online checkout

Cost-of-living crisis drives consumers to factor in embedded finance options

Embedded finance has been experiencing accelerating growth. Reports show this is likely to only increase in the upcoming years. 

According to Grand View Research, in 2022, the global embedded finance market was estimated at $65.46 billion. This is set to grow by 32.2% CAGR between 2023 and 2030, bringing the world ever closer to the a16z prophecy that every company “will become a fintech.”

Fuelled by post-COVID19 hyper-digitalization, the sector has evolved, offering a new type of interaction between brands and consumers at the point of sale. 

“The benefits of embedded banking cannot be ignored, and our research offers strong evidence that consumers are not only using these products, but it is also positively influencing their loyalty to the brands that enable them,” said Kim Van Esbroeck, Country Head for Aion Bank Belgium and CRO for Vodeno/Aion.

In a new survey conducted by the company, it was found that the cost of living crisis has been beneficial to the sector. 

Challenging Circumstances Drive Revenue…

“Competition for the consumer has never been more fierce, particularly in these difficult financial times,” continued Van Esbroeck. “Brands that offer flexible payment and lending options provide more choice, which can boost consumers’ spending power when they need it most.”

kim-van-esbroeck headshot
Kim Van Esbroeck,CRO of Vodeno/Aion

In the midst of rising interest rates, consumers have been turning to lending products. While traditionally, the checkout has seen debit and credit cards as the most common method of payment, increasingly, BNPL, installment loans, SME lending, and merchant financing are becoming popular. 

While the shift may be purely a result of heightened availability, businesses that have adopted embedded finance have seen heightened engagement and higher revenues. 

According to research from OpenPayd, the financial services industry is expected to deliver an additional €720.78 billion in revenue for European brands over the next five years. Already, over two-thirds of European SMEs are working with tech suppliers to embed financial products that could create additional revenue streams. 

The benefit to the SMEs is simple. Not only are they streamlining the checkout process, keeping financing options within, but they are also providing customers with what they need to ride out the landscape of heightened costs.

This increased engagement with customer needs could have a hand in shaping their loyalty going forward. 

…And Loyalty

In response to Vodeno’s survey, over 33% of businesses implementing embedded finance expected a boost in customer engagement. The same amount felt it would bolster their conversion rates. 

“We know companies that implement BaaS products are looking for growth in customer basket, higher conversion, and enhanced customer loyalty,” said Vodeno CEO Wojciech Sobieraj. “The only way to achieve these objectives is for financial products to be directly embedded in the brand’s checkout process, so customers can access the right products at the point of need.” 

“For consumers, a seamless customer experience – one that does not require them to register or enter personal details and remain on the brand’s website or mobile application throughout the process – is the perfect journey, leading to more purchases and increased visits.”

While competitive prices still act as a significant factor in brand loyalty, research published by Vodeno showed that over a third of consumers are actively seeking out brands that offer flexible payment terms. Over 40% of consumers have said they are only loyal to brands offering these options. Younger customers, in particular, are more likely to be swayed.

The use of embedded financial products was seen to increase repeat visits and the likelihood of recommendations to family or friends.

The company stated that with inflation reaching record highs, this engagement was even more critical. Over 65% of customers indicated their ability to earn rewards changes their spending, with 90% finding coupons, discounts, and cashback a pivotal element in their decision over where to shop. 

To Van Esbroek, this showed an avenue that is ripe for development. 

“We have already seen how BaaS-enabled embedding banking is helping to innovate customer journeys, and it is clear the next area of disruption will be to supercharge brands’ loyalty programs.”

  • Isabelle Castro Margaroli

    Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.

    Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.