Embedded finance offerings for retail customers are well known: buy now pay later (BNPL), Embedded Payments like Google Pay, Apple Pay, retail branded cards and financing, embedded Insurance, loyalty and rewards program or Wallets.
Embedded finance in the retail business is an enabler to improve customer experience and open new business opportunities and revenue streams.
Maybe you, as a bank or fintech, have already had some discussions on these topics.
Embedded finance for corporates is experienced at an early stage. Depending on the industry, geographical location, respective business behaviors’, embedded finance does not gain high priority.
In some opinion open banking or open finance is seen as embedded finance, but it is only the entry point for it to get the interactions for such services. In a future view, payments will be part of the process of purchase, e.g. delivery versus payment or use of service, and less seen as an independent activity.
Therefore, open banking is an enabler for seamless customer journeys, but embedded finance opens the door for additional services, and is an enabler to streamline operations, improve customer and partner experiences, and unlock new revenue streams. The same benefits experienced in retail businesses are leveraged in corporate businesses.
By integrating financial services directly into platforms and workflows, companies can reduce friction in B2B transactions and offer more comprehensive solutions.
The following examples of impact and use cases by industry help to understand the impact of embedded finance:
Improved liquidity management, reduced working capital gaps, and stronger supply chain resilience with use cases such as:
Faster settlements, more secure transactions, and better protection of goods in transit with use cases such as:
Higher user retention, additional revenue streams (via transaction fees or lending margins), and a more seamless user experience with use cases such as:
More transparent project funding, faster access to capital, and risk mitigation with use cases such as:
Increased access to capital for smallholder farmers, reduced financial risk, and digitization of rural payments with use cases such as:
Improved customer onboarding, higher adoption of sustainable solutions, and smoother payment collection with use cases such as:
Enhanced affordability and accessibility for patients, and simplified administration for providers with use cases such as:
With embedded finance for corporates, banks and fintechs need to consider this is a 7/24.365 high-availability service.
While implementing for EU areas, consider best practices in other areas such as PSD2/PSD3 regulation, data privacy of GDPR, and resilience requirements of DORA to avoid bad surprises. It is easier to factor this regulation in the design of business instead of mitigating it in later productive use.
How to integrate embedded finance for corporates as a bank or fintech?
The recent disruptions of value chains due to COVID, tariff wars, and deglobalization make it difficult for corporates and banks to manage their risks and maintain their services. Well-introduced processes and offers may fail to serve the purpose of the corporates in times of disruption.
Banks are focused on money flow, which gives them a restricted and delayed view of the risks, shortage of liquidity, impact of working capital and business revenues of corporate.
How can a bank successfully manage the risks faced by corporate customers and related financing with this limited information base?
If by chance, a bank interacts with a trade finance hub and is using the additional information in a good way, it gains more insight into the ongoing business of its customers, e.g. delays of deliveries, the change of a supplier, and use of other currencies to cover cross-border purchases. Even with information about trade finance, a bank has limited but improved information to manage counterparty risks of corporate customers.
Depending on your business, you can evaluate cooperation with well-introduced trade finance hubs. Normally, banks have their limits on corporate clients in respect of liquidity, turnover, and wealth. In the case of strong growth or decline, the bank will contact corporations to gain more insights and discuss the next appropriate steps.
This approach looks lean, but it is dependent on the person involved, process-heavy, error prone, difficult to track, and hard to leverage. Initially, request-to-pay was targeting retail customers for point of sale and eCommerce to compete with card payments, but business cases are more promising in implementing it in a B2B area to streamline invoicing and payment reconciliation.
In the section, ‘Use cases by industry‘, we give you ideas to explore further. Depending on the industry you are working in, you’re invited think about the benefits of the embedded finance business case.