Embedded finance and the growth of fintech in 2022
Embedded finance is perhaps the ultimate illustration of the customer-centricity that has come to the fore across many sectors today. Spurred on by disintermediation of the banking landscape, the concept straddles finance, banking, and payments, to offer customers more flexible and efficient financial processes.
But what is embedded finance, and how does it work? Embedded finance is the integration of a financial solution into a business’s infrastructure. This streamlines access to financial services, such as lending, insurance or payment processing, without redirecting the customer to third-party destinations. A service provider can therefore integrate financial services onto its website or app so that the buyer does not have to go through the manual steps of having to enter bank details when accessing a service or product. In other words, this system acts as a bridge between a brand, customer and financial solutions provider.
Most of us interact with embedded finance technology daily without even realising it. From ordering a coffee via the Starbucks app to paying for an Uber or buying a takeaway on Deliveroo, embedded finance has quietly transformed the consumer payment process. Simplicity is now the ‘new normal’, with customers able to seamlessly complete transactions on a single platform.
While embedded finance has helped deliver smarter, more efficient services on the consumer side (B2C), business-to-business (B2B) solutions have not seen nearly the same level of innovation. One of the starkest illustrations of this is the chronic and ever-growing slow payments problem, which keeps many businesses waiting weeks or months to be paid.
With the journey of embedded finance well underway in the B2C world, now is the time to take the premise of ‘plugged in’ financing systems and apply it to B2B commerce. Embedded finance can be a powerful tool in tackling the slow payments problem and accelerating the recovery and growth of small and medium-sized businesses.
Streamlined payment solutions for businesses
Slow and late payments are a serious burden to suppliers across the board, and stifle small and medium-sized businesses of much-needed cash. A recent survey found that three in five UK businesses are owed money in late payments, while the Federation of Small Businesses lately warned that the late payment of invoices is threatening the survival of over 400,000 British SMEs. The problem isn’t confined to the UK either. A 2021 survey revealed that one third of US small businesses wait longer than 30 days to be paid.
The slow and late payments crisis doesn’t just pose a barrier to the growth of small businesses, but also the overall recovery of the global economy. Slow payments prevent working capital from reaching all corners of the trade network and strap suppliers of the cash they need to adapt to shortages and rising costs, forcing them to reduce production.
This is a key obstacle preventing supply chains from getting back up and running, prolonging both the duration and impact of bottlenecks and delays.
Embedded finance and the opportunity for B2B
Embedded finance is the perfect tool to be leveraged by B2B networks in order to turn the tide on slow and late payments.
Machine learning analyses past payment patterns to make probabilistic assessments of the few invoices that are unlikely to get paid, enabling the rest to be paid automatically when they are received. Importantly, this technology can be embedded across suppliers’ payment processes – in the Purchase-to-Pay (P2P) platforms, in the Enterprise Resource Planning (ERP) systems, and in payment processing systems, to get capital to suppliers faster.
Embedding instant payment technology into B2B trade is a win-win for all parties involved. Suppliers unlock cash instantly, providing them with the working capital they need to adapt to rising costs and invest in their business. Buyers payback on their normal terms and strengthen supply chains in the process by unlocking swathes of small suppliers that would otherwise be precluded from offering their services.
Embedded finance is poised to be a huge driving force of innovation in 2022. When we look at the trajectory of this technology, it is clear that there are huge benefits to be unlocked in the B2B sector in bringing business payments up to speed. As economies around the world seek the green shoots of recovery and renewal, the implementation of embedded finance into B2B commerce could go a long way in building stronger and more robust trade networks.