Turbocharging customer loyalty through embedded finance

Tom Bentley at NatWest Boxed describes the power of embedded banking services

A slow recovery from the cost-of-living crisis and strong competition are adding to ongoing margin pressure for most UK retailers. In the face of such challenges leading brands are exploring how they can innovate to increase customer engagement and drive long-term loyalty.

Delivering the right embedded finance options to customers at the right time is proving instrumental in helping retailers maintain and grow their revenue share today and offers a promising pathway to unlocking new revenue streams going forward. 

Let’s explore the provision of embedded finance, from increased payment options at the point of sale today, through to more advanced opportunities to deepen customer relationships in new and innovative ways tomorrow. 

Growth in embedded finance today

The convergence of several factors has spurred the uptake of embedded finance over recent years. This includes technological developments such as cloud-native platforms and open APIs, data-driven personalisation capabilities in sales and marketing and the acceleration of e-commerce penetration through the pandemic and beyond. At the same time, the rising cost of living has fuelled consumer demand for flexible budgeting and credit options. 

Today, embedded buy-now-pay-later offerings have become table-stakes for many retailers while some have also launched customised instalment loans, white-labelled credit cards and savings propositions designed to meet rising customer expectations. 

Through the power of embedded finance, many retailers are providing financial services to their customers as an integral part of the customer journey. The results are proving significant. Research conducted with BCG shows that leading UK retailers are reporting a ~5-12% boost in conversion rates, ~15-30% increase in average order values and ~4-7% incremental revenue growth overall.

In just a few years, embedded finance has shown that it can be a significant performance enhancer. To remain ahead, it’s imperative that retail leaders hone in carefully on offering the right embedded finance products based on the needs and ambitions of their customers, and that their overall strategy is closely aligned with their corporate brand values and ethos.

Innovating to drive loyalty tomorrow

Indications show that consumers are looking for retail experiences that make them feel valued and that they want more from loyalty programmes. With data showing that 77% of the British population are members of at least one programme, and 47% saying such membership will encourage them to spend more, brands are paying close attention.

It’s important to think beyond the traditional loyalty programme focused simply on earning and spending points. Often with this model it can take a long time to accumulate points of meaningful value and customers can become disengaged. 

Here’s where the creative use of embedded finance can open the door to attractive new revenue opportunities for retailers supported by next generation, context-specific and personalised financial services. Digital wallet services and savings propositions, like save-now-buy-later, tightly integrated with loyalty and reward programmes, can provide an opportunity for brands to deliver increased value to those customers that are most engaged and committed. 

Consider grocery shopping. If a customer knows they spend roughly the same amount with the same supermarket brand each week, why not pay that money upfront via a digital wallet and draw down on it to gain extra rewards and increased value? The grocer benefits from locking in that revenue in advance and having certainty that the customer is spending their grocery budget in their store (and not with their competitors), while the customer can gain access to perks such as free delivery on their groceries and/or discount vouchers up to a certain value of their overall spend. 

Such an approach needn’t be limited to grocery stores. A similar model could also be used by brands looking to cater to the needs of consumers in connection with significant life events such as having a baby, buying a house, or saving for a dream honeymoon. 

The cost of a cot, pram, car-seat and accompanying accessories soon mounts up, with a lot of people putting the spend on a credit card or relying on support from friends and family. Many new parents would welcome the opportunity to join a loyalty programme with a trusted retailer that can help them navigate and finance what’s needed at every stage. If it means committing to an initial investment upfront via a digital wallet but knowing that the retailer will be able to provide everything they need for the baby on an ongoing basis (thinking of nappies, clothing and more), it becomes an attractive offering where they can be rewarded for their spend through discounts and other incentives.

Brands can provide further value by welcoming parents to a community that provides advice around each stage of the baby’s growth and development.

Similar loyalty programmes could be adopted by home improvement stores looking to support people embarking on property renovations for the first time. Many customers would benefit from a loyalty programme that provides access to a ready supply of building and decorating materials – with discounts built in for committing to spend a certain amount upfront – which enables them to unlock advice on topics such as engaging with trades people and carrying out DIY projects. 

Innovative brands, eager to build compelling customer experiences that encourage repeat purchases and continuity of engagement through enhanced rewards, can now provide a range of embedded finance options safe in the knowledge that a licensed banking provider is underpinning every aspect of the offer.

Operating in this way, brands can create new revenue streams through earnings from both deposits and transactions, gain forward visibility of future purchasing through committed savings and gain increased data that provides greater insight into customer behaviour.

The ability to offer financial solutions to customers seamlessly, securely and at scale, means that the opportunities to innovate are limited only by a brand’s imagination. 

Tom Bentley is the Head of Growth for NatWest’s new banking-as-a-service venture Boxed

Main image courtesy of iStockPhoto and filadendron