Here’s how embedded finance can enhance customer loyalty

By Puja Sharma

Embedded finance is an emerging software distribution model that integrates financial services into existing product ecosystems through partnerships with financial infrastructure providers, according to the report by Decta.

The importance and potential of embedded finance cannot be overstated. The management consultant expects the overall market to return to single-digit figure growth, and generate global payments revenue of roughly $2.5 trillion by 2025. And an intelligence report from Business Insider suggests that embedded finance companies will reach a market cap of $7.2 trillion globally by 2030.

Retail and eCommerce platforms currently offer the majority of use cases for embedded finance solutions. The range of Buy Now, Pay Later options at online checkouts are one excellent example of the technology being implemented in the retail environment.

Additionally, embedded finance is expected to more extensively expand to insurance, tax, accounting, banking, and other services in the foreseeable future. New use cases are already emerging in the fintech and neobanking space, with Galileo, Treasury Prime, Stripe, and Marqeta all being early examples of this technology. The potential for embedded finance is massive, considering that, in 2021, US consumers and businesses spent $7.16 trillion on debit and credit cards collectively.

To investigate this burgeoning market and its potential consumers, we recently conducted an extensive survey on several aspects of embedded finance that are known to be of particular significance. The data from this survey feed into seven key areas that are worthy of examination. It should be noted that consumers from the United States and the United Kingdom were surveyed separately.

Faster Payments

In this technological age, where we have all become accustomed to purchasing goods with extreme ease, speed of payment can be considered extremely important. Most merchants would conclude that faster payment clearing speeds are an important part of delivering a positive customer experience. Similarly, low payment clearing speeds, errors, and delays in payment processing will typically be intolerable for consumers, and increase the likelihood of shopping cart abandonment.

With this in mind, real-time payments are playing an increasingly important role in the global payments ecosystem, with the number of such transactions soaring by 41% in 2020 alone. This technology is also increasingly important in key emerging markets, with the Asia-Pacific region leading the way in real-time payments – India registered 25.6 billion transactions in 2020.

Although embedded finance has become somewhat established, there is still considerable room for maturation in this market. Indeed, estimates indicate that it is entirely feasible for companies to become new entrants to embedded finance, as the market is expected to double in size over the next three to five years.

It is therefore valuable to gain an insight into the preferences of customers in this sphere. Our research found that supporting faster payments, a variety of payment methods, an efficient checkout experience, personalised offers, loyalty rewards, frictionless payments, and additional embedded solutions were all worthwhile, and all valued by consumers, albeit to differing degrees.

We can reasonably conclude that the availability of the preferred payment method is reported as the most important factor in positive experiences while failing to deliver fast and efficient payment experiences was a major negative for consumers in both Britain and the United States. When customers experience friction in their purchasing journey, this tends to really grate with them and probably costs companies in this sector more sales than any other factor.

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