Embedded finance is in the midst of transforming the B2B sector and reshaping the way companies interact and grow. The adoption of embedded finance is gaining huge momentum, primarily due to technological advancements and an increasing demand for integrated financial networks. Despite its growing popularity, many large companies aren’t taking advantage of this opportunity due to their lack of awareness about how embedded finance works. As we’ve noticed in our online marketing efforts, people don’t tend to search for “embedded finance”, they have specific business problems they need addressed and they search for solutions to those specific issues. Hence, we’ve compiled a list of challenges and solutions related to embedded finance we consider to be illuminating.
First thing’s first: embedded finance basics
Embedded finance is an umbrella term for including financial services in non-financial products or services, such as instant payments, invoice financing, and virtual accounts. This is a significant improvement over traditional banking as it allows companies to offer more value to customers while at the same time optimizing processes. According to Bain & Company, the value of the embedded finance market will exceed USD 7 trillion by 2026.
Many companies, however, continue to rely on traditional banking services and are hesitant to adopt embedded finance as they believe that the switch will be a complex process. Embedded finance platforms like Toqio simplify this transition by offering easily customizable solutions that require little or minimal coding and a vastly accelerated time to market.
Some market examples of B2B embedded finance
Slack, a collaboration platform, has integrated embedded lending solutions such as “Slack Pay” and “Slack Capital” into its framework. These functions allow users, including many SMEs, to carry out transactions among contacts, to obtain financing and cash advances instantly, and other simple financial services. Using embedded finance simplifies the user experience by providing services in a setting they are familiar with and opens up massive new revenue opportunities for Slack, the sponsor company.
Deliveroo is currently using embedded finance to simplify transactions in its network and to help restaurants and delivery drivers access their money more efficiently. Their feature “Deliver Money” provides real-time payments and access to overdrafts of up to 50% of average weekly earnings. Restaurant partners receive instant notifications for transactions and enjoy direct integration with accounting tools which cut times usually spent on financial management. These solutions aim to streamline cash flow and empower restaurants to thrive within the Deliveroo ecosystem.
Challenges corporate entities face
Supply chain disruption
SMEs often face financial turbulence which can impact a larger company’s supply chain. Delays in deliveries, reduced inventories, and increased costs are among the issues that often arise, primarily due to long approval processes or a bank’s inadequate risk assessment. In addition, SMEs often need to wait 90 days or more to receive payment, which causes a ripple effect of operational delays.
Toqio tends to alleviate these issues by facilitating supply chain financing, allowing small businesses to access funding to pay suppliers early or bridge gaps in funding caused by disruptions. This can help ensure the continuity of supply by providing suppliers with the financial support they need to fulfill orders.
Competition
Keeping customers loyal is a major challenge that large companies selling similar products face. They struggle because small businesses often buy from various suppliers and switch between whichever one offers a better deal. This issue is worsened by the lack of unique features in their offerings. As a result, big companies can easily lose customers to competitors. Companies that find it difficult to differentiate themselves solely based on their products struggle to maintain customer loyalty and should, therefore, consider boosting retention through soft lock-in mechanisms available through embedded finance.
Large, corporate businesses that work with a myriad of SME suppliers or distributors tend to know them much better than banks do. They have access to a wealth of daily business data they can consult in order to garner key insights, thereby lowering the risk involved in offering financial services. By offering financial products to SMEs with very little risk to them, large companies can metaphorically lock smaller businesses into their network, driving long term retention.
Sales and distribution difficulties
Most SMEs struggle to manage their finances effectively because of limited credit options and inflexible repayment terms. These financial constraints affect their ability to work efficiently with a large range of suppliers and banks. Most SMEs, in fact, tend to retain several banking relationships based on how competitive each is with regard to one thing, such as account costs, financing rates, card costs, etc. All this negatively impacts how they manage finances, orders, and payments to employees as well as relationships with suppliers and banks.
By integrating finance into daily operations, companies can offer SMEs a simple way to maintain positive cash flow and access to financing that can help them grow or expand. Also, because of the bidirectional flow of information between the corporate and its network, trends become easier to predict. Planning future inventory needs and financial support strategies, then, become a part of an SMEs toolkit, taking pressure off them and improving their business experience.
Ineffective or impotent data analysis
Embedded finance gives companies access to a wider range of data which can help them stand apart from their competitors. That data may include, but is certainly not limited to, what customers buy, the way businesses manage their money, supply chain operations, high and low performing products, peak hour information, and much more. Using this information, large businesses can provide SMEs with an incredibly high level of service, often before the SMEs know themselves. The corporate can extend that to financial support such as credit lines, financing, and other services, creating unique and hyper-personalized offerings destined to be successful.
Embedded finance (with the help of Toqio, of course!) can address a myriad of business challenges
By seeking to address specific business challenges, businesses can unlock the benefits offered by integrated merchant networks. Through simplified transitions facilitated by platforms like Toqio, companies can harness the power of embedded finance to solve extremely specific business challenges, enhance day to day working experiences for SMEs, and drive long-term growth. As embedded finance continues to evolve, its ability to mitigate supply chain disruptions, foster customer loyalty, optimize sales and distribution, and enable data-driven decision-making underscores its emerging, indispensable role in the contemporary market.