Like any new industry, embedded finance is being defined by early adopters and leaders that are emerging to take advantage of this massive commercial opportunity. Today, growth in the embedded finance market is being driven by embedded finance trends in service, delivery and value that decide which firms are able to create successful, user-focused offerings that drive revenue and customer success.
As more non-financial businesses implement financial services for their customers, the difference in what makes a successful investment over a missed opportunity is becoming clearer. In our experience working in more than 10+ major global markets and partnering with platforms such as Amazon, eBay and Shopify - we’ve helped non-financial businesses offer new financial services resulting in over 100,000 instances of funding through our platform to date.
Drawing on proprietary data, YouLend examined 6 key trends that are shaping how businesses approach embedded finance in 2023 and their consequences for platforms, merchants and businesses who engage this market.
We found that the key embedded finance trends for 2023 are:
- Use of alternative data leads to 90% higher acceptance rates
- Embedded lending cuts financing time to 48hrs
- Embedded financing adds millions to platform revenue
- Financing can power 26% growth of merchants post-funding
- Embedded financial services can improve merchant retention rates by 90%
- Build or buy is key for time to market
Embedded finance leads to higher acceptance rates
Key to the value of embedded finance is the potential to improve on the service provided by traditional lenders, especially in the way that traditional lending mechanisms often fail to cater to the unique needs of modern SMEs, leading to high refusal rates and abandonment of credit applications.
Embedded finance trends have shown the potential to transform prospects for SMBs in need of capital.
- Harnessing pre-existing digital data, relationship dynamics, and integrated financial metrics allows for faster, more accurate risk assessment and credit approvals.
- Connected digital platforms enable a seamless, efficient, and fair lending experience, leading to improved acceptance rates.
With YouLend's platform, SMEs enjoy a streamlined application process, 90% approval rates through use of alternative data that incorporates a holistic assessment of a business’s credit risk, leading to more accurate approval rates and repayment plans.
Embedded lending cuts financing time to 48hrs
Speed of lending is one of the main blockers for small businesses when it comes to accessing lending, with even digital-enabled legacy lenders still taking a month at least to make a decision.
From traditional lenders taking weeks to process applications, embedded financing through platforms such as YouLend can now cut the turnaround time to 24-48 hours. This faster financing experience, coupled with the reduction in application time from eight to just three minutes through open banking with Plaid, has proven to be an appealing attribute for SMEs who want quick, easy-to-apply and reliable alternative financing options.
The improved speed and reliability of these digital tools has the potential to make finance more accessible, more useful and more relevant to a range of new businesses that have been traditionally underserved by traditional finance.
Embedded financing adds millions to platform revenue
The integration of financial services within platforms presents a substantial revenue opportunity for platforms looking to expand commercial opportunities.
Around 76% of executives consider embedded lending products as a "massive" growth opportunity, with nearly half of SMEs reportedly willing to pay for financial services from a non-financial provider at least as much as they currently do for traditional banking services.
As these financial services become more popular among SMEs, platforms can capitalise on commission-based revenue with every successful funding, enhancing their balance sheets without incurring capital risk.
- Successful use case can be seen with a leading PSP partner that has achieved a £3 million increase in revenue per annum with commissions on every funding.
Financing can power 26% growth of merchants post-funding
Offering embedded finance within platforms can fuel merchant growth, enabling a steady stream of merchant sales, particularly in busy periods like seasonal sales.
By addressing specific pain points such as working capital needs, embedded finance offers non-debt powered capital to merchants, allowing them to expand inventory, improve customer satisfaction, and drive sales. This approach has led to a 26% increase in Gross Merchandise Value for eBay sellers, helping merchants grow through better inventory, agility and resilience.
Embedded financial services can improve merchant retention rates by 90%
Customer retention is a major challenge for platforms operating in the hyper-competitive digital B2B market. Embedded finance is proving has the potential to drastically reduce churn, leading to a 90% reduction in churn rate for platforms like Takepayments.
By directly contributing to the success of customers, platforms enhance loyalty and secure their business model through:
- Providing increased convenience via bundling high value services
- Reducing churn risk due to higher level of integration with platform model
- Increased retention rates and lifetime value due to ongoing support and customer success
Build or buy is a time-to-market question
Building an in-house embedded finance solution may give platforms control and customisation, but it also comes with risks, costs, and extensive development time.
- According to YouLend data, developing an in-house solution takes up to 18 months.
- Partnering with third-party providers can drastically reduce the time-to-market to just 3 months.
- YouLend’s brand, hosted and integrated lending landing pages can go live in as little as 7 days with full customer flexibility.
This allows platforms to rapidly test new financial products while minimising the risk and complexity of extensive development or compliance infrastructure changes.
How to make embedded finance work for your business
As embedded finance becomes a standard part of non-financial businesses, competition will come down to quality of service, customer experience and the strongest tech-powered solutions.
In this expanding market, these embedded finance trends show that success and revenue will accrue to those businesses that can best align their value proposition with their customers needs, habits and existing tools, in a scalable, efficient manner.
For platforms, this will require a strategy that leverages the latest technology available as well as expertise in bringing these products to market. YouLend has already worked with leading digital businesses across the payments, marketplace and e-commerce sectors to help them implement revenue-based financing for their business customers while minimising risk.
To find out more about how these embedded finance trends are reshaping the market in 2023, download our new whitepaper: 6 Key Embedded Finance Trends for 2023: Understanding Service, Delivery and Value.