Retailers’ Embedded Finance Bets Pay Off

Retailers around the world are seeing their investments in embedded finance offerings boost their revenue.

By integrating financial services directly into the shopping experience — offering payment, lending, insurance and other financial products to customers — retailers are seeing positive results.

Take, for instance, the United Kingdom. A report from NatWest Boxed and Boston Consulting Group, “Bridging Finance & Retail: The Power of Banking-as-a-Service,” which surveyed retailers in the country, noted that respondents saw a 5% to 12% increase in conversion when they offered financial services as well as a 15% to 30% lift in average order values and a 4% to 7% boost to revenue.

In the United States, retailers are also seeing embedded finance capabilities drive performance. Take, for instance, buy now, pay later (BNPL) capabilities.

“It’s never been more important for people to be able to hang onto their cash, as more consumers are looking to use BNPL to pay for the necessities of life … all the way around to fun things like travel and entertainment,” i2c President Jacqueline White told PYMNTS in an interview in January.

PYMNTS Intelligence’s report “Divided, Not Conquered: Acquirer and Merchant Confusion Clouds Split-Payments Landscape,” which drew from a survey of more than 2,500 U.S. consumers, found that 37% used BNPL plans, and that share soared to 49% among Generation Z and 52% for millennials.

This functionality can be key to winning shoppers’ loyalty, especially among younger generations. The PYMNTS Intelligence report “The Credit Accessibility Series: BNPL’s Wide-Ranging Impact on Consumers and Merchants” found that if BNPL were unavailable for a given purchase, 27% of Gen Z would opt not to buy the item.

Plus, many retailers offer store credit cards or financing options to customers, allowing them to make purchases with deferred payment or low-interest financing. These financing options are often integrated into the checkout process, providing customers with additional flexibility and purchasing power. Yet for retailers, the success of such cards is far from guaranteed.

There can be hurdles to retailers, especially smaller players, looking to integrate embedded finance.

“[Small- to medium-sized businesses (SMBs)] face a lot of pain points when it comes to managing and adopting financial services,” Luke Latham, general manager of Australia and New Zealand at Airwallex, noted in a conversation with PYMNTS in December.

He added that challenges range from processing and disbursing payments to the complexity of managing multiple payout methods and currencies. They also include ongoing struggles with a lack of automation.

Yet for those that can stick the landing, the opportunity is significant.

“There is a lot of success in the SMB market using [embedded finance] to satisfy their customers and present this as an innovation,” Tom Randklev, global head of product at CellPoint Digital, added in the December report. “The whole ecosystem is inherently managed, which creates efficiencies and a delightful customer experience.”

When the execution is successful, embedded finance can play a role in transforming the retail industry by integrating financial services into the shopping experience, enhancing customer convenience, driving revenue growth and fostering stronger customer relationships.