The rise of embedded finance tools in the consumer sector in recent years has made payments and money management significantly more convenient, flexible and intuitive for users, while drastically increasing revenue and growth opportunities for providers.
With the power–and profitability–of embedded finance well-proven in the consumer sector, the model has begun making its way into the business-to-business space, where use-cases ranging from supplier payments to finance have been integrated into other business processes, often via the use of application programming interfaces (APIs). That shift has been supercharged in the wake of the Covid-19 pandemic, which spurred many businesses to re-evaluate their internal operations and processes.
In the below interview, Galileo Financial Technologies Chief Revenue Officer Seth McGuire offers insights into how embedded finance is making inroads in the B2B sector, and how that shift is giving rise to ripe opportunities for B2B providers and their business clients alike.
Consumers have increasingly turned to digital channels for more of their banking and payment needs. In what way do you think individuals’ growing familiarity with embedded payment experiences is impacting what businesses expect out of their own payment experiences?
The invisibility of embedded payments is a critical piece of their value proposition. When you think of Uber, the payment part of that experience is so seamlessly integrated into the overall ridesharing experience that the consumer doesn’t ever have to think about it. It just works. The rise of these invisible payment processes has been an enormous factor in the adoption of many new digital experiences — especially for consumers. Businesses are waking up to that fact, and are asking how they can benefit from those same advancements. Some of this can be done through simplifying their own processes; some requires integration of payment systems and technology that can be combined to improve their existing processes. This opens up enormous potential for businesses to drive the same benefits from embedded experiences that we have all seen as consumers.
In what ways have businesses’ B2B finance needs shifted over the past few years, and how can embedded finance help them meet those emerging needs?
Businesses have evolved to be more digital. Companies – whether large or small — are now just as likely to order goods, products, or services online as they are to physically go to a depot or supply location. With that shift to digital spending has come new opportunities to improve the sales process and give customers better experiences. Part of that opportunity is due to the faster, easier, recurring nature of embedded systems. But part of it is also the additional data that can be captured and leveraged in these new processes.
One great example here is POS lending for businesses. This can take on many forms, but it has historically been a point of great friction. If you’re selling to SMBs that require financing to complete large scale purchases, you either need some prearranged agreement with the merchant, or to support a loan referral scheme (which can include moving off your own system and to a third party – or even getting into offline paperwork, approvals, etc.). That’s a nightmare from an operational and execution standpoint and can result in lost or delayed sales.
But by incorporating embedded finance solutions into your own CRM, with the underwriting process backed up by the data you hold on the buyer, [including information on] their operations, scale [or] creditworthiness, you can instantly action a loan to the business buyer — enabling them to do the transaction they want to do, at the time they want to do it. Layered on top of this sale, you can offer additional products [such as] insurance, cross-sales [or] hedging of future purchases. Embedded financing means you own the experience and maintain the client relationship through the entire sale.
How can embedded finance help improve businesses’ relationships with their suppliers or vendors? What role do technologies such as APIs play here?
We’ve just outlined one opportunity above — more seamless lending at POS — but that’s just one area. A very significant opportunity revolves around how businesses become better partners for their B2B customers — in the same way that fintechs aim to be partners for their consumers by helping people get their money right.
By understanding where business customer pain points lie and solving those challenges with financial solutions that are built into the customer experience, a company enables much deeper and longer-standing relationships. First, the easier it is to resolve financial matters, the more time is left for relationship and partnership. Second, the more insight and data both parties have around those transactions and items, the greater the ability to surface and identify areas to further build upon. Lending, as mentioned above, is a great example of that, because the signals occur during the purchase and sales process. By anticipating what access to finance your customers will need and can afford — [which] helps them drive their own business — and then offering it seamlessly within the CRM you use to interact with them, you make a positive contribution to your clients’ operations, which will keep them coming back for more. You also speed your own sales, improve your conversion and expand your market of potential customers.
APIs help by making this interaction faster, but they are just a technological tool. Where the real magic happens is how you integrate various API-driven embedded financial solutions into one combined offering and pair that offering with a great user experience. That way, you can complement the finance or lending you offer with other critical elements like business insights.
What are some of the challenges businesses face when improving their B2B or internal payment processes, and how can technologies such as APIs help?
I think the biggest challenge businesses have — although it’s really an opportunity — is around integration, and here it’s as much about the value of human experience as it is about the technology.
For example, an API-powered lending solution embedded into a business’s tech stack is less effective if it is just one thing. However, if it is paired with a flexible digital banking platform, it enables the business to both build customer insights — such as how much the customer might need to borrow, for what purpose and what the risk to repayment is — and to ensure tailoring into the product being offered, down to the segment of just one. With that additional functionality, you can anticipate the customers’ needs and offer them the right, affordable, manageable solution — a solution that is fitted to their business needs and maturity.
But to get to that point, you need partners in the embedded finance space who can tie together all the products and services a business might want to offer to their customers in the right way. As a company offering this, you want to be able to focus on the experience (how your clients/suppliers/vendors interact) and on the outcomes (how this improves the experience, driving greater sales, client NPS scores, etc). That means having a trusted partner to tie together all those elements and provide the guidance necessary to make them all work perfectly, removing that work and maintenance from your own shoulders. Getting the right partner is the most critical piece of the puzzle.
The following was adapted from the Embedded Finance Tracker, produced by Galileo in cooperation with PYMNTS.
