Welcome back, to the fourth part in our series.
We’re taking a slight turn in this series away from Open Banking and picking up where we left off, looking more closely at embedded finance as it becomes more common and produces new revenue streams for more businesses.
Embedded finance uses BaaS and API-driven services to streamline financial processes.
While there is already a clear case for its benefits to consumers, what about SMEs?
The beauty of embedded finance is that it offers a truly seamless experience that is immediate and complete - for both the consumer and the business.
For SMEs engaging in international trade, foreign currency payments are both a necessity and a hassle to get involved with. Being time and resource-poor, the requirement to jump from supplier to currency provider and finally payment provider to complete an international deal is just too hard. Usually the currency part gets ignored.
In reality, this means that the final cost can often be higher than it needed to be - if the foreign currency was planned for when the deal with the supplier was made.
Embedded finance has the potential to address this, providing business owners with the ability to make purchasing and funding decisions within minutes without the need to jump into a payment providers platform.
As more agile and integrated digital platforms come along, SMEs increasingly want to use them. The offer of greater control and visibility in terms of analytics and cash flow overview, paired with the growing trust of new innovative tech, makes it more attractive and simpler for SMEs so they are willing to pay more for the holistic service.
The world is shifting towards bringing more tools and services to the masses and making transactions seamless (instead of the traditionalist approach of those needing help seeking it).
The market's aim aligns with the user's desire to have verticalized platforms that feed effortlessly into each other. This gives SMEs a seamless process flow that neatly and logically fits into their system and likely improves it.
Here's a real-life case study. As the economy still recovers from the pandemic, more small and medium businesses rely on faster loan applications and decisions. Business loan company, Iwoca, found that nearly 30% of its loan applications now come via embedded finance partners - and for good reason: half of the applications using this method receive a decision within two minutes and are 585% more likely to be successful than direct applications.
Accessing decisions and funding quickly through secure, institute-backed applications gives those hit hardest during any difficult economic period a better chance of surviving and moving forward.
However, Accenture’s study found that SMEs are primarily interested in transactional services like payments instead of the material services such as overdrafts and loans when it comes to embedded financial services. There is more value in the long-term from slicker processes day-to-day. With this in mind, the study estimates that embedded finance for SMEs will capture around a quarter of the SME banking market by 2025, seeing it sustain beyond today’s economic rebuild.
Just as Open Banking was initially launched and marketed to the consumer, the more significant embedded finance market has done the same. Still, both are now highlighting the myriad of ways that it’s just as beneficial, if not more, to the businesses and companies using them.
Complications in a financial process can see repercussions for months after, whether it be a lack of visibility or simply a lack of time that’ll cause unnecessary losses to the bottom line. This is fixed as embedded finance and banking markets expand to serve the smaller business.
Embedded finance for SMEs is increasingly showing up as more savvy Accounts Payable systems integrate with third-party apps that make the life of a business owner easier.
One of the greatest attributes to this sector is that they unleash a previously cordoned-off (or in some cases, never considered) realm of business strategy and planning tools that level the playing field between SMEs and corporations.
.svg)
.svg)
