The embedded finance revolution in retail

By Andries Smit, CEO and founder of Upside Saving

The retail sector is in the midst of a huge digital transformation. From digital wallets and savings accounts, to frictionless payments and lending, an ever-increasing number of non-bank businesses are beginning to welcome embedded finance as part of their service.

Having already disrupted banking, embedded finance serves to bridge the gap between finance and consumers; an invaluable asset that non-finance sectors are just waking up to. Embedded finance companies have ensured there is less friction for a consumer during a transaction, which increases the likelihood that they will see their retail journey through to the end. This in turn unlocks greater value for retail business.

The benefits of embedded finance to retail are numerous. Not only can retailers increase sales by providing a more seamless experience for customers, they can also drive customer loyalty and trust as a result of an enhanced retail journey. Retailers implementing embedded finance services will be able to collect highly detailed spend data insights which can be monetized for competitive advantage, shape decision making on business development and reduce marketing costs by allowing efficient and hyper-targeted digital strategies. They can also avoid high credit card fees by selling products on buy now, pay later (BNPL) financing plans.

For customers, it’s the straightforward, holistic, integrated, and personalised experiences that offer the real value. Digital consumers are increasingly used to getting instant gratification and having a variety of options at their fingertips, meaning they are easily frustrated by the slow and clunky models of old. These increasingly high expectations have been a driving force for the rapid technology advances behind embedded finance, as banks and retailers a-like scramble to stay relevant and keep up with finance innovations.

Today any business, financial or nonbank, that struggles to quickly implement the latest that fintech has to offer, will fall too far behind. However, it should be noted that the adoption of any new technology should be approached strategically. Offering customers more options, doesn’t necessarily mean more value. In fact, it may only serve to over-complicate a process that customers are demanding be more simple. Partnering with a fintech company can help businesses to ensure they have access to the necessary technical skill, knowledge and innovation in the future.

Embedded finance has opened up new possibilities for the fintech landscape including its ability to integrate with a broader range of sectors. From retailers offering lending at the point of purchase to taxis allowing instant payments in-app, finance technology is increasingly integrating industries that previously seemed to have very little in common. As a result of this assimilation, financial services have been able to provide more to consumers than just easier access to and better management of their money. They can now be tailored to consider and benefit a person’s financial and economic well-being, adding even further value for consumers.

The future of embedded finance relies heavily on the trust consumers place in it. At a time when data privacy and cybersecurity are top customer concerns, confidence in fintech algorithms and data usage must be built slowly and be unshakeable. By providing frictionless, easy to use finance services that consumers can trust, embedded finance companies can continue to grow and develop fuelled by consumer confidence. Without this trust new technological advancements will not progress. Machine learning and artificial intelligence could have a significant role to play in the future growth of embedded finance.

For example; fintech that could learn a customer’s preferences, anticipate their needs and then act on this information to provide a better and more tailored experience, has the potential to revolutionise not just the financial sector, but every part of our lives where money is discussed or exchanged. Imagine tailored student loans based on current and projected income that aim to minimise debt, or even disruption in the mortgage market with lending and home insurance embedded within the real estate journey.

Embedded finance is without a doubt the future of banking, many industry leaders already agree. But it also holds so much potential to revolutionise the way we live by creating a truly seamless society where banking and finance goes hand in hand with other industries, like retail without any effort.

As the technology progresses this is certainly a trend that retailers would do well to keep an eye on. Adding value to the customer experience through embedded finance technology will give any business a competitive edge, therefore opportunities to do this should be regarded as highly as opportunities to cost save, as both can have a significant positive impact on retail margin.

By Andries Smit, CEO and founder of Upside Saving

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