Posted: July 5, 2023 By Kieran Darmody

Exploring the Benefits of Embedded Lending for E-Commerce Merchants

Embedding financial products for SMEs in e-commerce platforms offers significant benefits, enhancing service offerings, increasing customer lifetime value, revenue, and promoting business growth.

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Becoming an e-commerce merchant is no longer a point of difference; it’s the default market entry point in today’s internet-enabled world. It’s estimated that world retail e-commerce sales – which are expected to total $5.9 trillion in 2023 – will exceed $7.5 trillion by 2026. To stand out from the crowd in this saturated – and uber-competitive – market, merchants must explore innovative ways to secure a share of this revenue and retain and scale it across their customer base. 

Embedded lending – a subset of embedded finance – has emerged as a popular option for enhancing the value proposition of e-commerce platforms in the wake of pandemic-induced lockdowns that strangled household incomes. This process of integrating credit or financing products into non-financial businesses appeals to the modern consumers’ demand for frictionless, digital-first lending experiences – allowing them to access finance when they need it from a brand they trust. 

Understanding embedded lending

Working with a tech-led embedded finance partner, merchants access a customisable API or white-label solution to integrate dynamic lending options into their e-commerce platform – and the benefits are compelling for both parties: 

  • It can be tailored to meet their specific customer needs, ensuring brand integrity remains intact.  
  • Adds value to the customer experience who benefits from a faster, simpler, and frictionless lending experience. 
  • Differentiates the e-commerce merchant’s offering from the competition, helping it to stand out from the crowd. 
  • Helps to promote financial inclusion by providing customers with access to useful, affordable, and responsible lending products. 

For example, Klarna – a leading global payments and shopping service – has partnered with Liberis to embed lending into their online experience. Merchants leverage this partnership by using Klarna’s services to access finance powered embedded lending.  

E-commerce platforms don’t have to worry about their balance sheet when embracing alternative financing solutions because embedded lending providers like Liberis provide the initial capital and absorb the risk. 

Empowering e-commerce merchants

With bespoke lending options successfully embedded into their technology ecosystem, e-commerce merchants can enhance the customer’s lifetime value – the total worth to a business of a customer over the whole period of their relationship: average value of transactions, number of transactions, and churn rate. 

Embedded lending can grow customers’ average transaction size and improve retention rates by providing access to seamless, streamlined, and flexible lending options – increasing their spending power and satisfaction. The result: a sustained injection of revenue that enhances cashflow management, increases purchasing power and inventory management, and accelerates growth and scalability. 

By partnering with an embedded lending platform, e-commerce platforms like Klarna are able to provide small businesses with bespoke, pre-approved funding when they need it most, such as for buying stock during busy seasonal periods or to make VAT payments. This critical funding at the point of need is powered by advanced real-time data sharing between the e-commerce platform and the embedded lending platform. For example, open banking is helping to drive the democratisation of this instant funding.  

Risk mitigation and customer trust

Creditworthiness is a vital layer in the lending process. This risk mitigation tool has traditionally relied solely on a borrower’s credit score – a narrow approach that focuses on their current financial information. Consequently, lending decisions are determined by factors like payment history and outstanding debt, rather than their suitability to pay back the funds in the future. Embedded lending has the power to augment credit scores with forward-looking insights into a borrower’s suitability to repay a debt obligation – mitigating the risk of non or late payment.  

With the loan application and approval process integrated seamlessly into the e-commerce platform’s user interface, customers can circumvent traditional lending structures that rely on legacy third parties, multiple forms, and manual processes. This streamlined experience saves time and effort for customers while providing a sense of security and reliability – enhancing trust in the platform and its lending services. 

Success stories

Buy Now Pay Later (BNPL) is an example of embedded lending: a type of short-term financing that allows consumers to make purchases and pay for them at a future date. Amid the proliferation of this flexible funding option, e-commerce platforms, such as Klarna, now offer instant lending solutions in the form of revenue-based finance to their SME customers – providing finance without friction for this traditionally underserved segment of the lending market. 

Choosing the right embedded lending partner

Buy or build? A new capability is an immense drain on resources: it requires substantial programming manpower; it takes months to develop and deliver; and it demands vigorous GRC analysis. Working with a tech-led partner like Liberis that specialises in developing APIs that facilitate rapid deployment saves time and money – plus new features can be added when required. This brings the vendor selection process into sharp focus for e-commerce platforms. 

To harness the power of embedded lending to offer a value-added service, you must trust this third-party provider from a security, technical, reputational, and strategic perspective. To ensure they align with your requirements and can help you achieve them, carefully consider the options available before making an informed decision. This should be viewed as a long-term investment in a meaningful partnership, not an off-the-shelf product. 


E-commerce platforms that seamlessly embed lending products into their platform at the point of purchase experience a ripple effect of benefits: enhanced competitive edge leads to improved customer loyalty and greater spending power, which in turn leads to increased sales and higher average order value. With their coffers swelled by this cycle of success, they have the financial footing needed to manage cash flow with confidence, increase purchasing power and inventory management, and grow their business.  

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