Measuring the Impact: Assessing the Performance and ROI of Embedded Finance Services in Your Application

Introduction

Embedded finance, which encompasses services like payments, banking-as-a-service (BaaS), and embedded wallets, has emerged as a powerful way for businesses to deliver financial services within their applications. This approach enhances customer experience and drives growth, but it is crucial to measure its impact and return on investment (ROI) to ensure these services contribute effectively to your business objectives. This article will discuss key performance indicators (KPIs) and strategies for assessing the performance and ROI of embedded finance services, payments, and wallets in your application.

Identify Your Key Performance Indicators (KPIs)

The first step in measuring the impact of embedded finance services is to identify relevant KPIs for your business. Some common KPIs to consider include:

a. Adoption Rate: Measure the percentage of your user base that engages with your embedded finance services, including payments and wallets. A higher adoption rate indicates better integration and user experience.

b. Revenue: Evaluate the incremental revenue generated by the embedded finance services, such as transaction fees, commissions, or other revenue-sharing agreements with financial service providers.

c. Customer Lifetime Value (CLV): Determine the increase in CLV attributable to embedded finance services and BaaS. A higher CLV indicates that these services drive customer engagement and retention.

d. Conversion Rate: Measure the percentage of users who complete a transaction or conversion event using the embedded finance services, including payments and wallet features. A higher conversion rate implies effective services that address user needs.

Analyze Customer Behavior and User Experience

Understanding customer behavior and user experience can offer insights into the effectiveness of your embedded finance services. Monitor customer feedback, engagement metrics, and user behavior data to identify areas for improvement. Some useful metrics to track include:

a. Time spent on embedded finance features: Analyze the average time spent by users on embedded finance services, including payments and wallet functions, to gauge engagement and interest.

b. Drop-off rates: Identify the points in the user journey where users abandon the process. This information can help you understand potential friction points and improve the user experience.

c. User feedback: Regularly solicit user feedback through surveys, reviews, or interviews to identify opportunities for improvement and gauge satisfaction with the embedded finance services, and wallets.

Calculate ROI

To calculate the ROI of your embedded finance services, consider both the direct and indirect benefits these services provide to your business. Direct benefits include increased revenue, while indirect benefits may encompass improved customer satisfaction, higher engagement, and enhanced brand perception. To calculate the ROI, use the following formula:

ROI = (Total benefits — Total costs) / Total costs

Ensure that you consider all costs associated with implementing and maintaining the embedded finance services, such as development, integration, and support costs.

Continuously Optimize and Iterate

Measuring the impact and ROI of your embedded finance services, including payments and wallets, is an ongoing process. Continuously monitor KPIs, customer behavior, and user experience to identify areas for improvement. Regularly iterate on your embedded finance features to enhance their performance and optimize their contribution to your business goals.

Example: Assessing the Performance and ROI of an Embedded Finance Service in an Online Store

Let’s consider the case of an online store that has recently integrated an embedded finance service for instant credit approval and payment, allowing customers to buy products and pay for them later. The store aims to measure the impact and ROI of this embedded finance service to determine its effectiveness and value.

  1. Identify Key Performance Indicators (KPIs)

For this online store, relevant KPIs might include:

a. Adoption Rate: The percentage of customers who choose the instant credit approval and payment option during checkout. For example, out of 1,000 customers, 200 chose the instant credit option, which results in a 20% adoption rate.

b. Revenue: The incremental revenue generated from interest, late fees, or other charges associated with the instant credit approval and payment service. For instance, the online store generates $5,000 in additional revenue from interest and fees through this service.

c. Customer Lifetime Value (CLV): The increase in CLV attributable to the availability of the instant credit approval and payment option, which may encourage repeat purchases. Suppose the average CLV increases from $100 to $125 for customers who use the instant credit option.

d. Conversion Rate: The percentage of customers who complete a transaction using the instant credit approval and payment option, as opposed to other payment methods. For example, if 100 customers initiated the credit approval process and 80 completed the transaction, the conversion rate would be 80%.

  1. Analyze Customer Behavior and User Experience

To gain insights into the effectiveness of the embedded finance service, the online store should monitor customer feedback, engagement metrics, and user behavior data. Useful metrics to track might include:

a. Time spent on the instant credit approval process: Analyze the average time spent by customers during the instant credit approval process to gauge engagement and interest. For example, customers spend an average of 2 minutes on the process.

b. Drop-off rates: Identify points in the user journey where customers abandon the instant credit approval process, indicating potential friction points that require improvement. For instance, 20% of customers drop off during the approval step.

c. User feedback: Regularly collect customer feedback through surveys, reviews, or interviews to gauge satisfaction with the instant credit approval and payment service. For example, the online store receives an average satisfaction rating of 4.2 out of 5.

  1. Calculate ROI

The online store should consider both direct and indirect benefits when calculating the ROI of the embedded finance service. Direct benefits include increased revenue from interest and fees, while indirect benefits may include improved customer satisfaction, higher engagement, and the ability to attract more customers. Using the ROI formula:

ROI = (Total benefits — Total costs) / Total costs

Suppose the total benefits amount to $8,000 (including $5,000 in additional revenue and $3,000 in increased CLV), and the total costs of implementing and maintaining the service are $4,000. In this case, the ROI would be:

ROI = ($8,000 — $4,000) / $4,000 = 1 or 100%

  1. Continuously Optimize and Iterate

Measuring the impact and ROI of the embedded finance service is an ongoing process. The online store should continuously monitor KPIs, customer behavior, and user experience, iterating on the instant credit approval and payment feature to enhance performance and optimize its contribution to the store’s business goals.

By following these steps, the online store can effectively assess the performance and ROI of the embedded finance service, making data-driven decisions to maximize its value for both the business and its customers.

Conclusion

Assessing the performance and ROI of embedded finance services, payments, and wallets in your application is a critical component of ensuring their success and contribution to your overall business objectives. By identifying relevant KPIs, analyzing customer behavior, calculating ROI, and continuously optimizing your embedded finance features, you can maximize the value these services provide to your business and customers.

Furthermore, evaluating the impact of embedded finance services can inform your decision-making process and enable you to make data-driven choices to refine your services, improve customer experience, and bolster your competitive advantage. As the landscape of embedded finance continues to evolve, it’s important to stay agile and adaptive to emerging trends and customer needs. Regularly reviewing and reassessing the performance and ROI of your embedded finance services can help you stay ahead of the curve and ensure that your application remains relevant, engaging, and profitable in an ever-changing market. In doing so, you can foster long-term growth, customer loyalty, and sustainable success for your business.

Other articles
Signicat: Organisations Are Still Unprepared to Fight AI-Driven Fraud
Bowhead Specialty and Kalepa Improve AI-Driven Underwriting
Retail: Adopting POS Systems, Digital Wallets, BNPL
Swift Is Testing AI to Fight Fraud
How Should Financial Institutions Transform Their Operations Using Gen AI
Business-to-Business Innovation: Leverage, Artificial Intelligence, and Embedded Experiences
Emerging Trends in Insurance and Financial Technology
Simplifying Cross-Border Payments: Fuse Technology’s Impact in the GCC
Thredd’s CEO Jim McCarthy on the Future of FinTech
Revolut Expands Mobile Wallet Partnerships in Africa for Faster International Transfers
Alibaba Cloud Expands Global Footprint and AI Talent Development Initiatives
BBVA Improves Productivity via Strategic Open AI Cooperation
New Era of Payments: Pay-by-Bank Solutions
Banks Must Adapt to an Evolving Open Banking Landscape
Fintech Innovation Needs to be «Mass Produced»