Industry
Capital Markets
Unlocking Exponential Future Growth in Capital Market Firms
Banking
Banking Services Transformation: Unlocking Exponential Value
Solution
TCS BaNCS™
TCS BaNCS™: Enabling Transformation in Banks and Financial Institutions
Highlights
- Embedded finance (EF)is expanding beyond retail customers to corporate customers, enabling banks and fintechs to streamline operations, improve customer and partner experiences, and unlock new revenue streams.
- By integrating financial services directly into platforms and workflows, companies can reduce friction in B2B transactions and offer more comprehensive solutions.
- Banks can leverage embedded finance to gain more insights into corporate customers' businesses, manage risks, and provide additional services to strengthen their relationships.
On this page
Why embedded finance for Corporates?
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.
What about embedded finance for corporate customers?
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.
Figure 1: An overview of actual embedded finance use cases in corporate businesses.
Examples of use cases by industry
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:
- Embedded payments: Automating supplier payments and receivables within ERP systems (e.g., SAP, Oracle). Using smart contracts in permissioned blockchain ecosystems, or other delivery versus payment patterns can be introduced.
- Trade finance and embedded lending: Manufacturers provide financing options to distributors or dealers directly through digital platforms. Based on trade finance events, e.g. delay of deliveries, the bank can support corporates with lending.
- Insurance: Offering embedded equipment or production line insurance during asset sales as insurance on demand.
Faster settlements, more secure transactions, and better protection of goods in transit with use cases such as:
- Embedded freight insurance: Automatically offered during cargo bookings or shipment tracking as insurance-on-demand.
- Instant payments and escrow: Integrated payment solutions to reduce fraud and delays in global trade transactions. The bank acts as a trusted intermediary, as it is known in credit operations, where payment is executed only when the delivery is made.
- Financing options: Embedded invoice factoring or load financing for carriers and freight companies.
Higher user retention, additional revenue streams (via transaction fees or lending margins), and a more seamless user experience with use cases such as:
- Embedded payments and billing: SaaS platforms integrate payment gateways and subscription billing directly to reduce manual actions in invoicing and reconciliations. This requires transparency and traceability in billing for SaaS customers. A bonus system would enhance customer loyalty.
- Lending platform users: Platforms offer credit or cash advances to small business users based on usage or revenue history (e.g., Shopify Capital).
- Wallets and payouts: Platforms hold and distribute funds on behalf of users (e.g., marketplaces or gig platforms).
More transparent project funding, faster access to capital, and risk mitigation with use cases such as:
- Project-based financing: Embedded loan options for developers or contractors within project management tools. Based on the progress and payment plan of a construction, liquidity, delay and other risks are detected early on and can be mitigated. Banks get more insight into risk exposures and can actively manage the risk in cooperation with their corporate customers.
- Embedded insurance: Builders risk or liability insurance offered during contract signing or procurement. With integrated progress milestones and payment plans, the risk can be actively managed and mitigated.
- Payment flows: Milestone-based payments embedded in construction platforms streamline contractor payouts. With integrated progress and payment plans, the risk can be actively managed and mitigated.
Increased access to capital for smallholder farmers, reduced financial risk, and digitization of rural payments with use cases such as:
- Input financing: Seed, fertilizer, and equipment providers embed financing directly in their ordering platforms.
- Crop insurance: Embedded insurance coverage for weather or yield losses during product sales as insurance-on-demand.
- Farmer wallets and mobile payments: Allowing farmers to receive and manage funds via embedded wallets in agriculture platforms.
Improved customer onboarding, higher adoption of sustainable solutions, and smoother payment collection with use cases such as:
- Embedded billing and payments: Smart energy platforms integrate payments into usage monitoring tools. Transparency and traceability in billing offered to customers.
- Green financing: Offering embedded financing for solar panels or energy-efficient equipment. This could be provided as a ‘lease and buy’ model.
- Usage-based insurance: Embedded services for equipment breakdown or liability based on usage data as insurance on demand.
Enhanced affordability and accessibility for patients, and simplified administration for providers with use cases such as:
- Patient financing: Clinics and providers embed instalment payment options for expensive procedures.
- Embedded insurance: Health platforms offer coverage for diagnostics, outpatient, or telemedicine services. This can be factored in a special healthcare insurance offering inviting customers for early clarification and detection of illnesses to reduce healthcare costs and improve customer satisfaction and health.
- Expense and reimbursement tools: Corporate wellness platforms offer embedded wallets for reimbursable medical expenses.
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.
Figure 2: A bank only gets information to process payments.
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.