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Embedded Finance Challenges for Retailers With Vodeno, TreviPay, LifeSearch, BoxHero and e-innovate

EY estimates that the market size of global embedded finance will grow from $264billion in 2021 to $606billion as early as 2025. With the space set to dramatically disrupt the financial sector worldwide, The Fintech Times seeks to understand how.

The fast rise of buy-now-pay-later (BNPL) schemes has quickly shifted consumer behaviour when shopping online. Retailers are well aware of the potential benefits of implementing BNPL and other embedded finance offerings to boost their checkout conversion success. But what challenges lie in the way?

To find out, The Fintech Times reached out to the experts to ask them: ‘What are the challenges of implementing embedded finance for retailers?’

“The ‘North Star’ of embedded banking is to drive conversion and repeat visits”

Kim Van Esbroeck, country head for Aion Bank Belgium and chief revenue officer for Aion and BaaS provider Vodeno, explains the financial considerations retailers must make when implementing banking products:

Kim Van Esbroeck, Aion Bank Belgium and Vodeno
Kim Van Esbroeck, Aion Bank Belgium and Vodeno

“Retailers are not financial experts, so BaaS providers need to be able to both deliver compliant banking products and support their clients’ market launches to ensure operational best practices and successful user engagement. Most retailers come to us with a use case, and we need to educate them on licensing, regulation, KYC/AML, etc. On the technology side, the best-embedded banking products are seamlessly integrated into the customer journey, so APIs need to be compatible with the retailers’ front end.

“The ‘North Star’ of embedded banking is to drive conversion and repeat visits, so retailers need to really understand their customers and their specific needs in order to ensure the right products are being delivered.”

Partnering with “purpose-built” providers 

Brandon Spear, CEO at B2B payment service provider TreviPay, discusses the challenges of implementing embedded finance and the benefits partnerships with third-party providers can bring:

Brandon Spear
Brandon Spear, CEO of TreviPay

“In looking at business-to-business transactions, one challenge for merchants implementing embedded finance is to recognise they do not have to solve for all digital transformation problems and needs themselves.

“There tends to be an inherent desire to own an entire customer ecosystem or platform, but this is less likely to be successful for B2B transactions given their complexity and cross-border nuances.

“Partnering with a purpose-built B2B invoicing and payments provider is often the fastest way to create an easy experience for corporate customers.

“Another challenge is fraud mitigation. As eCommerce and digital transformation accelerated over the last few years, more customers were acquired online, leading to a growing risk of B2B business identity theft and other forms of digital fraud.

“Our research confirms this, as most B2B businesses (98 per cent) shared that they have been affected by  financial losses due to successful fraud attacks. Fraud defence happens by attempting to improve existing tools or partnering with a powerful third-party solution provider for the best in fraud prevention. By leveraging data to offer instant decisioning and credit, you can strengthen the relationship between buyers and sellers.”

“Embedding finance into existing customer journeys needs good planning”

Ed Axon, strategic partnerships director at insurance broker LifeSearch, outlines five of the biggest challenges for online retailers when implementing embedded finance:

“Whilst an extremely exciting development for many retailers, embedding finance into existing customer journeys needs good planning and has several challenges to overcome.

  1. Ed Axon, Strategic Partnerships Director at LifeSearch
    Ed Axon, strategic partnerships director at LifeSearch

    Permissions – the best retailers are rightly paranoid about ensuring they always have the right marketing permissions for their customers. Whether retrospective or obtained live, retailers will need to make it clear to their valued customers that they will be served finance content.

  2. Relevance – retail today (especially online) strives to use unique data to personalise the shopping experience; embedding finance must mirror that experience where possible. There is no point in bothering valued customers with irrelevant finance offers.
  3. Pick the right partner – modern retailers are fast-paced, agile and market reactive. Culturally it creates an atmosphere of ‘must do’ and quickly! The potential finance partner whilst being realistic (especially with timings) must also exhibit some similar qualities or the partnership will struggle operationally and commercially.
  4. It’s also your responsibility! – for embedded finance to work for retailers they must commit time and resources to the project. There must be shared objectives and KPIs between all parties, if not retailers whose main focus will always be their core products can get easily distracted leaving the finance partner commercially exposed. This commitment should be reflected in any contracts.
  5. Old tech vs new tech – carrying on the theme of choosing a partner, all parties should be clear on any incumbent technology challenges.

“We all know that ‘new tech’ will often struggle to talk to ‘old tech’ without slow, costly customisation enhancements. Make sure any potential MVP/ Test can be integrated and implemented with relative ease.”

Compliance is “imperative”

Heehong Moon is the CEO of BoxHero Inc, an LA-based inventory management solution used in over 100 countries. Moon outlines what he believes to be the three biggest challenges that retailers must consider when thinking about adopting embedded finance:

Heehong Moon BoxHero on Embedded finance retailers
Heehong Moon, CEO of BoxHero

“Retailers considering the adoption of embedded finance should thoroughly evaluate different scenarios before making a final business decision. Among the various challenges, three stand out that necessitate significant investments and adaptation. These challenges are as follows:

“Retailers must establish the essential infrastructure and technology to facilitate embedded finance. This entails implementing robust and secure systems to handle financial transactions, manage customer data, and safeguard data privacy. Enhancing current systems or integrating with third-party platforms can present challenges and may necessitate substantial investments in technology and expertise.

“Retailers must navigate complex regulatory frameworks while integrating financial services into their offerings. Compliance with financial regulations, data privacy laws, anti-money laundering (AML) requirements, and consumer protection laws is imperative. Understanding and adhering to these regulations can be both time-consuming and costly.

“Implementing embedded finance might require a shift in their business model for retailers. It may involve acquiring new financial expertise, understanding regulatory frameworks, establishing partnerships with financial institutions or providers, and adapting internal processes and customer experiences. Such organisational change can be challenging, requiring training, cultural shifts, and attracting or developing talent with the required skill sets.”

“Hurdles that exist both in implementation and maintenance.”

Karim Salama, founder and director of web and digital marketing agency e-innovate, also gave his take on some of the challenges that can come with embedded finance:

Karim Salama, founder and director of e-innovate on Embedded finance retailers
Karim Salama, founder and director of e-innovate

“Incorporating embedded finance into an online retailer’s structure is not without its challenges, and I can attest to the hurdles that exist both in implementation and maintenance.

“Firstly, integration with existing systems can be a complex task, requiring significant technical knowledge and resources. The process often involves bridging the gap between finance and tech, two sectors that operate very differently, meaning it may cost a retail extra to get in someone to deal with it if they don’t have the know-how themselves.

“Then, there’s the regulatory landscape to consider. Finance is a highly regulated industry, and ensuring compliance requires a deep understanding of this landscape, something that many entrepreneurs might not have. Security is another significant concern – handling financial transactions necessitates a robust security framework to protect customer data and prevent fraud.

“There’s also the customer experience to consider. How do you implement embedded finance in a way that adds value for your customers, rather than complicating the shopping process? It’s a delicate balance and one that requires careful consideration and planning, but I’ve found it can pay dividends and work as a form of marketing itself, with consumers liking the level of trust and convenience these systems often bring to their experience.”

Author

  • Tom joined The Fintech Times in 2022 as part of the operations team; later joining the editorial team as a journalist.

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