Embedded finance will make a significant contribution to the retail sector according to a report co-authored by NatWest Boxed and the Boston Consulting Group (BCG).
Published this week, the report estimates that embedded finance could drive incremental revenue between 4-7% in retail, with Banking-as-a-Service (BaaS) highlighted as a particular growth generator by surveyed retailers.
NatWest Boxed, the BaaS provider of the wider NatWest Group, and the BCG added that retailers report a 5-12% increase in conversion rates, a 15-30% increase in average order values and 4-7% growth in incremental revenue growth as a result of embedded finance.
Andrew Ellis, CEO, NatWest Boxed, remarked: “Embedded finance is reshaping the retail industry. With developments in cloud-native technology and product innovation converging, retailers are increasingly offering financial services and embedding them into customer journeys.
“But with an increasingly complex landscape of products, technology and suppliers to choose from, retail leaders need to ensure they focus on the right services with a trusted and secure BaaS partner to maximise the opportunity.”
Ecommerce, perhaps due to its more inherent digital nature as opposed to traditional bricks and mortar retail, has been earmarked as a core area of growth and adoption for embedded finance.
The joint research found a correlation between higher BaaS revenue and higher ecommerce penetration. Sectors with higher BaaS revenues ‘tend to have’ penetration of over 50%, the report outlined.
These segments include electronics specialists, luxury fashion, mid-market fashion and home improvement. In contrast, health and beauty and the automotive industry have a greater in-store presence and lower BaaS revenues. The trend is not all black and white, however – grocery retail has higher BaaS revenues despite a low ecommerce presence.
Despite this differing levels of embedded finance adoption, the report is confident in its assertion that ‘every retailer can become a distributor of financial services’. Tailoring these embedded finance services to the nature of the retail brand was highlighted as a critical consideration, however.
Additionally, the report outlined what NatWest and BCG believe are the ideal steps retailers should take when adopting an embedded finance offering.
These are to identify customer needs, seek products and services that provide strategic solutions and identify a BaaS partner that has a clear understanding of the business’s customers, products, technologies and operational context and requirements.
In the case of the latter, it seems that retailers already have some idea as to the ideal factors in a BaaS partner. Technology platform capabilities and end-to-end customer support were identified as the most important criteria, more so than prices.
“BaaS and embedded finance is enabling all types of retailers to become a distributor of financial services,” said Mark Dynes, Managing Director & Partner, BCG.
“As our research shows, retail leaders can rely on embedded finance to meet a broader set of customer needs and maintain control of critical brand experiences.
“The results have been game changing, with a compelling impact on conversion, basket sizes and long-term engagement.”
