This article was written by David Zhang, Insights Manager and Quan Yao Peh, Senior Analyst. The original article was published by Euromonitor International. You can find the article here.

The development of embedded finance not only eases the customer journey throughout the retail funnel, which helps reduce purchase abandonment, but it also plays a critical role in driving digital transformation across channels.

This article focuses on the two primary pillars of global store-based retail: grocery retailers and non-grocery retailers. With sales for both channels projected to record a CAGR of just 2% from 2023 to 2028, the muted growth potential means that it is critical for retailers to differentiate themselves from competitors by optimising the customer experience, diversifying revenue streams, and driving operational efficiency through embedded finance partnerships.

Grocery retailers: One-stop services including banking to enhance engagement

The essential nature of groceries means that grocery retailers are a cornerstone of consumers’ daily lives. The high purchase frequency and spend value, combined with a wide store network close to where consumers work and live, provide grocers with an opportunity to embed themselves into consumers’ lifestyles by integrating financial services within retail operations.

In October 2023, Switzerland-based grocery retailer Coop Genossenschaft launched Co.op Finance+ through partnerships with FinTechs, including Additiv, in Switzerland. Coop positions Co.op Finance+ as a convenient way to track one’s household spending and access financial products, such as payments and savings, through a single mobile app. Co.op Finance+ complements Coop’s existing Supercard loyalty programme, which consumers paying through the Coop Finance Plus debit card can use to earn double points. Consumers can also make cash withdrawals at Coop supermarkets free of charge, encouraging frequent store visits.

The platform will help Coop improve the customer experience, drive brand loyalty and diversify revenue streams. Through Co.op Finance+, Coop is positioning itself to capture a greater share of wallet by moving beyond retail to serve as a one-stop shop for consumers’ financial needs.

While the number of bank branch networks and ATM networks have been on the decline globally (with both projected to record a global volume CAGR of -2% from 2023 to 2028), a significant portion of older and non-digital savvy customers still prefer offline networks for security

^{Source: Euromonitor International}

Meanwhile, there are still SMEs that prefer cash payment (i.e. independent car parks, wet markets, small taxi fleets) due to the costs incurred to process cashless payments. Addressing the offline demand gap, convenience store operator Seven & i Holdings has been expanding ATM networks to support banks in Southeast Asia (Thailand, Philippines, and Malaysia), and North America (the US). Meanwhile, digital banks (including Airtel Payments Bank) have been utilising independent stores as agents to expand into rural areas.

Moving up the retail supply chain, embedded finance can also improve financial health of SME retailers. Warungs are small-scale family-operated retail stores that account for the majority of grocery retail sales in Indonesia. Toko Pandai (a B2B FinTech) provides Warungs with convenient access to financial services, including bill payments and loans, to better scale store operations and manage cash flow. This helps to empower Warung owners and create better lives for themselves and their families.

Non-grocery retailers: Providing payment security and a seamless shopping experience across digital and physical to drive sales

Given cost-of-living challenges amid inflation, consumers are continuing to ration their discretionary spending, negatively impacting non-grocery retailers’ sales growth.

Besides adopting novel technologies such as AR for product testing, non-grocery retailers are looking to drive sales by providing a seamless experience for consumers. To address this with unified commerce solutions, Dutch FinTech Adyen has partnered with apparel retailers Decathlon Hong Kong (2023) and Hugo Boss (2024), while US-based FinTech NEC has partnered with mall operator AEON Indonesia.

Addressing another issue of long payment queues leading to purchase abandonment, Swiss sportswear retailer On’s Tokyo business engaged Adyen for mobile POS terminals. Mobile POS enable sales staff to transact with consumers on the shop floor instead of only at the payment counter.

Meanwhile, FinTechs, including Tencent, NEC and PayEye (partnering with Mastercard since 2024), have expanded biometric payment options from facial recognition to palm and iris recognition. Those additional options also achieve high security and personalisation, while addressing consumer concerns regarding facial scans.

For retailers such as Hugo Boss operating across multiple markets, partner search and contract negotiation across markets is tedious. For start-up Mejuri, a US-based jewellery retailer, its in-house manual payment system usually cannot keep abreast of the pace of business expansion. The global networks of key financial leaders, such as Visa and PayPal, address the above complexities with one integration.

Retailers must expand payment options and optimise the customer journey

For retailers, offering a number of different payment options is a key differentiator to help maximise conversion from consumers. Retailers may also work to better understand payment method splits and brand shares in key channels in targeted markets, and they must invest in identifying the right vendors to form partnerships with to offer diverse payment options. For example, at a high level in 2023, debit cards and account payments held 75% value share of personal payment transactions in Germany, whereas UPI (fast payment) is gaining momentum to gradually replace cash in India.

Meanwhile, retailers need to understand customers’ struggles along the sales funnel and identify the right FinTech partner to improve the financial experience. For example, with criteria on speed-to-market and local operational support, Zhufu (a Chinese grocery retailer) engaged Yeahka (a Chinese FinTech) to digitally overhaul its marketing, payment and loyalty programme efforts.

Read our report Embedded Finance Ecosystem: Mapping the Path to Transformation of Goods and Channels Industries, for further details.