This April, The Fintech Times is focusing on all things embedded finance, the integration of financial services into non-financial products and services. As the space rapidly develops, we look to highlight the latest developments, initiatives and challenges embedded finance has to offer and overcome across the globe.
Having spent much of the month looking into banking-as-a-service, online marketplaces and AI within the world of embedded finance, we now turn our attention to checkouts and e-commerce. It is already abundantly clear that businesses are utilising embedded finance solutions to improve conversion rates and create a better experience for customers.
But what exactly are the tangible benefits that embedded finance can offer merchants within their e-commerce checkouts?
Embedded finance is ‘win-win’
For Daniel Cohen, CEO of paytech firm PayU GPO, there are no losers when it comes to embedded finance, benefitting merchants and consumers alike: “Ease of use and efficiency have always been key drivers behind the global digitalisation trends, and when thinking of consumers, it rings even truer!
“Embedded finance enables merchants to easily offer their customers value added service, all within the checkout process, to drive better more valuable experiences for the consumers. It creates a win-win situation: on the one hand, merchants can easily offer these options without having to invest in the technology and resources to build and maintain these services; on the other, the consumers are exposed to additional value in an intuitive click-of-a-button manner.
“With embedded finance, merchants can deepen their relationships with their customers from a ‘buy this’ from me, to a more ‘let me help you buy this’ with either credit offerings, payment methods, card memberships and other enabling financial benefits.”
Creating a more ‘personalised, efficient, and rewarding’ shopping experience
Sophia Goldberg, CEO and co-founder at Ansa, a payments platform for merchants, explains exactly how embedded finance solutions can drive repeat business: “There are many benefits to merchants adding embedded financial services at checkout.
“For example, this can look like a branded payment method or wallet. This method not only streamlines checkout, reducing friction for improved conversion rates, but also increases the lifetime value of a customer, by driving retention and frequency.
“By providing options like a closed-loop wallet or prepaid balance, customers can enjoy seamless transactions and earn rewards, simultaneously, merchants can gain valuable insights into consumer behavior to incentivise repeat business.
“In addition to bolstering loyalty by delivering a consistent brand experience, these stored balances can drive revenue growth as customers with balances typically spend more per visit and in higher frequency. With this method, payments are a tool to reduce payment processing costs, which in turn can fund incentives and improve unit economics. This is incredibly important for merchants that have a low order value, like a daily latte, or microtransactions on a creator platform. These payments can then actually be considered valuable, instead of the profit being eaten up in the sunk-cost of processing. The money saved can then be rerouted to the customers in the form of rewards and incentives.
“Embedding finance solutions at checkout enables merchants to create a more personalised, efficient, and rewarding shopping experience for their customers. Commerce, the way we shop, has rapidly evolved, where payments are still very much in the age of cards, lagging behind. This approach allows merchants to stay ahead of the curve in a rapidly evolving digital landscape and make payments a tool rather than a hurdle.”
Keeping buyers happy
Louis Carbonnier, co-founder and president of Hokodo, the provider of flexible payment terms for European merchants and marketplaces, also explains: “The benefits of embedded finance for merchants can be broken down into three main prongs: unlocking new revenue streams, increasing customer loyalty and improving operational efficiency.
“By offering payments, lending, insurance and other services directly from a website, app, marketplace or other digital channel merchants are exposed to additional revenue streams that would otherwise have gone to a bank or financial services institution. Embedded financial services help you capture more revenue per transaction.
“Merchants are always looking for ways to make sure buyers remain happy and therefore loyal to their brand. When you offer embedded financial services at the checkout, you make the customer experience easy, efficient and secure, which in turn encourages buyers to return.
“Finally, the operational efficiency prong. When merchants embed payment processing, financing and other services into their platforms and back-end operations, they achieve greater visibility and control while reducing the time and costs of traditional processes.”
‘Embedded finance solutions are a secret weapon for merchants’
Denise Johansson is the co-founder and co-CEO of Enfuce, a female-led company and award-winning issuer processor at the forefront of financial service. Here, Johansson explains the power of embedded finance within e-commerce checkouts.
“Payment often is the least fun part of online shopping and embedded finance solutions are a secret weapon for merchants. They can drive customer retention and long-term growth by making online shopping as secure, convenient and quick as possible for their customers.
“Merchants can also gain valuable insights into customer behaviour and preferences through embedded finance analytics. This knowledge empowers them to tailor their marketing strategies and product offerings effectively.
“Our partnership with Starcart, the Nordic e-commerce disruptor, provides one example of how merchants can revolutionise online shopping with embedded virtual card payments, achieving sales volume growth of 20 per cent per month simply by enhancing the payment process.”
Utilising digital wallets
Jonathan Vaux, head of propositions and partnerships at Thredd, the payments processing partner, explains how digital wallets are specifically changing the e-commerce game: “For merchants, the benefits come less from the just the e-commerce checkout experience and more from having a strategy to utilise digital wallets. Increasingly transactions are happening via this means, not just online, but also face to face.
“Whereas previously financials services were provided by a bank, there is now more of an opportunity for merchants to have a closer, more relevant and more direct relationship with their customers by offering value adds in the form of financial services.
“For someone like Tesco, they have superstores, express stores, an online store and an app. Often these systems do not speak to one another which means a customer is recognised in a different way dependent on the location of the transaction. There is an opportunity here for embedded finance (in the form of a digital wallet) to identify a customer and create a relationship that spans online, in-app, and face-to-face, a true omni-channel experience.
“Another good example of where the user experience has been significantly enhanced is in the online gaming and gambling space. We are seeing providers offer virtual cards for use in-app and online, creating a more seamless experience. The same card can be used to fund an account, collect winnings and make in-game purchases, all without having to leave the game environment.”
‘There is only upside in embedding a finance solution into your checkout’
Dave Farbrother, CEO of DivideBuy, also adds: “There is only upside in embedding a finance solution into your checkout. Offering your customers more ways to pay, including options to spread the cost of a purchase, is a must-have for UK merchants.
“According to the Financial Conduct Authority, 27 per cent of UK shoppers used retail finance at checkout last year, so the necessity for embedding finance options is only increasing . Merchants using our embedded finance solution, DivideBuy, have seen benefits including higher conversion rates, higher average order value, lower marketing costs so reducing their costs of customer acquisition.
“Of course, with this increase in desire for finance options comes the need to partner with a finance provider who can offer a transparent, simple and fair experience to merchants and customers.
“Low approval rates, hidden late fees, poor arears management and a negative customer experience can adversely affect your reputation. For that reason, it’s vital to partner with a provider who practices ethical and responsible lending. When done correctly, embedded finance brings a wealth of benefits to all parties – merchants included.”
Reducing cart abandonment
Brandon Spear, CEO of TreviPay, a B2B payment software provider, also reveals how embedded finance could impact the B2B space: “Buyer-seller loyalty hinges on a better payments experience, which is especially important in the B2B space. Merchants who can deliver a convenient and customisable payments experience can help drive loyalty to grow average order values.
“A recent study conducted by our team unveiled flexibility with payment options is so important that 78 per cent claim it is necessary for merchants to offer invoicing, and 51 per cent would switch to a different merchant if it offers flexible net terms.
“When it comes to embedded payment options (a subset of the embedded finance process) within e-commerce checkouts, the value comes from the convenience of seamless transactions. Anything merchants can do to reduce cart abandonment helps their bottom line and improves customer satisfaction.”
Shift from merchant’s prerogatives to consumer rights
Finally, Ed Harries, VP of strategic partners and payments at Visualsoft Ltd, an e-commerce software solution provider, explains: “The choice of payment method at checkout has shifted from being a merchant’s prerogative to a consumer’s right.
“Previously, merchants determined the accepted payment methods, but this is no longer the case. Indeed, I’ve seen first hand how by providing a selection of payment options that automatically adapt to your consumer’s preferences, you could see an increase in your conversion rate by as much as 38 per cent.
“The benefits to embedded finance solutions are numerous. Increased conversion rates, a better customer experience on the checkout, improved average order values and greater customer loyalty to name a few.
“In addition to the ubiquitous use of credit and debit card payments, mobile devices have become a breeding ground for an endless array of payment methods. These range from the well-known Apple Pay to digital wallet options such as PayPal and RevolutPay, and even extend to more specialised open banking solutions and BNPL.
“The secure biometric authentication capabilities in smartphones, coupled with the fact that cards and bank accounts are now literally in the palms of our hands, has shifted the power to consumers in choosing their payment method at checkout. Furthermore, the variety of payment methods catering to different customer demographics, geographies and industry needs, underscores the fact that a one-size-fits-all approach to payment options at checkout is no longer viable.
“Those merchants who differentiate themselves by incorporating an embedded payment solution are likely to capture more customers and retain them for future purchases, breeding more success online. They are likely to be able to capture greater market share than those that don’t offer this choice using embedded payments.”
