Embedded finance is creating a new era of opportunity for retailers. Buy-now-pay-later (BNPL) services flooded the market, but this is only one small piece of the puzzle. The sector has barely scratched the surface of its potential.

Forecasts from Juniper Research estimate the value of the global embedded finance market will exceed $138 billion in 2026, a significant surge from the market’s $43 billion valuation last year. The same forecast estimates revenue from BNPL services will account for just over 50 per cent of the embedded finance market in 2026. This does largely depend on how one defines embedded finance, however the untapped potential of the category still remains true.

This confirms the need for retailers to ‘think outside the box’ when it comes to capitalising on the opportunities and innovations in embedded finance.

Large scale Australian retail groups including Kogan, Coles and Woolworths are already battling to be at the forefront of the embedded finance movement, with credit cards, insurance and even superannuation offerings now on the table for customers. As we continue to see retailers extend their services into what has traditionally been considered the realm of banking, it begs the question: will retailers become the banks of the future?

Unlike banks, retailers can deploy innovative financial services by piggy backing off the solutions provided by the likes of Beem It, Stripe and Till; or from full banking-as-a-service (BaaS) offerings from the likes of Hay. This saves retailers from dealing with complex regulatory and technological exercises, allowing them to capitalise and respond to emerging innovations and trends, purely on customer experience terms. This advantage, paired with the leverage of having a captured audience, provides retailers with a prime opportunity.

The rapid innovations in embedded finance and BaaS offerings indicate there is a world of opportunity for retailers to create enhanced experiences that uniquely satisfy their customers’ wants and needs. This also means that embedded finance offerings, which were previously a customised multi-million-dollar investment for retailers, are now largely accessible and financially viable for smaller, niche retailers to adopt.

Retailers that stand to benefit are those that already possess, or are willing to put the legwork in to secure a captive and trusting audience. This is why retailers are upping their game when it comes to brand building initiatives, with retailers including Aldi and Bunnings touting results in Roy Morgan’s latest trusted brand index. Trust allows retailers to bring new offerings to customers and have these rapidly adopted. Provided retailers stay true to their brand promise and deliver marginal utility to their customers, they will be rewarded through customer loyalty, as well as new revenue streams that embedded finance opens up.

By reconfiguring the banking value chain, BaaS has allowed retailers of all sizes — not just enterprise retailers — to capitalise on the golden opportunity of embedded finance. A mere two years ago, developing a mobile banking app to compliment a financial offering to customers would see retailers invest over $10 million, but now it’s achievable at a fraction of the cost with on average a $500,000 investment and two week effort. However, despite the accessible cost, the active distribution of embedded finance is not a standalone and there are various factors that must be considered to reap the rewards.

The true value of embedded finance can only be unlocked by retailers when the service adopted serves a purpose. Often when weighing up the plethora of embedded finance offerings it’s easy to be swayed into acquiring an array of services, but it’s important to remember it doesn’t need to do everything. To secure the highest return, retailers must focus on providing an improved experience that makes it easier for customers to purchase their desired goods. This will ensure that each embedded finance enhancement serves a true purpose and has utility.

Having worked with countless retailers to enhance their customer experiences, at Mobiquity we often ask the question: Is this experience equal or better than their last best experience elsewhere? The answer will uncover whether your proposed new services have a meaningful and differentiated use.

Through our experience at Mobiquity, frictionless and convenient customer experiences are key to helping overcome barriers of adoption. Often this experience is digitally enabled, which is confirmed by a recent report –  Drivers of Digital Loyalty: Consumer Behavior Across Key Industries – which saw 78 percent of 18 to 55 year-olds agree that digital banking fits their lifestyle needs.

If retailers are to truly give banks a run for their money, developing seamless customer experiences will be key, and the heart of this strategy will need to be digital. A key consideration here is that “embedding” financial services does not mean “adding on” new technologies. Unfortunately, some retailers too often get side tracked by vendors trying to sell them the latest shiny toy. That should be the final decision.

So, will retailers actually become the banks of the future? Well, if you consider that even many traditional banks today tend to offer specialised services (e.g SME lending only) to a target segment of customer, then why not think of a specialised banking services provider that services only trades people…did somebody say “Bunnings Bank”?

The real answer to this question rests solely on the retail industry’s commitment to embracing their customer’s brand relationship more holistically and creating frictionless, customer-focused experiences that drive marginal utility at every digital touchpoint, at each stage of the customer journey.

Gustavo Quiroga is general manager of Mobiquity Asia Pacific.