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Embedded finance is reinventing retail

The trend of financial services being offered by non-financial entities is changing the way we interact with brands and banking products. Until recently, most of our financial interactions were facilitated exclusively by our banks. Today, through Banking-as-a-Service (BaaS), brands across all sectors have access to innovative embedded banking solutions that are cost-effective and easy to integrate. 

BaaS is the glue that holds this operational model together: it is the infrastructure for novel banking products and services with all the tools and capabilities businesses need to seamlessly deliver financial products directly to their customers. 

Full-service BaaS providers, armed with a banking licence, balance sheet and in-depth banking expertise, also handle regulatory and compliance concerns on behalf of clients – letting brands focus on innovating their user journey and pleasing their customers. 


What the data reveals

In order to take advantage of increasing online transactions, brands can now offer payments, cards, loans, investments, insurance and more, reimagining the customer experience and creating new ways to attract and retain customers. 

Many have already dipped their toes in financial services – our recent survey among 753 senior retail decision-makers across the UK, Germany and Belgium found that 74% of the businesses surveyed currently offer embedded financial products or services to customers. Importantly, a majority (56%) plan to roll out new offerings over the coming 12 months, compared with just 5% who do not currently offer embedded finance and have no plans to start doing so in the year ahead. 

The motivation for these investments stems from both customers and competitors. Two-thirds (65%) of retailers saw more competitors adopting embedded finance solutions in 2021, while similar numbers (67%) have experienced greater demand directly from their customers. 


Beyond Buy Now, Pay Later 

The most prominent example of embedded finance today is Buy Now, Pay Later (BNPL), which gives customers the option to stagger their payments. Yet, despite BNPL’s popularity, it represents just the tip of the iceberg of what embedded finance has to offer. 

To date, most retailers have outsourced their split-payment capability to third parties, ceding some control of their checkout journey, and ultimately, their customer. The rise of BaaS, however, means that retailers of any size can offer BNPL solutions directly within their ecosystem, which are tailored towards the specific needs of their shoppers. 

That’s not where the story ends, either. As retailers realise the value of delivering financial services directly to their customers, we will soon see new products being offered by our favourite brands. 

Despite 74% of European retailers saying they currently offer embedded finance, Vodeno’s aforementioned research found that smaller proportions had explored cash back, credit cards or debit cards (all 32%), for instance. This is due to change over the coming months. 

Over a third (37%) of retailers surveyed said they plan to offer decoupled debit over the coming 12 months as they explore their options in this space. Expect to see the rise of branded debit cards that are linked to a customer’s preferred checking account, giving them the ability to seamlessly pay for purchases using the card, with payment of funds automatically processed via the user’s bank of choice. 

Similar numbers also said they would be introducing overdrafts (36%), instant payments (35%) and current accounts (34%) as they leverage embedded banking to meet their customers at the point of need. Meanwhile, insurance products (32%), loans (32%) and debit and credit cards (31% and 29%, respectively) have also been highlighted as priorities by respondents for the coming year. 

As retailers diversify the financial options on offer, customers will no doubt start to appreciate the benefits of an end-to-end experience. Indeed, the value of embedded finance lies in its ability to remove friction, saving customers time by removing the need to visit a third-party vendor to complete a transaction. 


Why should retailers care?

The benefits for consumers are clear, but what’s in it for retailers? 

Our research shows that there are a wide variety of reasons why a retail company would choose to offer such products and services. Creating new revenue streams (selected by 41% of retailers offering embedded finance as a major motivating factor for doing so), growing the customer basket and enhanced customer loyalty (both 40%) ranked as the three most important considerations. However, they did so only marginally. 

Gaining improved customer loyalty (39%), having a faster or more convenient checkout, and increasing satisfaction with the brand (both 38%) followed closely behind. 

Retailers are evidently approaching embedded finance as a means of achieving their preferred commercial goals or outcomes for their customers. It is quickly becoming critical to business ambitions, such as boosting revenue, improving brand reputation, lowering costs and attracting new shoppers. BaaS providers offer retailers a way to deliver embedded banking solutions, importantly, with the customer staying completely with them. 

A complete and innovative customer journey is within reach, and BaaS unlocks this possibility for companies across multiple sectors.


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Wojciech Sobieraj

Wojciech Sobieraj



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30 Mar 2022



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