Retail's Next Margin: Financial Services
Retailers have spent decades building what banks can't buy: trusted relationships with customers who show up repeatedly, spend predictably, and recruit their friends. Every time one of those customers checks out—swipe, tap, split the payment—the transaction clears and the sale posts.
The retailer keeps the merchandise margin. The issuing bank, payment processor, and BNPL platform keep the financial margin.
Banks own the wallet and retailers own the shelf. That's been the deal for as long as card networks have existed. But the infrastructure that made this division inevitable has matured. Retailers can now embed financial services into their customer experiences without becoming banks. The margin they're paying away could flow back.
The margin problem is simple math
A customer walks into a mid-size retailer, selects $200 of merchandise, and makes a purchase using a third-party credit card. The retailer pays roughly 2% in interchange fees.1 Four dollars to the issuing bank and card networks.
Customer finances the purchase through Affirm? Another 4-6% in merchant fees.2 Twelve dollars gone.
At scale, these transaction fees represent billions in margin flowing to financial intermediaries rather than retailers.
Large retailers like Target have figured this out. Target offers its card through its Target Circle™ Card program.3 That same $200 purchase likely generates interchange revenue instead of cost. Add installment financing under the retailer's brand and they can earn economics from the credit relationship through their bank partnership.
Starbucks has run this playbook for over a decade with its stored-value card, building a massive deposit base the company can deploy before brewing a single drink.4
The infrastructure that makes this possible has matured. API-driven banking platforms. Instant payment rails. Regulatory frameworks for bank partnerships. Embedding finance went from science project to margin decision. Now retailers face one question: who moves first?
Retailers already have what it takes to own financial relationships: trust
Banks bring regulatory expertise, compliance infrastructure, and the trust that comes from holding FDIC insurance. Retailers provide established customer relationships built on frequent interactions, loyalty programs, and solving everyday problems. When retailers partner with banks to embed financial services, they combine regulatory credibility with established customer trust.
Nearly half of consumers trust e-commerce sites and retailers to deliver regulated financial services.5 Among Millennials and Gen Z, 54% would switch from a traditional bank to an embedded lending provider.6
The behavior to support this data already exists: consumers are comfortable storing payment credentials with Amazon, loading value onto Starbucks wallets, and financing furniture through Home Depot's consumer credit programs.
What’s changed is the scope. Retailers can now extend far beyond point-of-sale experiences. They can now offer FDIC-insured checking accounts, co-branded debit cards that work anywhere Visa or Mastercard is accepted, instant refunds via push-to-card, real-time payment options that settle in seconds.
Walmart's expansion into financial services through Walmart+ and its fintech partnerships illustrates the shift.7 The company recognizes that payments, credit, and stored value are features customers expect in any relationship where they show up multiple times a week. Finance has become infrastructure for everything else.
How retailers are embedding finance
Purchase financing. BNPL proved customers will use credit embedded at checkout. Extending this into Offering installment loans or revolving credit under the retailer's brand (through a bank partner) keeps more margin in-house and builds a financial relationship past a single purchase. Retailers offering flexible payment options consistently commonly report increases in average order value and conversion rates.8
Card programs and rewards. Card programs embed financial services deeper into customer relationships. Retailers can embed cards directly into loyalty programs to capture economics and customer data that would otherwise flow to third-party payment methods.
Starbucks demonstrates this at scale with its stored-value card: customers preload funds, giving the retailer billions in deposits before the first latte is purchased. Retailers also maintain 100% of the purchase data. Customers get rewards for every dollar spent and retailers capture the float on stored balances, breakage from unused funds, as well as complete visibility into spending patterns. These closed-loop programs work only within the retailer's ecosystem, which concentrates wallet share and strengthens the habit loop.
For retailers seeking broader utility, open-loop cards (like Amazon Prime Visa) work anywhere major networks are accepted and generate shared interchange revenue. While cards economics are shared across several parties, including banks, networks, and retailers, these programs expand reach beyond the retailer’s own ecosystem.
Instant refunds. Push-to-card technology lets retailers refund purchases instantly to a customer's debit card instead of making them wait 3-5 business days for a credit card refund or store credit. The experience improvement reduces return friction and increases customer satisfaction.
Real-time supplier payments. Retailers can use instant payment rails like RTP® and FedNow® to pay suppliers immediately instead of on net-30 or net-60 terms. Suppliers benefit from improved cash flow, while retailers gain leverage to negotiate better pricing or early-payment discounts. The relationship strengthens overall, especially for small and mid-size suppliers that rely on predictable cash flow to operate.
These products stack. Start with purchase financing, add a rewards program, enable instant refunds for better customer experience, and extend real-time payments to suppliers. Each layer deepens relationships on both sides of the business.
Direct access to modern banking infrastructure is the lever
Capturing financial services margin requires direct access to banking infrastructure that most retailers don't have or don't want to build:
- Bank-grade regulatory compliance across multiple jurisdictions
- Multi-state lending licenses for credit products
- Capital reserves to back deposit and lending operations
- Transaction monitoring systems for fraud and compliance
- Payment network integration across a dozen rails and protocols
Most retailers don’t want to become banks. They want the customer experience and the margin without the operational and regulatory weight.
Modern banking infrastructure makes this possible. Platforms like Cross River provide the regulated foundation—charter, compliance coverage, and API-driven core—that lets retailers launch financial products without applying for banking licenses or hiring compliance teams.
This infrastructure layer enables retailers to offer FDIC-insured deposit accounts as part of their financial product suite. It lets retailers launch branded card programs under their own name. It allows marketplaces to offer instant seller payouts without building a treasury operation
Customers never see it. They see the retailer. The banking layer stays hidden.
Why you should move first + How Cross River can help
Embedded finance is projected to represent over 10% of total U.S. transaction value by 2026.9 Fintech disruption has moved from the edges to the core. Retailers and platforms now recognize the customer relationship extends past checkout into the wallet.
Retailers who move early will capture margin that currently flows to banks and processors. They'll deepen financial relationships with their highest-value customers, reduce friction in checkout and marketplace operations, redefine what their brand means beyond a place to buy things.
Cross River provides the regulated banking infrastructure—charter, compliance, and API-driven technology—that lets retailers launch these products without becoming banks. Ready to explore what's possible? Connect with our team at crossriver.com/contact-sales.
