The potential of embedded financial services in the ecommerce journey is huge. Alexander Graf, Co-Founder & Co-CEO of Spryker, explains how embedded finance can help create sticky customer relationships in both B2B and B2C
Embedded finance, based on the latest banking and payments technology, won’t just drive additional revenue. It will encourage customers to stay longer on your platform and help to make buying from you as frictionless as possible. This all creates a better customer experience, making it possible to create a deeper longer -lasting relationship with customers. A good example in the consumer sector is Peloton, which is all about owning the entire exercise ecosystem and retaining consumer engagement with the platform.
The development of embedded finance products mirrors the maturity curve of other large sectors. The mobile virtual network operator (MVNO) industry in the late 90s saw operators start their own mobile offering for customers on top of existing networks. In the finance sector, consumers could get a credit card from a supermarket chain as well as their bank.
The ecommerce sector has without a doubt embraced the recent broadening and increasing flexibility of the payments ecosystem, offering as many payment options in the checkout process as possible, from PayPal to credit cards. It soon became clear, however, that just offering a lot of payment options didn’t translate to promised multiples of conversion rates. The next big trend in ecommerce will instead be about the way we consume products in both B2C and B2B, based on a subscription-consumption model.
Embrace flexibility with subscription-consumption
Subscription-consumption has become possible only very recently. Even with great online shopping services like organic vegetable deliveries or ready-meal boxes, up until recently, it was very hard to introduce any kind of flexibility around when consumers received their orders. It could be a real challenge to pause or adjust time slots, as the back-end fulfilment systems were so fixed. More flexible systems have transformed the possibilities for subscription and rental-based consumption. The car industry, in particular, is encouraging very flexible rental arrangements. Volvo recently introduced its new Care By Volvo service, allowing customers to subscribe to a car, for instance.
Consumption patterns are changing in business as much as in the consumer sector. B2B providers are becoming keener on clients renting or subscribing to what they offer rather than buying it outright. This suits businesses better too, keeping major capital purchases off the balance sheet. B2B companies are increasingly looking at providing products or services based on a pay-per-use model that reflects actual consumption in close to real-time. This is good news for a business that has a seasonal model and only wants use of a piece of kit for six months. During the off-season, it would prefer those costs were being carried by another business through a hiring arrangement. Now, digital business systems, including embedded finance features, enable businesses to operate using this model.
Ecommerce marketplace users will also come to expect to be offered a consumption-based model and increased flexibility in payment options. And for businesses selling through a marketplace, the marketplace can tap into its ability to aggregate to offer a consumption-based model. There are currently many more innovations like this in e-commerce in the B2B sector than in the B2C arena. Marketplaces will be major facilitators of embedded financial services but that can only happen if they have the right internal support for the cloud and API-tech needed to make embedded finance work.
Disrupt the traditional value chain
Potentially, embedded finance could transform the entire value chain. A business delivering products to lots of small kiosks, might have previously used some kind of merchant credit to keep the supply chain moving. Now, with embedded finance, more data and the supply chain working more and more digitally, businesses can get a good insight into their business partners, suppliers and customers. Businesses can even consider financing clients. In the kiosk example, it might even be an option to buy and build the kiosks and to give away just the licence for the franchise. That way as well as offering finance, the business develops a stronger stake in their customers’ businesses, possibly even going as far as owning the store or kiosk.
Be led by customer needs
Working in partnership with customers to help grow their business is the ambition. It is imperative to take a value-led approach and be led by customer needs rather than using the hard sell. If customers feel they are simply targets of cross-selling of financial services, they are likely to resist change and will fail to realise the many benefits of embedded finance.
Doing business effectively is all about making commercial relationships as sticky as possible. Customer experience is at the heart of that and embedded finance is set to play a key part in making relationships stick.