Man holding credit card in hand and entering security code using smart phone on laptop keyboard, online shopping concept.
E-commerce is the leading channel for consumer spending, however, with success comes new challenges and competition. Embedded finance for e-commerce platforms is becoming a popular way for businesses to add new revenue and open growth opportunities.
In 2021, global retail e-commerce sales reached approximately 5.2 trillion U.S. dollars, and are projected to grow by 56% over the next five years, reaching about 8.1 trillion dollars by 2026. The six largest e-commerce markets in Europe have experienced a combined increase in sales of 116.1%, from £152.20bn in 2015 to £328.91bn in 2021.
As e-commerce becomes the default route to market for retail – 2021 figures showed 78% of new business applications are planning to sell online and e-commerce needs to find a new way to not only capture a share of this revenue, but retain and scale it across their customer base.
Launching embedded finance services has the potential to dramatically enhance the value proposition for e-commerce platforms, providing services that merchants need while adding new sources of income for the platforms themselves. By partnering with financial technology providers, platforms can leverage the benefits of embedded finance to stay ahead of the competition in the digital age, while offering customers a more seamless experience to increase customer loyalty and growth.
However, to make the most of embedded finance services, e-commerce businesses need to find the right partner to offer the necessary infrastructure and expertise to help businesses seamlessly integrate financial services into their platforms. Here we explore the advantages of embedded finance services for e-commerce platforms, how to choose the right partner, and the steps for implementing these solutions in your platform.
Why do e-commerce platforms need embedded financial services?
With the expansion of the e-commerce market, platforms are facing new challenges in scaling revenue while still retaining and growing existing customers. Merchants have more choice than ever when it comes to choosing their provider, while the bar for service is growing.
E-commerce growth challenges
As the e-commerce market expands, e-commerce platforms face several challenges that can impact their growth and success. These challenges include:
Balancing service and margin
As e-commerce platforms scale, competing for customers can put downward pressure on revenues due to marketing and service costs. Platforms need to balance the cost of expansion with the need to remain profitable and provide the service levels merchants expect.
Customer acquisition costs are one of the main costs of growth for e-commerce platforms. Businesses with low retention end up spending more on acquisition and cutting profit margins.
Platforms are limited in their ability to raise costs for sellers, as higher fees risk losing sellers to other platforms, but while retention is the most attractive route, retaining customers requires offering valuable services at the right price.
Embedded financing offers the chance to increase revenue while also improving service levels, without driving up costs for users.
How does embedded finance generate new revenue for e-commerce platforms?
Embedded finance can help e-commerce platforms scale revenue by enhancing the customer’s lifetime value through tailored financing options. The customer’s lifetime value (CLTV) is a critical metric in e-commerce, determined by the average value of transactions per customer, the number of transactions per period, and the churn rate per period.
Embedded financing, such as revenue-based finance, can improve each of these metrics by:
Revenue-based finance also adds a new revenue stream for the e-commerce platform, which grows each time a customer renews on a credit line. This enables e-commerce platforms to generate revenue from both the seller and the customer, while also increasing customer loyalty and retention.
Examples of e-commerce platforms using embedded finance
As a natural extension of the e-commerce enablement proposition, embedded finance is an increasingly popular route for e-commerce providers, with several leading e-platforms already adopting the solution for customers:
How to mitigate risk for e-commerce embedded finance
Alongside the benefits of embedded finance, e-commerce platforms need to proactively address the potential risks to maximise return on investment and customer experience. Some of the risks to consider when implementing e-commerce embedded finance include:
How to implement embedded finance on your e-commerce platform?
E-commerce platforms have the option to build their own embedded finance products, but the majority choose to work with an expert technology partner. Advantages of this approach include:
When choosing the right partner, platforms should consider:
Maximising embedded finance value for e-commerce
E-commerce is going to keep growing as a channel – for platforms, the race is on to maximise customer value, improve retention and optimise business models for today’s marketplace. Embedded financing has the potential to turn e-commerce platforms into one-stop shop for running a whole business online, bringing more of the services your customers need into one place.
One Business Solutions works with leading e-commerce platforms to help them move faster, tailor their customer experiences and reduce risk when it comes to offering embedded finance services. Our technology integrates seamlessly with your platform to help you offer a seamless journey to your users that provides consistent value.
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