Europe leads the way in embedded finance, new study shows

By Puja Sharma

Europe’s retailers recognise the embedded banking opportunity and are planning to invest. The pandemic has boosted embedded lending in vital industry segments throughout Europe. Despite traditional banks enjoying greater trust, embedded lenders have been able to compete with traditional banks due to convenience and promptness.

Embedded finance is picking up steam across Europe’s retail and e-commerce sector, with over half of retailers surveyed intending to either increase their offering or start offering embedded finance solutions in the coming 12 months, research from Banking-as-a-Service (BaaS) provider Vodeno has revealed.

Compared to other countries in Europe, embedded lending is most popular in the UK. In the UK, consumers view retail finance as a convenient way to spread the cost of expensive purchases. In addition, the pandemic has boosted embedded lending in vital industry segments throughout Europe. Despite traditional banks enjoying greater trust–embedded lenders have been able to compete with traditional banks due to convenience and promptness.

The company commissioned an independent survey among senior decision-makers in retail and e-commerce sectors across the UK, Germany, and Belgium. It found that a majority (74%) of Europe’s retailers already offer embedded finance products to their customers. However, the UK (82%) is well ahead of Germany (75%) and Belgium (64%).

Only 5% of retailers which have not integrated financial products into their customer journey have no plans to do so in the next year. The decision-makers were also questioned about which products they have implemented, and which are earmarked for investment in 2022.

Cashback through loyalty schemes, credit cards, and debit cards are the most commonly offered financial products or services – 32% of the retailers currently offering embedded finance solutions provide these. These were followed by current accounts and loans (both 29%).

Buy Now, Pay Later (BNPL) overdrafts, and decoupled debit are set to attract the most attention from those retailers investing in embedded finance over the coming 12 months. A vast majority (67%) of European retailers said that, in 2021, customers had indicated they would like to see financial products or services integrated into their offering. In the UK, the figure rose to 73%, compared to 71% and 58% in Germany and Belgium, respectively.

As the popularity of the buy now pay later lending model rises in Europe, embedded lending is becoming increasingly popular among consumers. Online shoppers are increasingly seeking convenient and innovative payment options. Customers prefer the BNPL mode of lending due to its accessibility and convenience.

Almost two-thirds (65%) of retail firms reported noticing more of their competitors offered embedded finance solutions in 2021. Again, this view was more prevalent in the UK (74%) than in Germany (65%) or Belgium (57%).  On a personal level, however, two in five (39%) senior decision-makers in the retail sector said they do not fully understand the term ‘embedded finance’.

Wojciech Sobieraj, CEO of Vodeno, said: “Interest in embedded finance solutions is rising rapidly among non-financial businesses, and with good reason. Smart brands understand the value of embedded banking because they know that creating a better checkout experience will increase conversion and customer engagement. This is the promise of Banking-as-a-Service.”

“Our research shows that Europe’s retailers recognise the embedded banking opportunity and are planning to invest. But, brands need to understand that not all BaaS providers are created equal. BaaS technology must be coupled with a license and the compliance and regulatory expertise to offer these products.” Sobieraj added.

Key highlights

• Around 74% of European retailers are already offering embedded finance solutions to customers.
• Over 56% plan to roll out more embedded finance solutions in the coming year.
• Cashback loyalty schemes, credit cards, and debit cards are the most common products currently being offered.
• 73% of retailers say customers have expressed a desire for embedded financial products.
• However, 39% of decision-makers admit they do not fully understand the term ‘embedded finance’.