2024 is approaching rapidly and Embedded Finance is still around. In fact, it is going nowhere and continues to innovate the financial services industry. If platforms haven’t done so already, they are well-advised to implement an embedded finance strategy. The reasons for that are multifaceted.
Research by BCG and Adyen shows that platforms which are offering integrated financial services account for 80% of penetration with SMEs. Meanwhile, only 5% of platforms are proactively promoting embedded financial services. This indicates a substantial gap between SME demand and platform offering. Implementing an Embedded Finance strategy to close this gap would not merely benefit SME customers but would set platforms up for success too. For the following reasons:
#1 Competition
Going embedded has become a key competitive advantage for platforms. The notable preference of SMEs to manage their finances online, all in one place, makes them seek out platform providers that can cater to this preference.
A slowly but steadily growing number of platforms has recognized this trend. As a result, SMEs will gradually get used to this new way of banking. Platforms acting on this trend now will be part of the innovation rather than getting overtaken by competitors. The result: Higher customer retention and easier customer acquisition.
#2 Additional revenue stream
Embedded Finance allows platforms to tap into an additional revenue stream. During times of economic downturns, it can be difficult and costly for platforms to acquire new customers. By embedding financial services such as lending into their portfolio, platforms not only offer a lifeline to their existing merchant base but are also able to monetize on the opportunities of cash advances, card issuing, and many more.
Once committed to the Embedded Finance landscape, platforms can seek other revenue streams by forming new partnerships with companies that also operate in this space. By joining forces, investments in different customer engagement methods to attract more clients will become more feasible.
#3 Stickiness and customer experience
Traditional banks can make the (financial) lives of SMEs complicated. Banking products such as a loan are often accompanied by bureaucracy and plenty of hoops to jump through. With many SME loans being rejected anyways.
Platforms that decide to offer embedded financial services to their business customers speak to this very pain point. They create a customer experience that is seamless, often paperless, and convenient. Merchants are able to manage their finances in the same place they conduct their business. Thus, empowering them to access funds when and where they need them – for long-term business growth for merchants and platforms alike. The ultimate benefit: Platforms are turning into a one-stop-shop, with no reason for customers to leave their space.
#4 Customer insights
In this day and age, data is an invaluable currency – especially in E-Commerce. By going embedded, platforms can yield holistic insights about their customer’s behaviors, e.g. to better understand a specific sector or a distinct activity such as payment transactions.
This allows platforms to leverage this newly attained wealth of data platforms for a variety of purposes, such as: To refine the current service offering, to improve experience and satisfaction along the customer journey or to assess the economic health of merchants.
Reason(s) enough for a change in strategy
This list highlights some of the major reasons why an embedded finance strategy is so critical for platforms. That said, the advantages are much more wide-ranging. What all of them have in common though, is they enable platforms to stay ahead of the curve.
Embedding financial service is a cost-effective way to unleash a platform’s full service potential which customers can then tap into. A win-win scenario for everyone involved.
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