Embedded finance is already widely available in consumer finance: business finance is catching up to make entrepreneurs’ lives easier.
As a consumer, it’s never been easier to purchase what you want ‘ sometimes without even having to leave an app like Instagram. The way consumers manage payments, from shopping to ordering a takeaway pizza, has been completely overhauled by embedded finance. The business world is now catching up, freeing up time and resources for organisations from startup to multinational.
Embedded finance uses tech to make the financial admin we do as business owners simpler, faster and more convenient. It merges financial services, like making payments or exchanging currency, across the ecosystem of the internet. Take an early example like Paypal. When you go to check out on an ecommerce site, you might be given the option to use Paypal. All you need to do is log in, and they solve the payment process for you.
Application Programming Interfaces (APIs) make this possible. An API is a kind of go-between that allows two different applications to talk to one another. When you put your data into an app, it gets communicated via API to the server. You can think about it like ordering at a restaurant. You communicate your order to a waiter, who then passes that on to the kitchen. In this instance, the waiter is like an API. When personal information is involved, it’s a more secure way of exchanging data because your data is protected from being seen by the server directly.
For businesses, this technology offers the opportunity to embed different services, like insurance or payments, within many applications or websites. The internet is cheap and readily available, and consumers now have higher expectations of how easy a transaction should be. While the technology has been tested and welcomed by consumers, unpicking the kinds of important transactions that take place in business finance is a little more complex. But now, more financial services providers than ever before are interested in spending money and time developing their own embedded solutions.
The key benefit that embedded finance offers business owners is in simplifying your banking admin. Ultimately, being consumers ourselves, we’re accustomed to slicker and faster payments processes. That includes our familiarity with new payment options such as buy-now-pay-later app, Klarna. We’re ready for the business world to follow suit and offer useful financial options at the point of need. It’s this last point that is crucial to embedded finance. Getting the right product or service when you can genuinely use it is the key.
For example, when you upload an invoice on Xero or Quickbooks, you might want an option to click here and unlock the funds, right there and then. By clicking that button, your invoice could be uploaded automatically to an invoice finance platform like MarketFinance, effectively allowing you to advance an invoice at the point of raising it. Your money would go straight to your bank account, without you having to re-upload the invoice elsewhere or remember to log in later. Another use case would be if you have suppliers or customers placed around the world; your business banking app could offer one-click FX services from another provider that you could use precisely when you need to make a payment in another currency.
When we started MarketFinance back in 2011, we were one of the first fintechs in the invoice finance space. But the world has changed a lot since then, and technology has evolved rapidly over the last decade. Now, we want to develop new solutions that support business owners in other ways and to drive innovation in the business lending space. At MarketFinance, we’re well placed to take advantage of the new trend towards embedded lending; in fact we started on this trajectory in 2018 when we partnered with Barclays Bank UK PLC. Recently, we’ve launched pilots with other strategic partners to see how we can solve the problems business owners face day-to-day, in the spaces where they’re already logging on.
Embedded finance is part of the evolution of business lending, not a total revolution. It isn’t complete disruption in the sector, but instead is part of the process of innovation. It’s about offering ease of access and utility within the financial ecosystems business owners are already part of, and I’m excited to see what the following years hold in this space.