‘We look at embedded finance as creating one customer journey’: Nordstrom’s Dennis Bauer on the blurring banking-commerce line

It appears that embedded finance has evolved from an idea to an important component of retail. While fintechs and financial institutions may have standardized their approach to implementing embedded finance, retail brands have a different way to offer their customers financial services intertwined with their core products and user experiences.

“From our perspective, we look at it [embedded finance] as creating one customer journey,” said Dennis Bauer, president of credit, loyalty and payments at Nordstrom, at Tearsheet’s The Big Bank Theory Conference, recently held in New York.

For example, soon after PayPal launched, it became the default payment method used by a majority of eBay users in 2002. It focused on getting down to basics to make the checkout experience easier for customers. According to Bauer, Nordstrom is walking the same path in terms of making the user journey more cohesive through the lens of a retailer. The company offers credit applications and enables cash flow by offering the choice of the same payment vehicles across stores or online channels. That in turn leads to smoother checkout experiences and eventually increased conversion. 

“If we do a good job with that and the customer feels like there's value in how we're interacting with them, or if they sign up for let's say The Nordy Club program – the Nordstrom rewards program – then we've struck the right chord,” said Bauer. 

Nordstrom offers a rewards program and a store-brand credit card. The store retail credit card can only be used at Nordstrom brand locations, including Nordstrom Rack, HauteLook, and Nordstrom Trunk Club. It also offers a Visa credit card to shoppers that can be used anywhere. The retailer offers a debit card option, as well, that still provides benefits but directly debits the customer's personal checking account. Adding customers into Nordstrom’s ecosystem through cards and reward programs increases stickiness and is one of the strategies the retailer uses to double down conversion.

“From a financial perspective, we want to bring consumers into our ecosystem. It’s definitely lucrative and if we can help the underbanked and other folks on their credit journey, they're going to be sticking around with us,” said Bauer.

Customer loyalty can make (or break) a brand

While offering points and rewards can be an ideal way to ramp up retention numbers, it also provides a positive user experience when customers use a brand’s embedded finance solutions. 

Nordstrom implements a similar strategy by providing instant gratification to customers. It allows consumers to check in-store availability and reserve or buy ahead so they can pick up in-store without dreading a wasted trip and avoid shipping fees. The retailer leverages consumer psychology, the emotional fulfillment they feel after in-person retail therapy. This way Nordstrom encourages in-store purchases through loyalty programs, which increases the opportunity to upsell or cross-sell other products.

The retailer recently embedded augmented reality (AR) in its app, where customers can view and try different items on the Nordstrom app. Earlier, the company also added Nordstrom’s TextStyle service to communicate with customers on a personal level through their mobile devices, enabling shoppers to make personalized purchases within texts. By evaluating shoppers’ preferences and purchase history, the virtual stylist recommends products tailored to their liking and needs.

“More than the product, it’s the experience that counts for consumers,” said Trish Mosconi, EVP, chief strategy officer, and corporate development leader at Synchrony, talking about the future of retail at the same event.

What’s in store for embedded finance services in retail

According to Bauer, retailers can unlock more value by matching their framework to their embedded financial strategies by way of data. User–permissioned data can further provide consumers with more personalized experiences. However, data sharing and privacy have always been a concern for consumers and sparked multiple debates. But if the right consents and conditions are in order, the possibilities can be intriguing. 

The future of embedded finance services in retail boils down to a few factors, according to Bauer: digitization of commerce and proliferation of digital devices, business management, and sufficiently good customer service.

Bauer also foresees embedded finance metamorphosing into embedded customer service. A growing number of consumers like to help themselves and prefer fixing issues using their own mobile phones as a result of automation, self-service, and omnichannel shopping experiences. 

Bauer is also of the view that Artificial Intelligence (AI) should be put to good use in use cases that aren't so atypical. And while data points help to fight fraud in the age of AI and automation, Nordstrom is trying to approach it differently. The company is inclined toward building a trust score – leveraging AI they aim to build on their features to evaluate customer journeys. In case a consumer doesn't have a receipt as proof of purchase, leveraging the customer's digital existence in the Nordstrom ecosystem coupled with AI capabilities can help analyze their journey – their payment records and for how long they have been consistently buying from the brand. 

“That's more important to Nordstrom than the fraud side. The fraud side is really important with big numbers on a yearly basis, but if we can get to the point where we're applying that trust score to our customers, it is going to change the way they interact with us. And we feel like that's how we can take the customer service forward and move it to online and other parts of the business,” explained Bauer.

Fraud will live on

ACH payments fraud has always been a key area of concern when it comes to scams that drive up costs associated with non-sufficient funds (NSF) and administrative returns. In fact, ACH debits were ranked as the second-most popular method targeted by fraudsters, second only to checks.

“We stopped acquiring new debit customers because ACH rails lag and because of fraud, which wasn’t worthwhile,” said Bauer.

Moving ahead, Bauer anticipates that real-time payment rails can further bolster Nordstrom’s performance by smoothing the payments experience for its 700,000 customers that do $1 billion a year in sales on the retailer’s debit card. 

[The quotes may be slightly edited for length and clarity.]