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The demand for embedded finance is on the rise in the business-to-business (B2B) landscape, transforming the way B2B companies buy and sell while creating new opportunities for fintech, corporate buyers, suppliers (especially SMBs), and non-financial institutions. With the embedded finance payments market projected to reach $1.91 trillion by 2028, embedded finance is going to become the norm for companies, with any business with a large user base adding in financial services as an offering or risk being left behind. With that in mind, let’s take a look at what embedded finance is, exactly, and some embedded finance trends industry insiders are seeing.
What Is Embedded Finance?
Embedded finance enables companies who are not financial institutions to include financial services or financial products in their digital products. It makes buying faster and easier for customers, while providing opportunities for businesses to streamline backend processes and generate more revenue.
Having banking services built-in to online shopping transactions is business as usual for B2C – think about the experience on websites like Amazon and eBay. Buyers in the B2C ecosystem have many options when it comes to payments – credit card, PayPal, Google Pay, Apple Wallet, among others – as well as a plethora of B2C BNPL options appearing in just about every ecommerce checkout flow. Now, it’s becoming the same way for the B2B sector as expectations around the online purchasing experience shift.
Benefits of Embedded Finance
One in three B2B buyers purchase at least half of their products on business-to-business marketplaces. As this space continues to grow, those in the industry more clearly see the benefits of embedded finance and reasons why they should implement financial offerings in their check-out process.
Increased stickiness
In early iterations of B2B marketplaces, placing orders digitally was common, but the payment was handled offline. Excluding the payment process from the online buying experience decreases stickiness and value. Handling payments offline makes it more complicated for the buyer to complete the transaction, reducing the likelihood they will follow through and decreasing platform stickiness. One of the major advantages of an embedded payment model is increased platform stickiness, which results in higher volume and totals of transactions.
Additional revenue streams
Another benefit of embedded payment options is that they provide the opportunity to drive revenue growth by monetizing financial transactions through payment processing fees, partner revenue share agreements, and offering additional services to suppliers like reporting and analytics.
Increased convenience/UX
Especially for old school industries that may not be used to incorporating online technology into their workflow, implementing embedded payment services can vastly improve the overall user experience of their customer base.
Marketplaces, apps, and ecosystems are realizing that while embedded finance does make things easier for the tech-savvy, they also need to bear in mind that the solution they choose needs to be intuitive – especially for those old school industries – or users won’t adopt it, and thus no one will benefit from embedded finance.
As buyers and suppliers continue to expect the same speed and ease of digital payments in their B2B transactions as they get with B2C purchases in their personal lives, implementing an embedded payment system helps streamline the buying process and increase sales.
Increased customer sign-up and customer loyalty
Offering an innovative financial service like embedded payments is beneficial from a repetitional and brand standpoint. Customers are more likely to return to a platform with a seamless payments experience, and it gives you a competitive advantage. Companies that don’t adopt (or don’t adopt quickly enough) an embedded payments strategy, risk losing business to more forward-thinking competitors and losing the customer relationship.
Improved analytics
All businesses need data to make informed decisions and learn about customers – B2B marketplaces, portals, and apps are no different. By keeping payments within the user experience, it provides a rich source of information that can answer questions about transactions, users, and the sales cycle.
In addition, the right embedded finance system should simplify the consumer feedback process. This will help companies to more thoroughly understand their customers’ pain points to improve the user experience. It also makes it easier for them to inform their future development.
Safer, more secure transactions
The best embedded finance partners feature bank-grade security and more to keep customers safe while protecting themselves. Processing online payments carries a certain level of additional risks, what with cybersecurity risks on the rise. Partnering with an embedded payment company can help solve some of the hassle that goes along with storing sensitive data, credit card fraud, identity and information theft.
Examples of Embedded Finance
Embedded finance is for everyone – it’s not just specific to one industry or business type. Embedded financial solutions allow businesses to reach previously underserved populations in a more inclusive way. Because embedded finance increases stickiness and retention, the profitability and lifetime value of previously underserved customers increases.
One of the most obvious uses of embedded finance is invoice financing in B2B marketplaces. Some marketplaces extend 30 to 90 days of credit to eligible buyers as one of their value propositions. They also allow suppliers to get paid right after the order. By doing so, these marketplaces are taking on the credit risk of a buyer not paying in time to foster greater supplier loyalty. You can read more about the top 13 embedded finance use cases in our blog post.
Embedded Finance Trends
Let’s examine the factors and key trends that are driving the surge of B2B embedded finance, as well as the opportunities for efficiency and growth potential it offers to those on all sides of the B2B payments transaction.
Buy now pay later (BNPL)
You’ve likely experienced the Buy Now, Pay Later (BNPL) embedded finance trend for yourself. If you make an online purchase of a consumer product, oftentimes you can choose a financial product in the form of a payment program to make weekly or monthly payments from your bank account instead of paying up front. These point of sale loans are exploding in popularity, and are key drivers to elevating the user experience and customer loyalty through repeat purchases.
Boom in APIs
Another embedded finance trend we’re seeing is the boom in APIs – or application programming interface. Fintechs make it easy for any company to accept and process payments with the development of these plug-and-play solutions. By integrating additional services into your offering, it provides an extra advantage in ongoing market growth and competition.
Additionally, the boom in APIs will enable more businesses to pick and choose the services they want to incorporate, opening up the opportunity for many productive partnerships sure to satisfy even the most sophisticated users.
Increase in B2B solutions
Embedded finance options are now becoming expected for B2B purchases that have traditionally been handled offline. This is due to a number of payments trends in embedded finance, including the increased demand caused by the Covid-19 pandemic, increase in millennial decision-makers, and improved UX and ease of use as discussed previously. While much of embedded finance focused on the consumer space previously, there’s no denying that B2B applications are proving invaluable to companies. This means that the number of providers offering embedded finance solutions will only increase, creating further competition in the marketplace.
Real-time payments
Another exciting embedded finance trend that is coming to market is embedded instant payments. Not only do they help keep customers engaged, real-time payments ensure buyers and sellers get paid on their preferred terms, and helps differentiate platforms from their competitors. In addition, it helps businesses to better manage liquidity and risks. Expect to see more real-time payment offerings and options in market in the coming year.
Embedded fintech
Another embedded finance trend is the rise of embedded fintech, which is when finance companies embed fintech options into their products and customer channels. These are both different from the buy now, pay later (BNPL) trend that’s also happening in the finance space. Whereas BNPL allows buyers to purchase a product immediately and pay for it over time in several regular installments, embedded finance is about the payment solution being integrated with the platform, which solves challenges on all sides of the buying equation – for buyers, suppliers, and platforms.
Opportunity for collaboration
By its very nature, embedded finance brings ample opportunities for collaboration. While much of this was previously confined to the B2C space, over the past couple of years B2B has seen an increase. Businesses in the health, education, real estate, and employment sectors have all experienced successful integration with financial services in recent years, and that trend will only persist as they continue their increase in digitalization. This leaves plenty of room for businesses and tech firms to collaborate, with smart B2B marketplaces, apps, and ecosystems partnering up rather than building their own systems.
Unlimited potential for growth
While industries such as transportation and logistics have implemented embedded finance solutions for some time now, sectors such as health care, automotive, energy and utilities, and more, are still early in their journey when it comes to adopting embedded finance. This provides an exciting opportunity (not to mention unlimited potential) for growth. As pandemic restrictions continue to ease and the world gets back to “normal,” B2B customers continue to expect and push for a more digital-first customer experience, opening a wealth of opportunities for buyers, suppliers, platform, and fintech companies alike.
Embedded Finance and the Opportunity for B2B
Prior to 2020, 70 percent of B2B decision makers reported being open to making fully self-serve or remote purchases valuing over $50,000 – with 27 percent of those open to spending more than $500,000. That number is only expected to continue growing as embedded finance takes off and buyers, sellers, and platforms reap its benefits.
According to Forrester, U.S. B2B e-commerce transactions are expected to reach $1.8 trillion by 2023. This would account for 17 percent of all B2B sales in the country. Because this change in how people are making purchases isn’t going away (and it’s a growing addressable market for so many industries), there’s unlimited potential for B2B companies to leverage embedded finance trends to their advantage.
How to Win in Embedded Finance
Whether it’s a vertical marketplace connecting buyers and suppliers online or an invoicing platform solving challenges facing a particular industry, becoming a leader means getting to market fast – and embedded finance will be an expected part of the experience.
FundThrough is here to help, and has plenty of experience working with large buyers across many different industries to simplify complex B2B payment processes typically done offline. Our business model helps level the playing field for SMBs by paying invoices ahead of net terms, in days – not months. We also give platforms revenue share to further fuel their growth.
Options for differentiation
With an increasing focus on finding new and differentiated ways to engage with their customers, more and more marketplaces, apps, ecosystems, and just businesses in general are realizing that embedded finance is not only a transactional tool, but provides an opportunity to become a bigger part of customers’ lives.
Interested in Embedding FundThrough?
FundThrough’s embedded finance solution offers seamless integration into digital platforms of all kinds. While payments are causing pain for many marketplaces, portals, and apps, embedding instant invoice payments offers a solution, while adding more value for buyers, suppliers, and platforms alike.
Learn more about our approach to embedded invoice financing and schedule a meeting with Zuri Harris, our Partnership Development Lead, to discuss your needs. Contact her at [email protected] or 778-747-0175.