How embedded finance is enabling retail growth

According to Bridging Finance & Retail, a new whitepaper released by NatWest Boxed and Boston Consulting Group (BCG), retailers are increasingly offering financial services and embedding them into customer journeys, a trend most likely reinforced by the cost-of-living crisis.

Research conducted by BCG with 21 leading UK retailers discovered that banking-as-a-service (BaaS) and embedded finance could aid a 4-7% uplift in revenues. Retailers can also enjoy a 5-12% boost in conversion rates and a 15-30% increase in average order values.

“Retailers are reaping the rewards, enjoying a 5-12% boost in conversion rates”

This has been particularly apparent across the fashion segment, with BaaS amplifying conversions by 10-15% and order values by as much as 30%.

Around 27% of adults in the UK used buy now, pay later (BNPL) options at least once in the six months to January 2023, according to the Financial Conduct Authority.

This payment option is particularly popular with the younger demographic, with 39% of 25- to 34-year-olds choosing to use it.

Integrating new financial services can be a daunting path to tread so, when integrating a new proposition, these are the three Ps retailers should keep in mind:

1. Prioritise: Identify customer needs

The needs of the customer should come first, so retailers should prioritise removing friction for shoppers and look for ways to enhance the customer experience.

Look at common issues along the customer journey that may discourage consumers from making purchases.

2. Products: Target products and services that provide strategic solutions

Be strategic about the key objectives for customers and opt for products that optimise customer retention, purchase frequency and engagement.

In order to drive conversion at the checkout, it is worth considering broadening payment options to include digital wallet integration, BNPL and instalment loans.

3. Partners: Team up with a partner that understands

Every retailer’s needs are different, so ensure you team up with a firm that has a clear understanding of your customers, products, technologies and operational requirements.

Companies should evaluate suppliers using a core set of buying criteria before they make decisions, assessing everything from support functions to technical capabilities.

As the digital revolution continues its relentless trajectory in the retail industry, BaaS and embedded finance are fast becoming the minimum expectation from consumers.

While the political outlook is rocky, margins are narrowing and pressures continue on the cost of living, consumers will continue to demand more than ever from the money they spend and the experiences they expect.

Those who focus on customer pain points and find ways to address them with financial solutions that suit both business and buyers, at the moment of need, will be the ones to prosper.