Small businesses are the backbone of the global economy. The World Trade Organisation reports that small and medium-sized enterprises (SMEs) make up over 90 percent of all businesses, employ 60 to 70 percent of the workforce, and contribute 55 percent of GDP in developed economies. Despite their significance, they may face barriers to accessing financial services. Embedded finance services offer small businesses innovative solutions to traditional financial hurdles.
Embedded finance combines financial services with non-financial experiences. Technology companies partner with banking institutions to offer these services directly within their platforms. This means customers can access financial tools, like making payments or managing accounts, without leaving the platform.
Analysts at Global Market Insights predict the embedded finance market will reach a compound annual growth rate (CAGR) of over 29 percent between 2023 and 2032. A key driver of this growth is the increasing demand for faster and easier transactions.
Embedded finance allows businesses to offer sophisticated payment and banking services directly to their customers and suppliers. This removes many of the frictions associated with business-to-business (B2B) payments, especially as these transactions are typically made in real-time.
By embedding financial services into their offerings, businesses can increase customer loyalty, increase revenue opportunities, and become more competitive in the market. This integration allows customers to access various financial services without hassle, creating a seamless customer experience.
It also offers small businesses innovative solutions to traditional financial hurdles, such as cross-border commerce and evolving security and privacy requirements. Embedded finance also helps businesses provide services such as loans, insurance, debit cards, and investments through their platforms.
Access to credit
Getting credit remains a major challenge for many small and medium-sized businesses. A Goldman Sachs report found that 70% of small businesses struggle to access funding for daily operations, inventory management, and growth. According to the same report, this lack of financing hinders 76% of SMBs.
Embedded finance offers a potential solution. Businesses can integrate financing options, like credit cards, directly into their services. This provides much-needed financial flexibility for their small business customers. Improved cash flow for small businesses strengthens the partnership between both parties. The larger company becomes a key player in the small business’s growth journey.
Improved cash flow with Embedded Finance
Cash flow is a significant challenge for small businesses as many operate on thin margins. Embedded finance can help small businesses overcome that by integrating payment processes and real-time financial data into business operations.
For example, point-of-sale (POS) systems with embedded payment options allow businesses to receive funds instantly. Meanwhile, automated invoicing and payment reminders can reduce the time and effort required to chase down payment payments.
Enhanced Customer Experience
By integrating payment solutions directly into their platforms, businesses can offer features like one-click payments, installments, and digital wallets. This streamlines the checkout process and boosts customer satisfaction.
Loyalty programmes also become more attractive with embedded finance. Businesses can reward returning customers with discounts, cashback, or exclusive offers, strengthening brand loyalty and driving repeat business.
For example, Deliveroo’s ‘Deliver Money’ feature streamlines food delivery by enabling real-time payments. This eliminates the need for cash and waiting for change, speeding up transactions and creating a smooth checkout experience. Faster access to earnings empowers small businesses to fulfil orders quicker and potentially offer special promotions.
- Embedded Finance
