Embedded Finance Trends Reshaping B2B Payment Dynamics

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Following its explosive success in business-to-consumer, the embedded finance revolution has now shifted its stage to the B2B sector.

As new business models emerge, the measurability of digital transformation becomes critical. Its ROI needs to make business sense. It is particularly true now that B2B payments, in particular, are finally and fully digital.

Businesses are demanding more seamless, effective, and secure payment solutions. Hence, embedded B2B payments have become a prominent trend in recent years. Technological advancement has impacted the growth of embedded B2B payment tools.

Embedded finance is the seamless integration of a financial product into a non-financial environment. It has been causing a stir on B2B trade platforms and marketplaces.

It helps to weave financial services into the fabric of consumer- and enterprise-facing offerings across various verticals.

End users can access credit, payments, or investments without leaving the system they use for daily operations. That boosts customer loyalty and increases the share of wallets for financial service providers.

Embedded finance benefits extensive networks and makes tremendous efforts for clients’ maximum satisfaction.

Banking transactions are integrated into software, eCommerce, and all other platforms. Hence, financial institutions should be the first to embrace those technological shifts. Integrating financial services into end-user journeys creates a smoother experience.

If properly integrated, it offers a wide range of effective financial products and services

What is embedded finance?

Simply put, embedded finance refers to the incorporation of digital financial services or tools – traditionally provided by a bank or other incumbent provider – into the products or services of a financial organization. It involves providing services like payments, insurance, or lending.

You already use embedded financial technologies weekly as a consumer without even realizing it. There is constant interaction with several embedded financial technologies while using apps to buy things, pay for a cab ride, or order a takeaway.

These tools have subtly improved the relationship between customers, businesses, and financial institutions.

Embedded finance lowers entry barriers for various goods and services, streamlining the payment and purchasing processes. For instance, obtaining a loan for a sizable purchase in the past required a customer to go to a physical bank. These kinds of services are now conveniently made available when needed.

However, embedded finance has advantages that go beyond business-to-consumer transactions.

Through B2B embedded finance products like buy now, pay later (BNPL) and trade credit insurance, financial companies can improve B2B trade.

These embedded solutions are more accessible, affordable, and efficient than legacy solutions.

Embedded finance’s advantages for B2B marketplaces

Specifically, introducing embedded products and tools has improved B2B financial services in market environments. The smoother checkout process and enhanced customer experience benefit buyers.

At the same time, marketplaces and sellers see increased customer loyalty and untapped revenue sources.

B2B marketplaces, apps, and ecosystems need to integrate payment methods into their platforms, rather than considering them.

Lately, business trends are changing how businesses sell to customers, expand, and service them. This has led to a rapid growth of embedded finance.

Global trade and B2B commerce are increasingly digitalized due to the pandemic-induced tech boom and the rise of tech-first, millennial decision-makers. This is another area for embedded finance to grow.

Businesses now have more valuable data with digital business systems like ERPs, warehouse management systems, supply chain management platforms, and cloud accounting.

Banks can use it to enhance their offerings. They can go completely digital with these new tools and solutions.

Regulatory modifications like open banking have allowed fintechs to expand into new markets, cater to new clientele, and develop new revenue streams.

Businesses are simultaneously under new pressure to cut costs, grow, and hire, which presents an opportunity for finance firms to add unique value.

To achieve this, however, fintechs must provide more customized, dynamic solutions that can adapt to changing customer needs.

They need to bring service models in line with contemporary business styles. They also need to streamline internal processes like KYC and customer onboarding.

It will help produce more individualized financial products that address users’ unique needs in each use case.

Embedded Finance Trends to Improve B2B

The benefits of embedded finance will expand the boundaries of B2B transactions far beyond the limitations of paper cheques and invoices.

Most embedded finance innovations occur in the business-to-consumer (B2C) market. The b2B sector is still comparatively untouched.

Financial Services Institutions (FSIs) that take the initiative have a significant first mover advantage. They can provide a fertile environment for B2B embedded finance innovation.

Here are five trends driving the growth of B2B embedded finance:

Development of B2B ecosystems and platforms

Global trade and B2B commerce are becoming increasingly digitalized due to the pandemic-induced tech boom. The increasing number of tech-first, millennial decision-makers is an added driver.

Companies today use various interconnected tools evolving into digital ecosystems to conduct business. The ecosystem should include banking services as a fundamental component.

The growth of open banking

Open banking and finance have become more popular due to regulatory forces like PSD2. FSIs can use these capabilities to scale the embedded finance reach to many businesses. This makes it possible to bundle traditional banking services with value-adding non-banking offerings.

The process allows firms to cater to new clientele. FinTech can then develop new revenue streams to prevent the decline of anticipated banking revenue and profitability due to legacy apps.

Decreased confidence in financial services

FinTech and big tech companies had a significant trust advantage over FSIs and banks until recently. While that advantage still exists, it is eroding and no longer serves as a significant competitive advantage.

Existing banks and Fintechs need not suffer as a result of this. Traditional banks, FinTech, and Bigtechs, can convert into BaaS (Banking as a Service) vendors with the appropriate collaboration model.

API growth

Recent advances in digitization have increased usage and made embedded finance accessible to virtually all digital businesses.

With the introduction of open banking initiatives, APIs have become a business driver for many financial transactions.

An updated embedded finance system

For all finance firms, first-generation embedded finance was a replicable model with no means of differentiation.

Fintechs can differentiate themselves in the coming generation through tailored propositions and the capacity to improve offerings with their IP.

Unlimited Possibilities

Embedded finance has a virtually limitless number of applications. There is a huge opportunity for FSIs to save their corporate clients money and time. They can utilize the faster payment infrastructure that a robust embedded software permits.

Here is a classic example of how embedded Fintech solutions will drive the b2b market:

There are currently a number of manual steps involved in purchase order finance (PO finance). This is the cash advance that businesses may be eligible for after issuing a PO.

With embedded finance, it is possible to:

  • Extract purchase orders directly from the buyer’s ERP system
  • Have them pre-qualified by FSI for financing
  • Make it easier for the seller to access the platform they use to conduct B2B trade with their buyers
  • Automate many of the laborious manual steps.

Also Read: How Embracing Embedded Finance Helps Streamline B2B Transactions

Adoption Embedded finance

Businesses need to realize the full potential of embedded finance. B2B firms must use a clear strategy and comprehensive approach. For their ERP customers, this entails utilizing data-driven insights and putting into place frictionless business processes.

This process gives them the tools to successfully negotiate the digital trade landscape. They can then reap the rewards of embedded finance in the digital ecosystem.

Like those on many B2C platforms, subscription-based models add to the range of digital payment options. It should leverage embedded financing services, and the last mile will be taken care of.

B2B companies can provide greater flexibility by implementing subscription consumption options correctly. It also helps with no time constraints and trouble-free accessibility.

B2B providers must plan to offer services and products based on consumption. B2B portals will benefit greatly from this pay-as-you-use strategy.

Embedded finance benefits extensive networks and tremendous efforts to lend clients maximum satisfaction. It offers a wide range of effective financial products and services if properly integrated.

It can make these services widely available so users can instantly benefit. MSMEs can benefit most from the solution’s lower costs, higher liquidity, and relevant, trustworthy networks.

Now is the best time for businesses to take advantage of the opportunity provided by B2B embedded finance. Especially given the pressure they face to accomplish more with fewer resources.

Swapnil Mishra
Swapnil Mishrahttps://talkfintech.com/
Swapnil Mishra is a global news correspondent at TalkCMO, with over six years of experience in the field. Specializing in marketing technologies, Swapnil has established herself as a trusted voice in the industry. Having collaborated with various media outlets, she has honed her skills in content strategy, executive leadership, business strategy, industry insights, best practices, and thought leadership. As a journalism graduate, Swapnil possesses a keen eye for editorial detail and a mastery of language, enabling her to deliver compelling and informative news stories. She has a keen eye for detail and a knack for breaking down complex technical concepts into easy-to-understand language.

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