• Colin Brown, CEO at Aryza


• 05.10.2023 09:30 am
#embeddedfinance

In today's rapidly evolving financial landscape, one term has emerged as a game-changer for both consumers and businesses alike: embedded finance. It represents a paradigm shift, where financial services are offered seamlessly to consumers through non-financial products or services. Embedded finance encompasses two vital aspects: embedded credit and embedded payments. 

Revolutionising and Streamlining Payment Options 

Embedded credit is all about offering consumers the convenience of postponing payments at the point of checkout. It's the driving force behind the popular "Buy Now Pay Later" trend, which has become an integral part of the modern shopping experience. On the other hand, embedded payments empower consumers to complete transactions without the need for redirection to a separate financial services organisation. This frictionless integration of financial services into everyday transactions is reshaping the retail finance landscape as we know it. 

But who stands to benefit the most from embedded finance? In today's world, consumers have come to expect alternative payment methods when shopping. Whether it's paying in installments or using a branded credit card, the demand for diverse financial options is on the rise. Customers also crave speed and seamlessness when applying for credit, making the instant gratification of a purchase possible. 

Navigating the Competitive Landscape 

The UK market demonstrates a dynamic interplay between traditional retail credit providers like Hitachi Credit, Creation, and Barclays Partner Finance, and global tech giants such as Klarna and Affirm. In addition, a plethora of smaller specialists have found their niches, thriving in carefully targeted markets.  

However, the current economic climate presents unique challenges. Banks and lenders are increasingly vulnerable, and retailers relying on a single lender expose themselves to substantial risk. Embedded finance solutions offer a lifeline, allowing retailers to work with a panel of lenders, diversifying and mitigating risks. 

Transformation in Retail Credit 

The retail credit landscape is undergoing a profound transformation, driven by the introduction of new credit products and innovative technology at the point of sale, whether in-store or online. To remain competitive, businesses must be agile in their finance offerings, lending partnerships, and go-to-market strategies. Embedded credit emerges as a powerful tool for retailers to increase sales volume by offering appropriate and attractive finance options to eligible customers. In today’s market, customers almost expect such payment terms to be readily available and offered as ‘the norm’ at the time of payment fulfilment, making embedded finance more critical than ever. 

The Need for Agile and Compliant Platforms 

With these changes comes the pressing need for compliant, scalable, efficient, and agile platforms that enable retailers to embrace advancements in financial products and technology transformation. These platforms are the enablers that empower businesses to seamlessly integrate financial services into their operations while maintaining their unique brand identity and customer retention. 

The Future of Retail Lending 

But is embedded finance the future of retail lending? The answer lies in its inherent adaptability and customer-centric approach. Businesses should be looking for embedded finance solutions which are designed to align with their brands, facilitating the provision of financial products without disrupting the buyer's journey. 

Consider the examples of an e-commerce merchant offering insurance, a furniture store providing in-house financing through point-of-sale software, or a department store issuing a branded credit card. These instances illustrate the versatility and potential of embedded finance across various sectors of retail. 

Embedded finance has emerged as a transformative force in the retail finance industry. It satisfies the growing demand for diverse payment options and financial services while enabling businesses to mitigate risks and enhance their revenue streams. As the retail landscape continues to evolve, embedded finance remains poised to play an increasingly pivotal role, shaping the future of retail lending and consumer finance. Embracing this innovative approach can position businesses at the forefront of this financial evolution, delivering enhanced value and experiences to both customers and stakeholders.