How embedded finance and embedded payments solutions are transforming online retail

From enabling a better, more efficient payments process, to enriching the shopping experience and adding new revenue streams, embedded finance solutions are making an impact on retail and e-commerce in a big way. This now increasingly common phenomenon is changing the way people interact with financial services as a whole.

According to a report from Plaid, 88% of companies that implement embedded finance report increased customer engagement, and 85% say it helps them acquire new customers. It can also be a major factor for increasing trust, retention and stickiness. 

What is embedded finance?

Embedded finance generally refers to the integration of financial products and services directly into other products and services - which can include the websites, applications and journeys where customers transact. Embedded finance solutions enable businesses to offer additional value to the customer, or enable customers to more easily complete a financial transaction - without removing them from the flow and environment they’re already engaged with - and reduce barriers to purchase in the process.

Embedded finance solutions can introduce new revenue streams, significantly increase reach and distribution, improve margins and enable more convenient and personalised financial services offerings.

Some examples of embedded financial services include:

• Embedded lending solutions: for example, customers of digital wallet solutions might be able to purchase insurance or access a loan through the digital app or wallet they are using for other purposes - without needing to go through a traditional bank account. 
• Embedded banking: companies that are not primarily financial services providers, such as ridesharing companies for example, can offer banking services to their drivers through embedded solutions. In this case, when a driver gets paid, the money goes straight into a bank account run by the ridesharing company, enabling those drivers to more easily access other digital financial services.  
• Buy Now Pay Later (BNPL): some e-commerce or retail sites offer BNPL services at checkout, integrated directly into the payments flow, to give customers even more choice and flexibility when it comes to how they pay 

What is embedded payments?

In the payments space specifically, embedded solutions can also refer to the way the payments flow itself is integrated. This can be embedded anywhere on an app or site, where a customer is already taking an action, rather than forcing them to exit an existing flow and open another tab or app. Embedded payments flows reduce barriers to payment, minimise disruption and enable a more seamless payments process that doesn’t remove the customer from an existing experience - leading to higher conversion.  

Direct bank APIs in South Africa, such as Capitec Pay, are also part of the embedded payments landscape, as these are designed to allow customers to initiate and authorise payments directly from their bank accounts without needing to leave the checkout flow they are in. 

Embedded finance in retail and e-commerce

In a retail context, embedded finance can include additional services designed to increase retention, as well as an embedded checkout flow.

Traditionally, these services were provided by a third party and resold through the retailer, but embedded finance is making it easier for companies to build and integrate or white label their own financial services offerings within their existing flows. This makes for a smoother experience and can become additional revenue streams.

Other examples in the retail space include:

• Point of sale financing: this entails offering customers credit to complete a purchase, with financing provided by the retailer itself. POS financing is often used by travel providers, furniture sellers and other companies that offer high-ticket, one-off purchases. It can also take the form of traditional BNPL offerings.
• Embedded insurance: retail or travel companies can offer embedded insurance by giving customers an option to add on insurance coverage for the item or trip purchased during the checkout flow.
• Digital wallets or accounts: retailers can also offer customers wallet functionality from a logged-in account, allowing them to store funds for use on the platform, earn rewards and more.

Why is embedded finance good for retail and e-commerce?

Embedded finance offers an appealing way for enterprises to build a deeper relationship with their customers, offer a smoother customer experience and generate additional revenue. As venture capital firm Andreesen Horowitz predicted, one day every company will generate some of its earnings from offering financial services.

Research from UK bank Natwest and consultancy BCG supports this claim, stating that embedding financial services led to huge improvements for businesses, with retailers reporting a jump in conversion rate of up to 12%, increases in average order value of up to 30% and as much as a 7% increase in incremental revenue.

Why embedded finance is good for customers

At its heart, embedded finance brings the financial services that customers rely on much closer to the customers themselves. By taking on and offering those financial services, retailers can offer:

Convenience: embedding financial products into the retail experience makes for a far more seamless experience for customers overall, allowing customers to pay, borrow and interact without needing to be redirected to a third-party provider to complete the transaction.

As a rule, anything that can be done to reduce the number of steps in a retail experience will lead to a higher conversion rate, as customers value efficiency and ease.

Personalisation: offering financial services provides companies with considerable insight into how their customers operate. By offering payment options directly, retailers gain far more granular data on how their customers like to spend their money. This in turn makes it easier for retailers to create new offerings well-suited to the needs and desires of their customers.

Access: embedded finance offers particular benefits for customers across Africa. As McKinsey noted in its Future of Payments in Africa report, financial services can be embedded into existing digital wallets as a way to radically expand their distribution. This opportunity is particularly strong in markets such as Ghana and Kenya, where bank account adoption sits between 35-42%, but wallet penetration is above 100%.

How Stitch enables a highly optimised embedded payments solution

Stitch offers enterprise clients access to highly optimised, pre-built checkout flows that can be integrated anywhere in a company’s website or app. This enables customers to much more easily and efficiently make a payment, with a range of localised payment methods, and complete their transaction without the need to leave the flow they were in.

We are consistently looking at data around ease of use and drop off points to optimise our checkout flows, and we work hand in hand with clients to design and build a flow that can increase conversion and payment success rates.