Today, it's the norm for businesses to set-up, serve customers and grow online – pushing platforms and other B2B service providers to find new ways to offer value, retain partners and grow their revenue, including a wide number of embedded finance use cases.
For SMBs long under-served by traditional financial services, accessing embedded finance through trusted providers such as e-commerce platforms, payment providers and marketplaces opens the door to faster, cheaper, more tailored products that fit with the way they do business. Meanwhile, platforms have the chance to distinguish their services in an increasingly crowded marketplace.
Already 38% of financial services and fintech firms plan to invest significantly in developing embedded finance products within 12 months, while 64% of retailers are planning to adopt technology to do the same.
However, technology is only half the story. While digital tools and business infrastructure enables more businesses to embed financial services to support their customers and increase retention and market share – success depends on choosing the right embedded finance use cases that suit your business model and customers’ needs, such as embedded lending, which 76% of executives in a recent survey called a “massive” growth opportunity.
Here we explore the most powerful use cases and how they’re reshaping the way platforms compete for, retain and monetise customers.
Which businesses can benefit from embedded finance use cases?
With embedded finance, any business with a digital service delivery model can potentially embed financial services within their product mix. However, the biggest opportunities lie with those that can effectively align their existing value proposition with the use of financial products to increase their own performance and that of their customers.
Ecommerce platforms face the challenge of creating a seamless customer experience while managing complex payment processes and supporting their merchants. Embedded finance can help them support customers by providing financing options to merchants and their customers at the point of sale.
This allows businesses to maintain higher levels of inventory, facilitate larger purchases, and increase customer loyalty, while leveraging existing data, such as with Shopify Capital, a loan program for Shopify sellers that provides funding based on sales history and performance.
With the rapid growth in international payments, platforms must continuously innovate to retain their user base and drive revenue growth. Square, for example, has begun offering its merchants additional financial services such as loans, credit lines, and savings accounts through its Square Capital program. Expanding available services not only increases user engagement but also creates new revenue streams, helping payment providers to stay competitive and better serve merchants' needs.
Marketplaces have to balance the growth of their sellers while maintaining an attractive platform for buyers. By adopting embedded finance, they can offer financing options to their sellers, such as working capital loans, inventory financing, and factoring to help sellers grow their businesses and increase sales on the platform. YouLend customer eBay, who launched Capital for eBay Business Sellers, offering fast and flexible financing options, helped power 26% growth in GMV for customers who took out financing when compared to non-financed businesses.
Traditional banks face the challenge of adapting to a rapidly evolving financial landscape while maintaining their customer base and driving revenue growth. Embedded finance offers a solution by enabling banks to partner with non-bank businesses, such as ecommerce platforms and marketplaces, to offer financial services to their customers to access new markets.
Additionally, banks can use embedded finance to offer existing customers more tailored services, such as personal loans and credit lines, thereby strengthening customer relationships and increasing retention.
The top 7 use cases for embedded finance
In comparison to traditional debt finance, revenue-based finance is based on offering financing to businesses based on their income streams, allowing them to access capital quickly and easily without traditional underwriting processes.
This can be an essential support for online businesses, providing the necessary flexibility, speed and pricing to align with their sales models and revenue cycle. By providing financing that builds on the business's performance, platforms can create a win-win scenario where better results for customers drive platform revenue.
With embedded finance, platforms can provide instant payouts to merchants upon completion of a sale, enabling them to access their funds immediately instead of waiting days or even weeks for payouts. This can help merchants manage cash flow and reinvest in their businesses through inventory or new products more quickly, helping them respond to market changes and capitalise on trends.
Working capital loans
For businesses struggling with cash flow, working capital loans can help them manage inventory, pay for marketing campaigns, or cover other expenses related to their operations. This can help merchants grow and improve their operations while also generating revenue for the platform through commissions or interest charges.
Virtual accounts and cards
Embedded finance solutions can enable merchants to create virtual accounts and cards that are linked to their platform accounts, allowing them to manage their finances more easily and access financing and payouts seamlessly. This not only simplifies financial management for merchants but also provides a more streamlined experience, enhancing customer satisfaction and loyalty.
By offering invoice financing through embedded finance, platforms can provide merchants with financing based on their outstanding invoices, allowing them to access capital quickly and easily without waiting for payments from customers. This can help merchants manage cash flow and grow their businesses more quickly, while also creating additional revenue streams for the platform.
Payment processing services
Embedded finance allows platforms to provide payment processing services to merchants, enabling them to accept a wide range of payment types and manage transactions seamlessly. This can help merchants improve their customer experience and increase sales, while also generating revenue for the platform. By offering comprehensive payment processing services, platforms can stay competitive and better serve their merchants' needs.
Credit scoring and risk assessment
Incorporating embedded finance into a platform can enable businesses to access advanced credit scoring and risk assessment tools, helping them make better-informed financial decisions. By leveraging data-driven insights and machine learning algorithms, embedded finance solutions can assess the creditworthiness of borrowers more accurately and efficiently. This can lead to lower default rates, reduced risk, and increased profitability for both the platform and the businesses it serves.
What does it take to win in embedded finance?
Embedded finance is fast on its way to becoming a table-stakes offering for online business, but not all products are created equal. The process of planning, integrating and delivering embedded financial services should be oriented around the platform and customer-base in question – otherwise businesses risk scope creep, wasted development time and lost resources.
- The right user experience: The promise of embedded finance is speed, flexibility and ease of use – which means products should be simple to discover, understand and procure for customers. This means clear information on processes and fees, easy-to-grasp customer interfaces and a fast experience. Platforms can make this easier with white labeled products that offer a seamless journey between domains, as well as using smarter underwriting to increase approval rates to increase adoption.
- Secure technical integration: When working with a third-party embedded finance provider such as YouLend, success rests on the data journey as much as the user’s. By integrating through our single, secure API, platforms can offer rapid approvals based on customers’ own data while personalizing each step of the experience.
- Proactive risk management: By working with a trusted partner, platforms can leverage external compliance and underwriting expertise to manage credit risk and guide customers towards the best options for them. This reduces the development, regulatory and financial risk that comes with building your own embedded finance tools and offering finance based on your own balance sheet.
- Keeping users in control: Traditional debt products weigh businesses down with fixed costs and stress. With revenue-based finance, platforms can offer flexible repayment options that adapt to the business’s needs to create a winning formula for repeat use and growth.
Making embedded finance work for your platform
Embedded finance offers a range of opportunities for platform businesses to create value and build lasting relationships with their customers. By carefully selecting the right use cases and working with a trusted partner, you can successfully integrate embedded finance into your platform and set your business apart in an increasingly competitive market.
To find out more about how embedded finance can elevate your platform's value proposition, get in touch with our team today.