Tom Brandl
Two of the country’s biggest retailers, Walmart and Walgreens, recently announced they are launching their own financial services. This makes sense. The pandemic has resulted in a shift in consumer behavior that now favors contactless and digital banking options, and with one in four U.S. adults considered unbanked or underbanked, this presents an opportunity to offer services to a deep and loyal customer base.
But as the pandemic has forced even traditional retail banks to rethink their business model, launching a financial service isn’t as simple as taking a successful retail model and applying it to banking. It needs to be both effective and secure. This is where fintech can step in.
As more and more retailers make this move, partnering and collaborating with fintechs can help them build, scale and secure their financial offerings. Building infrastructure and providing top-notch cybersecurity is at the core of what we do, not the sideshow. And the best way for retailers to attract, gain and retain customers — and do so in a meaningful way that adapts to the current environment — is to start focused, scale quickly and keep secure.
Helping retailers get up to speed
At Prime Trust, we have seen more and more retailers asking for guidance or specific widgets. They want to know how we can help them create more interesting product offerings for their customers as well as ensure the products are secure.
They turn to us because they don’t know where to start. We get it. From NFTs to Ethereum, the buzzwords are always changing. But the core problems remain the same. Every conversation about a new currency offers an opportunity to educate a potential customer on the fintech ecosystem, to explain how the blockchain works and how fintech companies can help.
Retailers looking to enter the financial services industry need to get to market quickly, especially if they have no previous experience in any type of financial or credit offering for their customers. The strategy behind speed is a hyperfocused offering.
Start with smaller services with much more focus, developing a deep understanding of what the customer wants and delivering a great experience from that. The sooner a retailer can gain a toehold in the market and start to gain mindshare the better positioned they will be when they start to scale.
For example, if a retailer wanted to start with a payment platform, it’ll need to open user accounts, fund those accounts and allow users to send or spend that money (maybe even buy some crypto). Work with them to create custodial accounts, adhere to a KYC/AMC compliance process, tie a debit card to those accounts and process the sending and receiving of funds. And if they want some crypto, fintech startups can source liquidity and convert fiat to crypto. These steps would help to establish a ground level for the retailer and a base to scale.
Whenever you have an education session with a retailer, you should help them understand the space and figure out how to position their entry. In return, retailers will help you sharpen your user profiles and sense of the marketplace, as well as push you to create plug and play widgets and APIs that you can offer your clients as your business expands.
Scale through services
If the startup phase is all about starting and honing the product to fit the immediate needs of the market, the next phase is about scaling that service to meet more of existing customers’ needs and introducing new services to meet the needs of prospective customers. However, retailers can’t do everything themselves, and this is the time to think seriously about strategic partnerships and the benefits both parties can receive from increased collaboration.
Scaling up can be scary, even more so than starting out. The goal is purposeful growth. We start by educating them on the entire ecosystem of offerings available. Do they want to offer a digital wallet? Maybe crypto? What we see is the need to provide this architecture at scale, and this infrastructure is more accessible than ever.
When scaling, figuring out and building custom solutions can result in losing a competitive advantage. Custody is a good example of this. Building out a successful custodial solution can cost millions of dollars. It requires expertise across security, private key management, asset-specific compliance, and managing and storing fiat currency, securities and crypto currency. Via a trusted ecosystem of APIs, retailers can build financial solutions on top of those APIs or widget-based infrastructure to bring products to market faster. This allows retailers to focus on growth instead of building and managing services.
But infrastructure is just one part of scale. The other is to maintain a great customer experience at scale. COVID has accelerated the shift from traditional banking with an emphasis on the client experience. The daily average fintech downloads have increased 12% during the pandemic and customers are demanding speed, transparency and accuracy. At the same time, there has been a 7% increase in unsuccessful transactions. Scaling without the proper infrastructure can result in a negative experience for your customers.
Retailers need to be clear about what they want to achieve and pick the right solutions to meet those objectives. In retail, the average person usually prefers a one-stop shop. The same is true for fintech. This is where the potential for collaboration lies. Much like the way retailers offer multiple items on the shelf, they can partner with a fintech company to offer multiple, innovative offerings.
Narrow in on cybersecurity
Back in the day, cybersecurity was a “nice to have” item. Today, it’s absolutely critical. Any company in fintech aiming to attract new customers and retain existing ones must understand cybersecurity, and this extends to the retail sector.
COVID has shifted the security paradigm. Companies that have been most successful in switching to a fully remote workplace have implemented what’s called a “zero trust architecture.” This approach moves us from static, perimeter-based security to a focus on users and the assets and resources they interact with. Your network should be fully secure whether your product manager is working in a Starbucks down the street, on a beach in Costa Rica or in the office.
Your customers, including those in retail, will want to know you are operating in a way that is going to meet or exceed their requirements. One way to do that is becoming certified against a recognized and respected information management security standard, such as ISO/IEC 27001:2013. This standard details requirements for establishing, implementing, maintaining and continually improving their information security management systems. For fintech companies, adhering to this standard sends a strong signal that the information and digital assets you hold are secure.
Maintaining digital security is one aspect of cybersecurity. Making sure you stay up to date with the latest regulations from the SEC, OCC, FRB, U.S. Department of Justice and more is another. A deep regulatory knowledge is a prerequisite of attracting new customers. For example, fintech companies, just like banks, need to comply with anti-money laundering (AML) regulations. Even though sometimes it’s not direct theft, not complying with Bank Secrecy Act (BSA) requirements such as AML or a Customer Identification Program (CIP) that ensures the identity of a customer can reduce confidence in a company’s ability to perform. Look to add a compliance component that includes a broad set of data sources including watchlists, fraud databases and transaction monitoring systems to deliver fraud protection and financial crime detection at scale.
As retailers begin to expand their banking opportunities, they will need a fintech infrastructure to help them position their products, keep them safe and sell to end users. Now is your chance to make connections in that world and help them expand their ecosystem. Everyone will benefit.
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