Embedded financial services and payments enhance the customer experience and have become a necessity to win in the digital economy. The Nordics are ahead of the game.
When you hail a ride with Uber you probably don’t even think about having cash at hand or taking out your card at the end of the ride to pay the driver anymore. When you want a quick snack and use the McDonald’s app to pay for your fries, you can pick them up in the drive-through on your way back home without worrying about change. And when you go to work in the morning you can pay for your coffee in your Starbucks app and earn rewards while doing so.
You might not notice it but embedded payments are getting woven into the fabric of our digital infrastructure everywhere. Embedded payments are the umbrella term for a variety of financial products that are seamlessly integrated into the customer journey when buying a product or a service.
Embedded finance lets any company offer financial services
Embedded payments are part of the larger financial trend known as embedded finance. It lets any company from retailers to car dealers or energy companies offer payments, insurance, loans, financing or tax services to enhance the customer experience, improve sales and loyalty, and in general add new revenue streams to their business, explains Fredrik Neumann, country manager Nordics, Worldpay from FIS.
“Simply put: Real-time payments will enable greater transparency and speed in payments from one party to another.”
Fredrik Neumann,
Country Manager Nordics & Sweden, Worldpay Solutions
“Real-time payments have become a necessity. Many countries, companies, and governments are making investments to enable real-time payments. It is a simple concept but requires immense standardisation. But the investment will pay off. Simply put: Real-time payments will enable greater transparency and speed in payments from one party to another. It matters because waiting for your money is stressful and forces companies to take on excess liquidity that could be put to better use,” he says.
Two primary drivers of embedded payments
There are two primary drivers of embedded finance and thus embedded payments: the spread of digitalization and the desire to enhance control over the customer experience. On top of that, the Covid pandemic sped up the evolution of embedded finance when businesses were forced to make decisions about how to accept payments and retain customers.
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“Digitalization is the fundamental driver of the need to collaborate to achieve the desired experience. But perhaps more important is that growth is based on a positive customer experience. What is the point of delivering phenomenal customer service if all is shot when you transfer a customer to a third party whose experience is antiquated? The desire to improve these experiences and make them frictionless is the true driver behind the uptake of embedded financial services,” says Fredrik Neumann.
Worldpay discovered in their research, that for every additional page online the customer has to go to ultimately yields a drop off in customers – often to the competitors who have easier onboarding processes. The lesson is to make your payment or insurance process as frictionless as possible and limit what else you offer upon checkout.
“Customers expect immediacy from all interactions and service providers these days. The key to embedded finance and business owners is understanding what your customer journey is and identifying its pain points,” says Fredrik Neumann.
“The high digitization of Nordic societies has enabled the Nordics to grow a payments ecosystem far greater than its modest market size would support.”
Tony Bach Christensen
Director of Strategic Partnership, Nets Issuer & eSecurity
Local Nordic wallets are growing
The Nordics are generally known as an innovative region when it comes to mobile, digital and instant payments. In all Nordic countries, debit card transactions represent more than 90 % of card payment transaction volume and at least 80 % of the total value of card payments. Payments in-app are also seeing an increase in the Nordics from ApplePay and GooglePay to local wallets.
“Local wallets like MobilePay, Swish and Vipps are seeing tremendous growth these years due to the fact that they have succeeded in creating a frictionless payment experience when shopping online,” says Tony Bach Christensen, Director of Strategic Partnership at Nets Issuer & eSecurity.
Nordic consumers are used to contactless payments
Back in 2015, NFC based payments began substituting chip and pin. The widespread early adoption helped prepare the consumers for the tap-and-go experience of mobile wallet payments. Such a simple process was considered a great challenge to consumer fear and distrust when it came to “handle my money matters.”
“The most important aspect of embedded payments, and an aspect in which the Nordic solutions and banks generally excel, is the question of consumer trust and its prerequisite, transparency,” says Tony Bach Christensen citing Nets’ Payments Outlook report 2021.
Recommended for you: Get your copy of the Nordic Fintech Magazine Spring Edition 2022
Trust has super-charged the Nordic payments ecosystem
When talking about frictionless or “invisible” payments, there is usually a trade-off between security and anti-fraud measures versus reducing the pain of paying. In the Nordics, each country has a national digital identity solution adopted by banks and governments alike, ideally suited for mobile embedded payment. Thus, Nordic payment solutions including mobile wallets have been able early on to embed the safety aspect into a smooth user journey supported by increasing thresholds of payments not requiring rigid authentication.
“Consumer trust in banks and payment facilitators; like local wallets, Klarna and gift card providers etc., is high, regulation is thorough and widely respected enabling more players to enter this space in the Nordics than perhaps anywhere else in the world. This combined with the high digitization of Nordic societies has enabled the Nordics to grow a payments ecosystem far greater than its modest market size would support. And we are in fact talking about five different markets and not one homogenous market,” says Tony Bach Christensen.
