Gig economy and marketplaces account for a third of the world’s working population, as per a recent study by the ADP Research Institute. Within the next five years, this global industry is expected to surpass USD 500 billion in valuation, and with this, the need for marketplaces to become vendor-centric is more important than ever before.
Among the various innovations marketplaces can adopt, embedding financial services will have the greatest impact, in our opinion. But why should marketplaces offer embedded financial services, and how will this help the vendors on their platforms? That is exactly what we will be exploring in today’s blog post.
Why Do Marketplaces Need to Offer Embedded Financial Services?
Modern marketplaces have already been commoditized to a great extent. However, as competition from peers continues to rise, marketplaces need to achieve a breakthrough to retain vendors and customers for the long term. Offering embedded financial services is by far the most efficient manner to achieve this.
The benefits of integrating financial services are multifold; for starters, marketplaces can seamlessly increase stickiness with both vendors and customers and thereby disincentivize them to switch to a competitor. This will not only make it easier for vendors to manage their operations but additionally create new revenue streams for the marketplace.
The reason behind this is simple – by integrating financial services into the vendor’s account and digital journey, the platform will be able to offer them a superior experience. Right from empowering them to accept payments in multiple currencies from within the platform to offering them value-added services like insurance, discounts and working capital loans, both the marketplace and vendor will benefit from a win-win situation. The vendor will benefit from a seamless and connected experience, while the marketplace will gain a competitive edge for hosting the most in-demand products among customers.
Simply put, embedding financial services within the marketplace will help vendors manage multiple business operations at once while allowing the marketplace to improve the financial well-being of vendors, ultimately contributing to happier end customers.
How It Will Help Vendors and Marketplaces?
The list of benefits for both the vendor and the marketplace are abundant; shared below are some of the most significant ones.
Onboarding Process
One of the first aspects where embedded finance can help a marketplace is the onboarding process for vendors and gig workers. For example, let’s assume that the gig worker is joining a marketplace for the first time. Thus, we can assume that they will need to have a bank account, some form of government identity and proof of tax clearance. Meeting all these requirements is no doubt a challenge for a first-time marketplace vendor.
To make the process easier, the platform can facilitate a seamless onboarding process for the vendor. Simply by integrating a BaaS (Banking-as-a-Service) solution onto the platform, the marketplace can empower the vendor to open a business or checking’s account, instantly collect all required documents via automated APIs, and, to top it all, empower them with the convenience of getting started in a few simple clicks by eliminating the hassle of multiple manual processes.
Cashflow Management
Cashflow management is a common problem among most early-stage businesses. While the scenarios might vary, one of the most significant is business owners being unable to predict their cash flow ahead of time. For instance, if a vendor specializes in a mixed inventory, with some having regular sales and others being seasonal or ad hoc sales, it is highly likely that they lack the data to predict their revenue and cash flow cycles. An efficient solution to this problem is for marketplaces to empower vendors with insights about their inflow and outflow transactions.
As marketplaces already have access to vendor transaction data, they can embed data analysis solutions within their platform to process the available data and extract intelligent insights, which can further be shared with the vendors. This will empower the platform vendors to accurately predict their seasonal sales and revenue cycles and thus arrive at better decisions in terms of inventory turnover and restocking. Along with this, it will incentivize vendors to manage their entire business on one single platform and achieve a consolidated view of their entire cash flow instead of having to rely on multiple entities.
Access to Capital
Another common challenge among small and medium-sized businesses around the world is stringent access to capital. It is no secret that traditional financial institutions rarely attend to the financing needs of SMEs. As marketplaces already have access to vendor transaction histories, they are in the best position to holistically assess the financial health of a business by conducting a risk assessment check and assessing their creditworthiness.
By partnering with an embedded finance provider like CrediLinq, marketplaces can ease the vendor’s access to capital to a great degree. With the right arrangements in place along the entire supply chain and lending value cycle, marketplaces can achieve a win-win situation for both vendors and their platform – the vendor secures easy access to capital while the platform creates a new revenue stream for itself.
Price Insights and Profit Margins
Most modern platforms provide their vendors with some form of pricing insights depending on demand and supply. For instance, AirBnB prompts its hosts with price suggestions depending on the current status of bookings across similar properties in their vicinity. Integrating embedded financial solutions will allow platforms to improve this feature to a great extent.
For instance, by leveraging advanced data analytics solutions, platforms can easily analyze and process transaction data to readily pick up trends and analyze vendor input costs. This will enable them to significantly improve their predictions and prompts to vendors and thus empower them to maintain higher profit margins even in tougher times.
The Takeaway – A Connected Future
The trend of leveraging embedded financial services has already been adopted by several marketplaces around the world. As more platforms realize the importance and benefits of embedding financial services, this will continue to grow in the future.
If you are looking to offer your marketplace customers an embedded financial experience, reach out to CrediLinq today. At CrediLinq, we are pioneering embedded finance for Asia and beyond. Get in touch with us today to know more.
