are preventing fintechs from entering.

“You are right that banks will always have a role to play, but it’s not a very rewarding role and it involves very little customer ownership,” he said.

Forrester analyst Jacob Morgan said banks have to decide where to be in the financial chain.

“Can they afford to fight for customer primacy, or do they actually see a more profitable way to market, to become the rails other people walk on?” he said. “Some banks will choose both.”

And some are already fighting back.

Citigroup (CN) has teamed up with Google for bank accounts, Goldman Sachs provides credit cards for Apple, and JPMorgan is buying 75% of Volkswagen’s payments business with plans to expand into other industries.

“Connectivity between different systems is the future,” said Shahrokh Moinian, JPMorgan’s Head of Wholesale Payments, EMEA. “We want to be a leader.”