Embedded Finance is an umbrella term for the integration of a diverse range of financial services in the platforms where they are used. The technology has proven impactful in the ecommerce industry, enabling consumers to access the financial services necessary to make a purchase within the merchant’s checkout, instead of visiting an external website.
By keeping the customer within the merchant’s four walls, more consumers are able to complete purchases, leading to increased conversion metrics. This approach also enhances financial inclusion by putting more financial tools at consumers' fingertips and boosting merchant revenues.
Ecommerce checkouts have undergone a considerable transformation over the last decade. First came PayPal, the first serious alternative to traditional payment cards and bank transfers. A wave of innovative fintechs followed suit, bringing lending, payments, and other financial services directly to the checkout.
Integrations with Buy Now, Pay Later (BNPL) or lending providers are a powerful demonstration of the importance of Embedded Finance for merchants. Consumers previously unable to complete a purchase due to liquidity constraints are now able to split the cost across a few payments (BNPL) or longer-term instalments (embedded lending).
The rate of advancement has shown no signs of slowing down – a new breed of payment methods is experiencing rapid adoption, and traditional payment networks are working hard to stay ahead.
One of the standout Embedded Finance innovations is the adoption of Open Banking-based payment methods at the checkout, often referred to as ‘pay by bank’. This payment method simplifies transactions by connecting directly to a customer's bank account, enabling quick and secure payments via Open Banking payment rails. For merchants, the benefits are substantial, lowering fees and alleviating cash flow problems caused by multi-day settlement periods. For consumers, pay by bank streamlines the payment process and limits the amount of personal financial information shared during transactions, enhancing privacy and security.
Digital wallets are also contributing to the Embedded Finance revolution, reducing the time consumers spend at checkouts and collecting payments without tedious data entry. Again, removing this point of friction increases merchants’ conversion rates, advancing Embedded Finance adoption.
The rise of ecommerce in the 2000s was a significant catalyst for financial inclusivity, enabling consumers to conveniently purchase goods and services, while also making it possible for members of the community with a disability to independently access a wide range of merchants. The proliferation of Embedded Finance at the checkout promises another step towards financial inclusion.
Take pay by bank for instance. It significantly lowers operational fees, providing support for small businesses with tight profit margins. It increases the overall percentage of transactions the merchant receives and settles transactions within minutes, circumventing liquidity challenges and putting more money in the merchant's pockets.
Pay by bank also provides merchants with the means to offer incentives to customers by plugging into rewards programmes similar to those extended by credit card companies – such as air miles and other loyalty schemes. Enabling consumers to engage with reward programmes without a credit card or significant transaction volumes opens access to monetary incentives, further boosting financial inclusion at the checkout.
Integrating BNPL providers at the checkout can also boost financial inclusion by allowing consumers to spread the cost of large purchases across multiple paychecks and improving their ability to deal with unexpected expenses. The integration of Embedded Finance within the checkout experience is itself a positive trend for inclusion in payments as it widens the range of transaction methods available to consumers and merchants.
In response to the rise of Embedded Finance, traditional payment processors and card networks are innovating to stay competitive. One significant development is the proliferation of virtual cards, which enhance security by allowing customers to regularly update their card details used for online transactions.
Additionally, digital wallet integration is becoming increasingly prevalent. According to a recent report by Worldpay, digital wallet payments are expected to represent 29% of ecommerce payments by 2027, doubling in four years. This shift highlights that traditional card networks have acknowledged the growing consumer preference for secure and convenient payment methods and are now committed to the Embedded Finance movement at checkout.
As consumers become more accustomed to encountering a variety of financial services at checkout, the Embedded Finance market is poised for substantial growth. In the US alone, embedded financial services are projected to generate USD 230 billion in revenue by 2025, a tenfold increase from 2020. This rapid expansion underscores the significant impact of Embedded Finance on the ecommerce sector.
In conclusion, Embedded Finance is transforming ecommerce at checkout, boosting conversion rates and cash flow for merchants while also driving financial inclusivity. Initial adoption at checkout has been spearheaded by pioneering fintechs, but traditional payment networks are also working hard to stay relevant in a highly competitive landscape; the next decade promises innovation and competition at the checkout, with consumers and merchants set to benefit the most.
Maya’s career transitioned from law to finance, where she specialised in asset management at institutions like SMBC, RBS, AWAS, and DAE Capital. She then ventured into consumer-on-demand business, collaborating with large brands, before taking on commercial lead roles at Luno, N26, and ClearBank in the fintech sector. Currently, Maya serves as the EVP at Banked, focusing on driving growth and leading the adoption of pay by bank.
About Banked
Banked is building a new global payment network that allows consumers to pay directly using their bank without entering any financial data. The process is secure, as it leverages biometric authorisation, and results in real-time fund transfers to the merchant. Businesses benefit from up to 90% lower fees than traditional payment methods and virtually no fraud, promoting lower prices for consumers. Banked also offers tools for businesses to drive customer engagement and loyalty with incentives and rewards. For more information, visit www.banked.com.
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