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The Rise of Embedded Finance: Transforming Customer Experience and Driving Business Growth

Better payments benefit everyone in the value chain. Meeting customer expectations for a seamless experience is important now - but will be a non-negotiable for successful brands in the near future…

In the past brands, were constrained by what they could practically offer customers. Now the internet, mobile, cloud, and financial technology have combined to open up a new wave of possibilities for companies to serve customers better.

First and foremost in the delivery of the ultimate in CX (customer experience) is embedded finance - and it’s not just end-users who benefit.

The freedom of friction-free payments

The convenience of embedded finance - in particular, embedded payments - is invaluable to customers. Instead of having to find their wallet or credit card, a customer can just tap a few buttons and the purchase is complete.

A 2022 study published by the Federal Reserve Bank of San Francisco noted that in-app embedded payments increased as a percentage of total consumer purchases from 11% in 2019 to 15% in 2020, to 29% in 2021. Conversely, 7% of abandoned online carts are due to not having a credit card handy or the same credit card accepted by the merchant.

A smoother buying journey means less shopping cart abandonment and customer dissatisfaction, resulting in a win for businesses via increased revenue and customer loyalty.

The ultimate goal of embedded finance is to make it easier for consumers to access financial services in a seamless and convenient way. For example, a brand might offer its customers the option to pay for their purchases using a digital wallet or a mobile payment app, or a technology platform might offer its users access to financial tools such as budgeting and investment tracking.

“Embedded finance is the new ‘norm’ in banking.”

Finance Digest

Changing demographics and behavior, increasing internet penetration, technological advances, and growing trust in the digital ecosystem are helping make embedded finance the norm among consumers.

New research reveals the size of the embedded finance market was $43 billion in 2021, with growth set to skyrocket to $138 billion by 2026.

215%

The CAGR of the embedded finance market from 2021 to 2026.

It’s not just the B2C market seeing this transformation, though. KPMG flags the B2B embedded finance sector as being on the move, in order to “facilitate trade flows and supply chain efficiency”.

Long after B2C moved online, B2C transactions are finally digitizing at speed. Over half of business buyers already rely on web stores for frequent purchases, so it’s safe to say that there is set to be a high increase in merchants and marketplaces offering these seamless options alongside more traditional payment methods like credit cards and Direct Debit.

Benefits for businesses

When a brand embeds financial services into its own products, the key benefits are threefold:

  • An additional source of revenue: Via a share of the income from the financial products sold to customers within their brand.
  • Competitive advantage and customer trustworthiness: Delivering on customer demand (and indeed, expectation) for easy, secure, and efficient online payment options is more attractive to customers than a business that doesn’t provide these options.
  • Higher order value: Flexible payment options like BNPL (Buy Now Pay Later) reduce barriers to purchase, resulting in customers buying more high-value products than they usually would.

88% of companies that offered some type of embedded finance reported increased engagement, and 85% said it helped them acquire new customers.

These figures are of particular importance because happy customers are engaged customers. The more emotionally invested a customer is, the stronger their connection with a brand will be and so brand loyalty and an engaged community are established.

"Online retailers can leverage embedded finance to tap into contextual financial services that offer customised, real-time insights about how each customer interacts with their brand. By creating more personalised touchpoints, online retailers can connect with customers through specific micro-moments during different points of their payment journey.”

David Feuer, chief product officer at Galileo Financial Technologies

The Fintech Times

Innovation amidst challenging economic times

2022 saw embedded finance move into the mainstream. While 2023 is predicted by many to be the year it moves into the spotlight to power consumer-facing applications, it has already revolutionized core payments operations.

How? In short: more revenue, less churn. By embedding payments, businesses of all sizes can provide seamless cash flow that’s hard to replicate by a third party. And as a potential recession looms, this type of ‘bread and butter’ embedded finance use case is expected to see huge uptake. After all, dramatically improving the efficiency of back-end processes will deliver significant savings and productivity benefits for fintechs and brands - which is more important than ever right now.

Unlocking the next wave of growth

Businesses ranging from retailers and travel to software companies are working to tailor their payment services for increased accessibility. As a result, embedded finance will become firmly interwoven into more industries, acknowledging e-commerce as the driving force in business growth and revenue streams.

The next step in payment innovation also lends itself to the metaverse, and how the digital world can help shape how financial services offer their products.

The more immediate future is likely to see the rise of embedded finance within the world of social media. Many platforms have shown an interest in plugging in their own payment services to embed a seamless end-to-end experience, something which Instagram has trialed with its ‘Shop’ function.

Elon Musk has also recently filed papers to the US Treasury for Twitter to become a financial service.

Embedded finance is not just for the Twitters of the world, however - businesses of any size can benefit from seamless payment functionality.

Qorbis delivers an embedded finance experience that's fast, flexible, compliant and future-proofed - for big and small businesses. Ask us how.
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