Tom Bentley is the Chief Commercial Officer of VODENO, he is an expert in the banking and financial services sector with more than 12 years of experience. 

We spoke to Bentley on the potential of banking-as-a-service when it comes to growing the retail service.  

Embedded finance is a trend that continues to grow. Buy Now, Pay Later (BNPL) solutions are now common at checkout and are frequently offered at the point of sale. Payment can even be done through social media. All of this is possible through embedded finance, also called Banking-as-a-Service (BaaS), and more innovations are still to come. 

Today, through BaaS, brands can offer banking products that are seamlessly integrated into their native ecosystem. The BaaS provider works behind the scenes to deliver the underlying technologies, balance sheet requirements and compliance needs to ensure the smooth operation of the product, leaving the client to focus on improving every other aspect of the end-user experience. These solutions allow companies to improve their customer journey and deepen their relationship with their customers. 

But, while BNPL and split-payment options have captured the public’s interest in recent years, it represents only a fraction of the potential benefits that embedded finance is capable of offering. 

A better experience = increased revenues

Particularly for retailers, a key part of driving revenues and growth for a business is Customer Experience (CX) – businesses with high CX scores grow up to 1.8x faster than those with low scores. As retail has shifted towards eCommerce, expectations for CX have risen dramatically, with shoppers coming to expect Open Banking enabled embedded finance as a matter of course. 

This is why cementing frictionless embedded finance capabilities is a must for retailers. By offering the best and most innovative financial products that also add value to their customers in an easy and seamless way, retailers can improve their CX and make their offering more appealing to their clientele. 

The perks of decoupled debit

One innovation where retailers can deliver value to their customers is with decoupled debit. This novel product is gaining traction throughout Europe, particularly in Germany, yet many retailers have yet to take notice. Put simply, a decoupled debit card is a branded, white-labelled payment card that a retailer can offer its customers. Through Open Banking enabled APIs, the card is linked to the user’s  bank account of choice in order to process payments, meaning the card can be used automatically without needing to be manually topped up with funds. 

The decoupled debit card is another means by which retailers can improve the purchasing journey and enjoy full control over financial incentives offered to customers. Purchases made with their branded card could yield rewards and cashback that strengthen the relationship between retailer and consumer, and the data generated can be used to learn more about customer’s preferences and interests, all of which can be used to increase CX. 

Vodeno recently worked with one of the biggest global retailers to create a decoupled debit card with unlimited 1% cashback on customer purchases. This is the kind of innovative way in which companies can use embedded finance products to offer their users value-added benefits and a better customer experience.

The rise of merchant financing

Another rising facet of embedded finance is merchant financing, which like decoupled debit is beginning to make its presence felt throughout the retail sector. While the eyes of the world still rest primarily on BNPL, the novel consumer lending solution of the day, merchant financing demonstrates how the flexibility of BaaS enabled financial products can benefit specific actors like SME retailers. 

Data from UK Finance shows that the demand for financing from SME retailers is high, with applications for cash flow climbing at a greater rate than before the pandemic. Merchant financing is a lending solution that perfectly suits the SME retail model, offering up-front capital that can be used to produce or buy goods, with repayments drawn from the revenues of those goods once they are sold. 

This flexible repayment plan suits the irregular cash flow streams of smaller retailers better than conventional financing, with the added benefit that credit limits are based on turnover history, rather than the restrictive financial statement approach preferred by traditional banks. The ability to easily access credit combined with the flexibility to repay through revenues is invaluable to SME retailers.

These are just some of the ways in which embedded finance solutions – powered by API-driven modern BaaS technology and new Open Banking policies – can help retailers in levelling up. The means to increase CX, to access instant and flexible credit and to offer their own seamless, white-labelled products are tools retailers can employ today in order to grow their business. And with the right BaaS partner, they can enjoy the benefits of innovative banking products without the cost or hassle of developing their own solution.