Over the last couple of years, the modern eCommerce landscape has significantly evolved to now offer both customers and businesses faster, more secure, and increasingly convenient payment methods. Long gone are the days when customers needed to encounter cumbersome bank transfers, and businesses needed to wait the entire settlement cycle of 120 days to collect payments. Today modern customers can split a purchase into multiple affordable EMIs at the tap of a button, while the business gets paid instantly without needing to wait for days. This is the power of embedded finance, and in today’s article, we will discuss how this is the next leap for global finance.
Emerging Pioneers
Embedded finance as a concept is nothing new. For decades, non-financial institutions such as retail chains and automobile dealerships have partnered with banks to offer cobranded credit cards and even showroom financing for their products. However, for the better part of the last few years, all advancements in embedded finance have mainly been offline. In this new era of embedded finance, graciously dubbed embedded finance 2.0, pioneers are capturing digital interfaces most frequented by customers and stakeholders. While this advancement has only just begun, pioneers are already emerging to define the next step for this evolving technology.
For instance, one of the most popular applications of embedded finance is integrated payments.
Simply put, integrated payments streamline the laborious redirects between banks and instead empowers the consumer to instantaneously authorize and complete transactions within a single interface. Eliminating the need of manual approvals by leveraging an integrated infrastructure is beneficial for all stakeholders because, on the one hand, consumers can seamlessly pay for a product or service by using in-app gateways, digital wallets or through BNPL and thus never need to interact with the payment process. On the other hand, businesses can instantly collect payment for their products and services, generate new revenue opportunities and increase brand loyalty, all of which benefit industries across sectors.
Today embedded finance has made its way into payments, lending, and insurance both for consumers and businesses alike, and it is likely to expand into broader sectors in the next couple of years.
Expanding Into the Future
The global growth of embedded finance is supported by several factors. For starters, embedded finance will continue to rise in popularity with the advancement of global eCommerce. For instance, globally, eCommerce accounted for USD 3.61 trillion in sales in 2022, as per latest estimates by Statista. This number is expected to surpass USD 6.29 trillion by 2027 as the market experiences a YoY growth of 9.30%. As more businesses come online and an increasing number of consumers purchase via the internet, it is only natural that we will witness new applications of embedded finance to facilitate and support this growth.
To understand this better, let’s take the help of an example. Although the eCommerce boom has been ongoing for some time until recently, most sellers on these platforms used to procure their inventories offline. While there are several reasons behind this choice, the most significant is their hindered access to capital. Globally, businesses settle transactions through an average cycle of 60 to 120 days; however, a majority of these financing agreements are informal and are orchestrated offline. As a result, businesses cannot afford instant access to capital, and this, in turn, negatively affects their potential as their inventories aren’t fully stocked.
With the rising popularity of eCommerce, fintechs have started addressing this challenge. Today, there are multiple marketplace financing solutions which are bridging the capital gap among SMEs.
Simply put, these fintechs design financing solutions which businesses can leverage to seamlessly pay for their orders at a future date. On the other side of the equation, sellers can use this solution to collect payments for their product and services instantly for a small upfront fee and can effortlessly skip the industry standard waiting time of 60 to 120 days. The appealing factor of this technology lies in the fact that this convenience was only previously available to end consumers, and today businesses can also seamlessly leverage this technology.
These innovations over the last few years have set the stage for more productive cooperation between traditional banks and new-age fintechs, as banks can make use of their established credit and underwriting infrastructure while the latter focuses on innovating more diverse applications of this emerging technology.
Traditional banks around the world have already started partnering with fintechs to design bespoke and new financing solutions to empower both businesses as well as consumers with increased and instantaneous access to affordable capital. As businesses across industries continue to push for increased accessibility and convenience, the applications of embedded finance will only expand to meet this developing need.
Conclusion – Embracing the Leap
While the rapid rise in embedded finance applications is admirable and has been beneficial to several stakeholders, it is important that we keep sustainability at the centre of this journey. Getting our basics right at the very start will ensure that our focus is consistent, and we truly bridge the gaps we are aiming for, when expanding at scale.
The future of embedded finance is bright. As more businesses and consumers come online and embrace this rapidly evolving technology, the future of global finance will be earmarked in increased speed, convenience, and security.
If you are looking to offer embedded finance on your B2B marketplace, get in touch with us today. At CrediLinq, we are pioneering embedded finance for South East Asia and beyond. Click here to learn more about our solutions and how we can help you embrace the future of integrated finance.
