Embedded finance is transforming e-commerce for the better. It enables online businesses to offer payment processing, lending, insurance, and other financial services within their own platforms as a non-finance platform. The convenience and efficient shopping experience offered is changing the way people shop and how e-commerce businesses operate.
The companies that implemented embedded finance have seen significant growth in conversion rates of up to 12 percent, the average order value of up to 30 percent, and as much as a 7 percent incremental revenue. Brain & Company’s 2022 report also projected the embedded finance market value to grow to $7 trillion by 2030, indicating an increasing demand for this service.
Embedded Finance benefits
Embedded finance offers integrated payment solutions for e-commerce businesses. Customers can access financing options at the point of sale without switching to other platforms. This seamless experience makes it easier for buyers to complete their purchases, ensuring revenues for the businesses.
This integration provides better access for financial products, especially digital banking. Commonly, digital bank accounts are easier to set up than their traditional counterparts. It allows non-banking populations can easily make their purchase in e-commerce platforms.
Embedded finance opens new sales and revenue stream opportunities for e-commerce businesses. They provide sellers with working capital loans based on sales data, enabling them to earn additional revenue through interest and fees. The integration also increases customer retention as they are less likely to switch to competitors. This leverage offers long-term success in a competitive market.
Personalisation is another embedded finance’s strong suit. E-commerce businesses can use the customer’s data from their platforms to offer financial products tailored to their needs, creating a better customer experience.
Accenture found that 63 percent of consumers are more likely to buy a financial product from non-financial platforms that they trust. This report emphasises the importance of personalised embedded finance in generating more financial product sales.
Case Study: Amazon
One of the e-commerce platforms that successfully uses embedded finance is Amazon. In 2007, it launched Amazon Pay, allowing users to make purchases on external sites using their Amazon account details. This move not only expanded Amazon’s revenue opportunities but also strengthened customer loyalty.
Over the years, Amazon has continued evolving its embedded finance offerings, including one-click payments, buy now pay later, and lending services. Their latest venture involves a cash advance program in partnership with fintech company Parafin, which provides select sellers easy access to capital without interest or collaterals.
Case Study: Shopify
Shopify also creates a good embedded finance ecosystem with its various financial products. The Canadian e-commerce platform launched Shopify Payments in 2013 to simplify payment. This was followed by Shopify Capital in 2016, a lending product now available in four countries. The latest addition is Shopify Balance, a financial product offering a bank account and a debit card for managing financial activities.
Shopify earns most of its revenue from “merchant solutions” rather than just e-commerce software. This segment, which includes financial and fulfilment services, is growing much faster than its SaaS offerings — 29 percent compared to 8 percent as of Q4 2022, according to the company’s financial report.
Future Outlook for Embedded Finance
The future of embedded finance seems promising, with experts projecting an increase in demand and market share. As customers expect better integrated financial solutions, many companies will continue to adopt this system.
Embedded finance will also continue evolving with new technological advancements like artificial intelligence (AI) and machine learning (ML). Both AI and ML are projected to play a significant role in increasing efficiency, security, and sales for embedded finance in the future.
To maximise the benefits of embedded finance, financial institutions and e-commerce businesses should collaborate to anticipate possible hurdles. Regulatory and compliance challenges are one of the complex issues that may hamper its development.
E-commerce platforms should also ensure their new sophisticated solutions are scalable. As new financial technology is adopted, the platforms should be capable of managing increasing transaction volumes without sacrificing performance or security.
- Embedded Finance
