Three in five (60%) UK adults have used embedded finance services as part of the checkout process when shopping online in the past 12 months, according to a new survey from Temenos, the world’s leading open platform for composable banking.
The availability of embedded finance services – financial services provided online by non-financial companies – has grown substantially over the past few years. These embedded services include: the use of an e-wallet such as PayPal or Google Pay (used by 42% of UK adults in the past 12 months); paying in instalments through a Buy Now Pay Later (BNPL) solution (17%); rounding up the payment at checkout to donate to a charity or transfer to a personal investment (15%); purchasing insurance when buying a high value product (13%); and taking out a loan at checkout to cover the cost of expensive items (6%).
Embedded finance services are particularly popular amongst younger generations, with four in five (80%) within the 18-34 age bracket having used one in the past year.
With a high proportion of customers using at least one of these at least once a month and citing appealing features including speed, convenience, security and user-friendliness, the embedded finance market is growing fast, creating new opportunities for banks, specialist fintech lenders, banking-as-a-service providers as well as the merchant brands.
The drivers and implications of embedded finance for banks and the whole banking ecosystem are explored in a Temenos white paper Open Banking and the Rise of Banking as a Service.
Kanika Hope, Chief Strategy Officer, Temenos, commented: “From retailers to airlines, ride-sharing apps and coffee chains, brands are embedding financial services into their online and mobile offerings to increase revenues, increase customer loyalty and gain deeper insights on their customers. The findings in this survey show that the use of these services is starting to gain real momentum, particularly among Gen Z looking for seamless and integrated online experiences in their daily lives. This presents new opportunities for incumbent banks as well as new entrants like the banking-as-a-service providers.”
The Temenos survey found that using an e-wallet was the most popular embedded finance service, with 42% of respondents doing so in the last year, rising to 51% for those aged 18-34. Of those who have checked out using an e-wallet, almost three-quarters (72%) do so at least once a month, with speed (66%) and security (40%) viewed by users as the most appealing factors.
Point-of-sale installment loans, specifically BNPL, are experiencing explosive growth in popularity and value. In 2021, online revenue through BNPL increased by 45% compared to 2019. McKinsey estimates fintechs have diverted up to $10bn in annual revenues away from banks over the past ~24 months with BNPL offerings. According to the Temenos survey, over half of UK BNPL users (54%) claim that the fast-to-use nature of BNPL attracts them to the service, the most commonly cited benefit, followed by its user-friendliness (31%), and that they recognize and trust the brand they are interacting with (30%).
However, with inflation and the rising cost of living, affordability and responsible lending are growing concerns, and legislation is imminent in the UK.
Earlier this year, Temenos launched the first AI-driven BNPL service, helping banks create ethically-driven lending programs by providing transparency into automated decisions and matching BNPL customers with appropriate credit offers based on their history. A global payments provider launched its Buy-Now-Pay-Later service on the Temenos Banking Cloud, growing to 22 million loan applications in only nine months.