The parent company of the home furnishing retailer purchased a 49% stake in Ikano Bank, a UK-based retail finance company specializing in point-of-sale (POS) loans and store-branded credit cards, with the option to acquire the remaining shares at a later date. Its financing solutions—including interest-free credit, interest-bearing loans, and buy now, pay later (BNPL) financing—will help Ikea achieve its goal of introducing more consumer banking services in-store and online. The transaction builds upon Ikea’s already robust set of financing options, with the potential of expanding into more innovative solutions like embedded lending.
Retailers are increasingly edging into financial services via embedded lending products, creating partnership opportunities for small banks. Here are two reasons why partnering with businesses like Ikea makes sense for banks:
- POS lending (BNPL) is a burgeoning area for large retailers, providing a wide selection of potential partners for small banks. Ikea could join the ranks of dozens of retail chains who have teamed up with financial services providers to offer the payment option, including Walmart, Macy’s, and Neiman Marcus. Goldman Sachs digital offshoot Marcus’ partnership with JetBlue to finance eligible trips is the highest-profile example of a bank providing these services to a large business. There is strong interest in the service, with 50.1% of US consumers ages 34–44 having used it. Banks seeking to penetrate the fledgling industry will have a vast array of brands and experiences to choose from.
- Partnering with large retailers provides small banks with exposure to a much bigger customer base than typically seen. A small bank would significantly boost brand recognition by partnering with a better-known business that sells expensive products customers want. More importantly, it could immediately increase a bank’s access to customers, eventually allowing it to create new products tailored to their specific needs. In a broader sense, increased collaboration between small banks and retailers could make them attractive acquisition targets, as evidenced by Ikea’s option to purchase Ikano Bank’s remaining shares at a later date. And these kinds of partnerships could also enable banks to pull in new customers by capitalizing on apparent consumer trust in retailers: In Insider Intelligence’s 2020 Digital Banking Trust survey, a greater percentage of US respondents cited Amazon as a brand they would trust to provide them with banking services, versus a bank that isn’t their primary provider.
