In 2023, the global retail e-commerce market reached USD4 trillion in sales for the first time. However, the rate of online sales growth has slowed in the wake of the pandemic-fuelled digital sales boom; while e-commerce sales recorded a compound annual growth rate (CAGR) of 14% at constant prices from 2018 to 2023, they are only projected to post a CAGR of 7% from 2023 to 2028. For retailers looking to overcome slowing online sales growth, partnering with fintech companies to support an embedded finance model can allow them to overcome challenges posed in three distinct areas: payment, lending and financial crime. As a result, by partnering with fintechs, retailers can boost their e-commerce sales while helping the fintechs grow their own revenues and customer bases.
Fintech payment partnerships help e-commerce retailers boost cross-border sales
One area in which partnerships with fintech players have a proven track record of helping retailers increase their online sales is in cross-border e-commerce. Fintechs can support retailers’ cross-border ambitions by allowing them to provide localised payment solutions to residents of almost any country, regardless of where the retailers themselves are based.
With cross-border retail e-commerce sales projected to record a CAGR of 9% from 2023 to 2028 – a significantly faster rate of growth than domestic retail e-commerce sales over the same span – a growing number of retailers are looking to partner with fintechs to provide payment localisation services
Source: Euromonitor International
Fintechs are innovating by embedding BNPL and credit scoring services into retail e-commerce
Although retail e-commerce customers tend to be more digitally savvy than average, many of these consumers are still extremely price-sensitive. The advent of buy now, pay later (BNPL) has not only given these consumers more payment options than ever, but it has also allowed online retailers to reduce their rates of cart abandonment.
The global market value of BNPL transactions grew to USD181 billion in 2023, recording a CAGR of 30% from 2018 to 2023 in the process
Source: Euromonitor International
In light of this, Alibaba-owned marketplace AliExpress has been working with Klarna and Adyen to provide BNPL options for customers in Western Europe since 2019. Additionally, SeaMoney embeds BNPL options for Singapore-based e-commerce platform Shopee in Brazil and seven markets in Southeast Asia.
Credit scoring is another fintech tool utilised by e-commerce retailers. One unique wrinkle of this is that fintechs can offer prepaid credit cards and savings secured loans to consumers on behalf of retailers and banks to allow otherwise underserved customers to move from being credit-thin to credit qualified, while controlling default risks. For instance, Advance.AI, a Southeast Asian fintech, has teamed up with Indonesia-based e-commerce platform Tokopedia on credit scoring (TokoScore) based on e-commerce transactions since 2022. In turn, TokoScore serves Kredivo (a BNPL firm) and Dhanapala (Tokopedia’s own unsecured lending service).
Embed risk solutions to combat against frauds and scams
Frauds, scams and other financial crimes have resulted in huge losses for consumers and businesses globally.
The portion of global card payments that were lost to fraud in 2023 was USD23 billion, representing a CAGR of 15% from 2018 to 2023
Source: Euromonitor International
As a result, retail e-commerce firms require fintech partnerships to identify and prevent frauds and scams in order to maintain customers’ online transaction confidence and revenue growth.
For example, Lazada, an Alibaba-owned e-commerce marketplace focused on Southeast Asia, fights against fraud by partnering with Ekata, a fintech acquired by Mastercard in 2021. Ekata specialises in identity verification and fraud prevention with two key solutions: identity graph and identity network. The identity graph validates digital identity elements and how they are linked. For example, it highlights risks if there is an email or phone number associated with two or more different individual names. The identity network provides predictive analysis and transaction-level intelligence. Risk scores are higher for individuals linked with previously identified fraudsters. Ekata supports Lazada by screening new account applications and assessing risk in real time. Other similar retailer-fintech partnerships include Shopify with Stripe and Shein with Adyen and Forter, a US-based firm.
In conclusion, the key issues that retail e-commerce players can use fintechs to address include payment experience and integration with local payment methods, credit decisioning in lending, and fighting against financial crimes. Indeed, in the retail e-commerce space, dealing with these issues is critical, given that e-commerce is a 24/7 business, with traffic during peak hours – especially during shopping festivals and other promoted events – sometimes totalling in the billions. Any friction or breakdowns in financial systems can have a catastrophic impact on the customer experience, branding and – ultimately – the bottom line. By partnering with fintechs, successful online retailers have demonstrated that they can mitigate these risks.
Read our briefing, Embedded Finance Ecosystem: Mapping the Path to Transformation of Goods and Channels Industries, for further analysis, and please do not hesitate to contact us for guidance on how to handle your specific challenges.