Embedded finance represents a paradigm shift in how businesses in the B2B space approach payments and lending alike. By integrating financial services into existing products or platforms, companies are enhancing their core offerings while also unlocking new avenues for growth.
A recent Forbes article summarizes this trend well. As it explains, while embedded payments are becoming commonplace, they are actually seen as a stepping stone towards further embedded finance integration. In short, embedded finance, not embedded payments, is the endgame.
The potential for embedded finance growth is vast and largely untapped. It presents an opportunity for businesses to accomplish three parallel, critical goals: diversify their revenue streams, deepen customer engagement, and achieve a competitive edge in their respective markets too.
Why Embedded Finance?
Embedded finance is still an emerging concept. But savvy companies are pivoting to incorporate this new technology and take advantage of that all-important “first mover” advantage. Take Apple, for example; the world’s first trillion-dollar company is shifting towards the fintech space.
For the astute observer, the writing’s been on the wall for a while. First, it was Apple Pay, a handy instant payment tool that saw one billion transactions shortly after it launched. It dwarfed PayPal’s numbers at the time. But since then, Apple has moved on to introducing its own financial services for businesses that wish to switch to Apple products. For Apple, embedded financing seems to be the endgame as it aims to “offer” companies cost-effective ways to become Apple-reliant.
With trailblazers like Apple paving the way, many B2B companies will be taking note. Embedded finance allows for a seamless customer experience with custom financing solutions that fit your product or service.
Moreover, you don’t have to be of FAANG ilk to implement embedded finance. There are plenty of third-party solutions that work with big corporations and SMEs alike to implement cost-effective embedded finance tools.
Benefits of B2B Embedded Finance
With a majority of European SMEs struggling with cash flow management, the need for alternative financing methods has never been more pronounced. Embedded finance provides just that, offering several benefits over traditional financing models.
Better cash flow management is perhaps the key benefit for many SMEs here. B2B payments can involve cumbersome, outdated processes that take longer than necessary.
For SMEs, a broken cash flow process can mean a lack of funds to cover overhead. Embedded finance promises instant payment or lending options with favorable terms where customers can pay flexibly while the business gets its money immediately.
And that’s just from the business’ perspective. A customer considering several competitors may well opt for the one with the most seamless experience and most favorable financing options. This would increase business too.
Businesses also tout the advanced insights and data they collect as a result of embedded financing solutions. This allows them to develop products and services that help them serve their customers better.
When executed correctly, B2B embedded finance solutions can be implemented quickly and can lead to impressive results in a matter of weeks. That’s what happened when Metro Bank partnered with ezbob.
Case study: Metro Bank’s embedded finance solution for SMEs
Metro Bank worked with ezbob to implement a new SME lending platform. The embedded finance solution took just six weeks to implement and helped Metro Bank develop an SME loan portfolio in a matter of months.
This exemplified what B2B financing and digital lending can look like. The goal was to create an end-to-end small business lending process allowing SMEs to apply for finance online.
And here are just some of the benefits Metro Bank reaped:
● 90% of potential customers completed the application within five minutes
● 94% of approvals were fully automated
● Approximately 34,000 government-backed loans were provided as a result.
A solution implemented in a matter of weeks had significant uptake due to the quick, seamless lending process that users were able to benefit from.
Opportunities for Growth in B2B Embedded Finance
While young, dynamic, user/reputation-driven B2C companies have adopted embedded finance solutions en masse, B2Bs have been lagging behind somewhat. As technologies and new partner options appear, even B2B organizations are finally picking up the pace now as they see the potential for quick results and low-impact solutions that can be implemented seamlessly.
Why has it taken so long? There were all sorts of (incorrect) assumptions about embedded finance when it first entered the space. For instance, many experts believed that new entrants wouldn’t embrace lending as quickly as they did payments. This proved to be false and we’re now seeing an expansion into embedded lending through partnerships with banks and credit card issuers. The uptake of the BNPL model is due to nearly triple by 2027, for instance.
Overall, embedded finance growth is set to skyrocket from around US$55 billion in 2022 to nearly $250Bby 2023. McKinsey’s recent embedded finance report makes the bold claim that “small businesses starting today may never interact with a conventional bank” because their financial needs will be met via embedded finance tools through alternative providers.
One thing’s for sure - the embedded finance revolution is afoot.
Ezbob’s embedded banking and finance solutions for financial services are based on its cloud-based platform. ezbob empowers financial institutions and payment companies to easily and seamlessly adopt automated A-to-Z financing, and support SMEs’ growth. ezbob’s platform is modular and can be purchased individually or in bundles.