The biggest change I’ve seen in online retail in the last decade is the introduction of personalization. Think targeted ads, personal offers and ‘we think you might like’ suggestions. This has been a huge success. I read recently that 90% of marketers say online retail personalization has boosted their revenues. While one report by Gartner noted that businesses that invest in personalization typically outsell competition by 30%. The only thing surprising about those figures was how low they were.
I work every day with online retailers helping them to personalize their services, but we’re not helping them personalize the products their customers buy. That’s old news. We’re helping them personalize the way they buy them and analyzing what those purchases mean for their wider financial lives.
Today, almost everything we do is personalized via algorithms, from the way we watch movies to how we date. So it’s always seemed strange to me that the way we manage and spend our money is so universal. Yes, there are numerous banks and financial services providers, but once we settle on one, every customer is offered the same services and products at the same time.
Thanks to embedded finance this is no longer the case. In fact, customers don’t even need to go to a bank to access those services. It’s online retailers themselves that are offering them.
Embedded finance has already changed how we shop
Although the term ‘embedded finance’ (meaning the embedding of financial services into digital products) may be new to many, it is not a particularly new concept. Especially not to online retail. Ever since the e-commerce boom of the late 90s, people have been making payments via websites and platforms. It might be far from the frictionless user experience you get today, but undeniably it was still embedded finance.
Today, it’s most recognizable in the form of Buy Now Pay Later (BNPL) providers like Klarna. Their point of sale (POS) loans are embedded via API into the payment flows of online retailers and customers can access quick, simple loans just when they need them.
All of this has undeniably been a huge success. According to one study, across the UK, Germany and Belgium, 75% of retailers are using embedded finance to offer credit cards, ‘Buy Now, Pay Later’ (BNPL) schemes and loyalty incentives, while 56% are planning to introduce further financial services in the near future.
The point of sale isnät always the point of need
The primary reason for Klarna’s success, at least initially, is that customers were presented with a financial service right when they needed one. About to pay? Well before you do, here’s an easy way to pay in the future or spread those payments out.
Value-add products being offered at the point of sale or after the sale has been completed is nothing new. But pick up is famously low. Why? Because the point of sale isn’t always the point of need and there are often multiple, non-personal products to choose from. Choice paralysis can be really damaging.
Embedded finance can change this. Online retailers can offer a huge variety of innovative financial services from the world’s best fintechs exactly when customers need them most. Specific insurance, wealth management, investments, business loans, cards, virtual accounts, cross-border payments, foreign exchange and more – all at the point of need.
Purchases aren’t the only triggers either. Certain spending patterns signify certain life events and thanks to open banking, online retailers can leverage those patterns to offer highly personalized, suitable products.
There’s one problem though. Integrating with one financial service provider is quick and cost-effective. However, finding and partnering with multiple providers is not. All of these products have different APIs. Even among similar products. Luckily, that’s no longer the case.
Aggregators are fintech multi-adapters
Companies like mine, AAZZUR, spend our time partnering with the best fintechs in the world and integrating their services into our own ecosystem. These then become available to online retailers with only one integration.
A good way to think about it is how your laptop, phone, tablet, router, headphones and sound system all have entirely different charging ports. The solution? A multi-adapter.
This means online retailers from any sector can gain access to new financial products for their customers with one integration.
Online retailers can essentially become a one-stop shop for financial services, allowing their customers to conduct all of their financial business on their site and platform. These can be products that enhance their current offering but they can also be entirely new products and revenue streams.
If they choose, online retailers can even become banks themselves – something modern consumers have an appetite for.
Not only does offering these services create new revenue streams, it increases retention and engagement. One report found 87.5% of non-financial companies that have begun to offer financial solutions had increased engagement levels, while 85% said they’d attracted new customers.
It’s no surprise then that embedded finance is predicted to be worth $3.5tn by 2030, with retail set to make up almost half of that.