Embedded finance in retail

EmFi is a strategic approach adopted by leading retailers, to offer their customers, suppliers and partners financial services integrated directly into their core products and user experiences. This is not a new concept; retailers such as Tesco launched their own credit cards in the Irish market in the early 2000s and in the UK, Tesco Bank offers a wide range of financial products, including credit cards, loans and insurance products.

The distinction between Tesco's approach and what an Irish retailer could achieve through EmFi lies in the division of responsibilities. With EmFi, the retailer takes charge of product sales and marketing, while third-party tech vendors handle product development and regulated activities. This division allows the retailer to concentrate on their core business activities while reaping the benefits of offering financial products. 

Today’s leading retailers are exploring EmFi as a means of achieving strategic growth. This presents them with the chance to generate additional revenue streams, primarily through interchange, lending and referral fees. Moreover, retailers can enhance customer satisfaction and loyalty, thereby boosting the overall lifetime value of a customer.

This is achieved by encouraging larger purchases and more frequent visits to physical stores. Furthermore, embedded finance offers increased visibility into customer data, providing valuable spending insights both on and off the retailer's platform. This heightened understanding enables retailers to optimise their services and better cater to the evolving needs of their customers.

On the supplier side, EmFi presents opportunities for Irish retailers to inject liquidity into their supply chains and provides the means to negotiate improved terms for suppliers. All of these contribute to optimised cash flow for the retailer and foster stronger partnerships with suppliers.

EmFi also offers possibilities to decrease the expenses associated with internal financial operations, such as reducing annual banking fees like the merchant discount rate. It also allows for the digitisation of physical cash, reducing the cash conversion cycle and improving the security of the physical cash handling process at the retail outlet.

The range of financial products that leading retailers are offering today is quite extensive, and includes staples such as bank accounts, debit and credit cards, loans, and investments. Their suitability is contingent upon factors such as the retail business's nature, the scale of its customer and supplier base, and the level of trust associated with the brand.

For retailers aiming to boost revenue, providing working capital solutions to their supplier base stands out as a particularly lucrative opportunity. Another avenue for further monetising existing consumer relationships involves issuing branded debit cards. Both options yield favourable returns for retailers while entailing minimal CapEx and OpEx implications.

If, on the other hand, a retailer is seeking to reduce cost, there are many ways in which this could via achieved with EmFi. For example, implementing an embedded dynamic discounting program to lower COGS or providing embedded acquiring services to reduce the cost of the merchant discount rate.

In key European markets such as Spain, Switzerland, and France, leading local retailers have begun offering a wide range of financial products and services to both customers and suppliers. One recent entrant into the evolving EmFi value chain is Co-Op, the largest supermarket chain in Switzerland. This retailer is now providing a diverse array of financial products to its customers, including debit cards, savings accounts, and investment products. 

We believe that the answer to this question will be yes for many Irish retailers as there is no doubt that EmFi offers significant benefits to early adopters who get it right.

Most Irish retailers are poised to seize these benefits, given their substantial customer base and the trust they enjoy among consumers. In addition, the high level of consolidation in Ireland's financial sector leaves consumers and businesses with few options for financial services, creating an obvious opportunity for Irish retailers to step in.

Established retailers in Ireland will find themselves sidelined by the next generation of consumers if they ignore the EmFi trend and will no doubt miss out on a golden opportunity to solidify their relationships with their existing customer base. On the flip side, Irish retailers that actively embrace and develop EmFi to diversify their service offerings will position themselves strongly and competitively in this new digitally enabled retail era.