How is Banking-as-a-Service helping retailers lead the market?

- James Butland

Retailers once navigated a much smaller world before the COVID-19 pandemic kickstarted mass migration to online channels. Even those ahead of the curve could only serve customers locally via an online shop. Now, digital platforms allow retailers to cast their nets much wider and enable them to do business with the whole world.

Less than a year ago, a KPMG study found that a strong majority of retail CEOs (74%) aim to proactively disrupt the market before it is disrupted by competitors. So, to sustain growth internationally, retailers’ next challenge is to meet local needs with disruptive experiences, but on a global scale. Where digital platforms like Amazon and Flipkart have already brought opportunity to retail, how will they now help the industry satisfy a growing appetite (and need) for frictionless and seamless financial services worldwide?

Open banking, embedded finance and Banking-as-a-Service (BaaS) are enabling consumers to interact with financial services beyond traditional functions like withdrawing or depositing cash in-branch. For example, purchasing items on your phone now takes one or two clicks and cashing a cheque can be done on-the-go simply using a smartphone camera.

By adopting an embedded finance model, businesses can create a holistic experience for their customers, wherein they can easily send and receive money in near real-time, without any sacrifice to the overall user experience.

With BaaS, retailers and online merchants can now easily take advantage of embedded financial services without having to source the skills to manage back-end technology in-house. They can do this via digital platforms which integrate tailored modules and offer financial capabilities that streamline the entire financial process for consumers. From a business point of view, banking technology has introduced even greater advantages. Aside from creating operational efficiencies, digital platforms that integrate embedded finance, BaaS and open banking capabilities have allowed businesses to become location agnostic. That means they can do business with anyone, anywhere in the world, no matter the size or location of their business. Adding other internationalisation features via the digital platform, such as localised payment methods, offer yet more ways to engage with customers and aid expansion in new markets.

Despite global supply chain crises, inflation and ongoing uncertainty, there are now more tools available than ever before to help businesses grow, and it is no coincidence. To understand how they can use these tools to benefit their business, retailers must first understand what these tools have to offer and what pain points they address. From the consumer’s perspective, one key shift from the pandemic has been trust. Customers’ perspectives on trust have changed throughout COVID because it has altered purchasing habits by forcing people to shop online or use a digital service which they might not have done before the pandemic.

The biggest barrier to innovation is trust, but once customers see the benefit, more opportunities inevitably arise. Specifically, older generations who do not take as many technological risks as their younger counterparts will gradually adopt services that are simple, convenient and familiar.

Furthermore, digital platform financial services are not just for the consumer. The issue of trust often trickles up the ladder to the vendor-user too. Digital platform providers need to also consider the person selling the product to solve retailers’ pain points and deliver ease of use to scale. In doing so and implementing BaaS, improvements to the user experience filter through to the end customer who will return as a result.

Stay ahead by leveraging technology and partnerships with innovative fintechs

As a traditional retailer, merchants need to accommodate key consumer drivers such as price, speed, quality. In today’s digital age, retailers need to also be seen as the frontrunner in terms of customer service, preferred payment methods and disruptive user interface (UI). If customers can find a slicker, more convenient shopping experience elsewhere, retailers will lose out on their business.

On the international retail stage, consumers want a local shopping experience online. To achieve it, retailers need to incorporate local payment methods plus preferences, local currencies, and any financing options that are frequently used in that market.

By accessing various functionalities and partnering with a wide network of global financial services providers via a digital platform, retailers can open up a wider customer base for the long-haul. If retailers can provide familiarity, a trusted payment method and a transparent price, they will ultimately convert more people at checkout, anywhere in the world.

From financial uncertainty to upticks in digital fraud, more challenges lie ahead for retailers in the current economic climate. However, those that were able to use innovations to their advantage are entering a new stage of global retail that comes with boundless opportunity. To fully immerse your business, staff and customers in the possibilities of global trade, embedded finance that takes the friction out of payments is the way to go. With financial disruption at their fingertips, any retailer can meet, or indeed lead the market.

James Butland, VP of Financial Partnerships, EMEA at Airwallex