In today's highly competitive market, companies must adopt innovative strategies to thrive. Corporate embedded finance is gaining traction as a way for companies to leverage their existing ecosystems to generate financial benefits. By integrating financial services into their merchant networks, companies can uncover new revenue streams while delivering enhanced customer experiences and streamlining operations.
Automating financial transactions and processes can increase operational efficiency, reducing costs and improving profitability. By embracing embedded finance, companies can unlock new opportunities to grow their business, generate additional revenue, and gain a competitive edge in today's challenging market.
The first avenue for revenue enhancement lies in optimizing existing revenue channels through the integration of financial services, specifically geared toward creating a mutually beneficial and efficient merchant network.
By leveraging an embedded finance platform like Toqio, companies can alleviate bottlenecks within their supply chains, thereby facilitating smoother transactions and augmenting gross merchandise value (GMV). Companies can, in fact, drive 30% or higher GMV due to an increase in repeat transactions thanks to simple and intuitive journeys for merchants. One Toqio customer based in the UK witnessed a staggering 45% increase in approval rates within the first 12 months of adoption.
Furthermore, access to simplified financial services empowers SMEs within a merchant network to expand their order sizes. This tendency toward increased spending is primarily due to quick access to cash (thanks to PoS and account connectivity). Notably, one Toqio customer saw a 50% increase in order size among merchants onboarded into the ecosystem through Toqio, underscoring the transformative impact of embedded finance on revenue generation.
Though not revenue per se, embedded finance can yield substantial cost savings for companies through the strategic embedding of core banking functions. By circumventing traditional banking channels and integrating banking services directly into the ecosystem, companies can mitigate interchange and bank fees, thus optimizing cost structures and enhancing profitability.
The implementation of account to account transfers enables direct fund movement from corporate accounts, resulting in significant savings proportional to the GMV. It is estimated that direct transfers from corporate accounts can save USD 1 million for every USD 100 million GMV in the supply chain.
Additionally, streamlined inter-ledger payments can improve the health of franchise businesses. It’s estimated that inter-entity transfers account for a high volume of revenue leakage to payment rails. Eliminating or at least minimizing revenue leakage can foster financial resilience and bolster profit margins.
Last but certainly not least, embedded finance empowers companies to pioneer new revenue streams, thereby fostering sustained financial growth and market differentiation. By capitalizing on the comprehensive financial suite offered by Toqio, for example, companies can cultivate a competitive moat around their core value proposition, fostering customer loyalty and retention.
Rather than have numerous disparate systems functioning in parallel, a more sensible approach is to have business accounts, points of sale (PoS), and lending accounts within a unified platform, facilitating enhanced cash flow visibility for SMEs. As per an EY study, SMEs have an average of four banking relationships for different purposes, some many more. Unifying accounts in one place can make financial management much easier and more agile.
Flexibility in payment terms and instant cash availability engendered by embedded finance augments predictability in inventory management systems, optimizing operational efficiency and bolstering bottom-line performance.
Establishing a marketplace that includes alternate lenders and non-banking financial service providers (NBFCs) can massively propel financial inclusivity within a business ecosystem. It’s not just a question of altruism, though. Facilitating access to financial products for merchants can make supply chains faster and help unlock untapped revenue streams.
Embedded finance can act as a formidable catalyst for revenue generation and business transformation. By harnessing the capabilities of embedded finance, companies can optimize existing revenue channels, save on costs, and pioneer new revenue streams, thereby unlocking the full potential of their ecosystems and propelling sustained growth and profitability.