Embedded finance is gaining significant traction among retailers. The term refers to the integration of financial services into non-financial applications and platforms. For example, an app that offers cashback on large purchases, or pay later features with zero interest. This new crop of digital tools is enabling retailers to strengthen customer relationships.
Retailers can create a more convenient shopping experience by providing features like flexible payment options and personalised financial advice directly within their platforms. This approach not only builds customer loyalty but also opens doors to new revenue streams from integrated financial services.
Enhancing Customer Shopping Experience
Embedded finance can keep customers engaged in the retail environment and enhance the customer shopping experience. By embedding payment options directly into their platforms, retailers can offer a faster and more convenient payment process. Customers do not need to leave the retail environment to complete a transaction.
One of the most significant benefits of embedded finance is the ability to offer point-of-sale financing. Customers can apply for funding at the time of purchase, rather than having to apply for credit separately.
Referred to as BNPL (buy now and pay later), this feature makes purchasing decisions easier and more flexible. This flexibility is driving customer loyalty. A study by Vodeno found that 40% of respondents would only choose brands offering BNPL and similar financial technology features like cashback. This number jumps to 50% for young adults.
Increasing Sales
Research by Natwest and BCG shows promising results for businesses that adopt embedded finance. Retailers saw conversion rates jump by 12%, average order value increase by 30%, and revenue rise by 7%.
Embedded finance can be a strategic tool for maximising revenue. Instead of just processing transactions, retailers can offer additional financial services for a fee. For example, a procurement platform could charge for automated reconciliation. This will save businesses time and generate new income.
Successful Implementation and Future Innovations
Several retail companies have successfully implemented embedded finance. These include Amazon with its Amazon Pay. The feature allows customers to use their payment information stored on various platforms. Another example is Walmart‘s mobile app. This platform provides customers with a variety of financial services, from paying for their groceries to managing their Walmart MoneyCard.
John Lewis has also integrated its financial services, offering customers credit cards, insurance, and personal loans directly through their retail platform. There’s also Tesco Bank, which provides a range of financial products, including savings accounts, loans, credit cards, and insurance products.
According to KBV research, the global embedded finance market is expected to reach $384.8 billion by 2029, reflecting a compound annual growth rate (CAGR) of 30%. Parallel to the growth, retailers will continue to innovate, offering more integrated financial services. These can include more sophisticated loyalty programmes, personalised financial advice, new payment options, and enhanced data analytics to better understand and serve customers.
Retailers must embrace these innovations to remain competitive and meet the ever-increasing expectations of modern shoppers. By integrating financial services into non-financial products or services, retailers not only create added value for customers but also increase customer loyalty. In addition, embedded finance also presents opportunities for retailers to increase profits.
- Embedded Finance
