Embedded Finance: A Financial Services Boon for Retailers

Embedded finance refers to the integration of financial services into non-financial platforms, enabling businesses such as retailers to offer banking, lending, insurance and payment services directly within their existing products. This can improve customer satisfaction, loyalty and open new revenue streams. In fact, one study predicts that embedded finance revenue will increase 148 percent from $92 billion in 2024 to $228 billion in just four years.

One of the more popular forms of embedded finance is buy now, pay later (BNPL). Recent data has shown it will be a key payment method for consumers this holiday season.

Consider the following:

• One report predicts that U.S. shoppers are expected to spend $18.5 billion using third-party BNPL services for holiday purchases in the last quarter of 2024.
• A recent survey found that 30 percent of respondents are considering using BNPL for their holiday shopping this year. The survey also found that 23 percent said BNPL helps them stretch their holiday budget.

Enhancing the Customer Experience While Gaining a Competitive Edge … and New Revenue Streams

Embedded finance providers’ highly flexible financial solutions are tailored to meet the specific needs of their customers. For example, a brand can offer customized lending products based on individual customer profiles, which can be seamlessly integrated into the purchases process.

Customers can instantly access loans, make payments or secure necessary insurance without the delays associated with more traditional banking processes. This immediacy improves customer satisfaction while also increasing the likelihood of consumers completing transactions, reducing cart abandonment in the process.

By offering integrated financial services, retailers also stand to gain a distinct competitive advantage by opening new avenues for revenue generation such as payment processing, lending and insurance.

For customers, an embedded finance solution means they no longer need to leave an app or website to complete a financial transaction, resulting in more enhanced experience. Embedded finance also allows for a higher degree of personalization, with financial services tailored based on customer data and behavior — and ensuring more relevant and appealing offers.

Understanding and Overcoming Embedded Finance Hurdles

While the benefits of embedded finance are substantial, it’s important for brands to understand that deploying embedded finance solutions come with their own set of challenges, including regulatory compliance, technology integration, and customer trust.

To address these challenges, it’s vital that organizations keep up-to-date with the latest financial regulations in the regions it operates, implement comprehensive compliance programs to ensure all financial activities adequately meet regulatory requirements, and look to collaborate with financial services providers that have a strong understanding of the regulatory landscape that can help navigate complex regulations more effectively.

On the technical side, integrating financial services into existing systems can be challenging, requiring robust IT infrastructure, seamless data flows and compatibility with current platforms. Utilizing application programming interfaces (APIs) for seamless integrations can facilitate data exchanges between an organization’s existing systems and financial services providers, ensuring smooth operations for customers.

Building and maintaining the trust and loyalty of customers is also paramount when offering financial services of any kind, including embedded finance. Retailers must be upfront and straightforward with their customers about how their data is used and the measures that are in place to protect it.

Expanding Consumer Access to Financial Services

Retailers are recognizing the value of embedded finance by creating super-apps or platforms that incorporate a variety of types of services (including financial) to enhance customer loyalty and create new revenue streams.

Embedded finance is fundamentally changing the way brands interact with their customers, offering unparalleled flexibility, competitive advantages and enhanced user experiences. By embracing this trend, retailers can not only meet the evolving needs of their customers but also unlock new growth opportunities.

Kathy Stares is executive vice president of North America for Provenir, a global leader in AI-powered risk decisioning software.