Embedded finance has exploded the world of finance, providing banks with new routes to market for financial products through non-financial providers. By 2026, financial services embedded into e-commerce and other software platforms will exceed $7 trillion, creating a massive opportunity for banks to reach new customers. Recent research predicts open banking could expand the overall SME banking market by up to $92 billion, as businesses take advantage of more convenient, tailored financial products, with the payments market predicted to reach $51 billion in the US by 2026.
Add in additional service lines such as savings, accounts, lending, working capital management, or financial planning and it’s clear this opportunity is too big for banks to ignore. Key to this growth will be the ability to deliver financial services in a more targeted way – embedded finance can help banks deliver their products to customers at the right time, place, and medium to maximize their impact. Through API integrations, banks can integrate their services with existing business systems to provide better levels of service and build stronger, more valuable relationships.
In this article, we’ll explore the five more transformative use cases for embedded finance, the value they can provide for your customers, and how banks use them to win a greater share of wallets and increase customer loyalty.
Why is now the time for B2B embedded finance?
The rise of embedded finance has been accelerating in line with the most powerful business trends reshaping the way businesses sell, grow and service customers. The pandemic-induced tech boom and the rise of tech-first, millennial decision makers have accelerated the growth of B2B solutions and ecosystems, making global trade and B2B commerce increasingly digitized. Digital business systems, such as ERPs, warehouse management systems, supply chain management platforms and cloud accounting mean businesses are holding more valuable data that banks can use to improve their services. Regulatory changes such as PSD2 and open banking have provided FSIs with an opportunity to enter new markets, serve new client segments, and create much-needed new revenue models.
At the same time, businesses are facing new pressure on costs, growth and hiring, creating the opportunity for FSIs to provide new value. To realize this, however, FSIs need to embrace technology changes and offer more personalized and dynamic solutions tailored to evolving customer needs. Making this a reality requires aligning service models with the way modern customers do business – streamlining internal processes, like KYC and customer onboarding to create more personalized financial products that meet users’ specific needs according to the use case in question.
5 Transformative Use Cases of B2B Embedded Finance
The potential for embedded financial services is nearly limitless, but making the most of the current opportunity requires focusing on your strategy on the use cases that stand to benefit your customers the most, building on your existing systems and services to expand your value proposition.
Use Case 1: Request-to-Pay (R2P)
High-growth businesses working with high volumes of payments often suffer from slow, expensive payment processes. Request-to-pay (R2P) enables any bill-issuing business to send an electronic payment request, working with existing payment infrastructure to save your corporate clients money and time. R2P functionality can be particularly beneficial for businesses with high volumes of low price, recurring payments, with 96% of treasury and payments professionals across Europe interested in the service due to its potential to save £0.18-0.36 per transaction.
Use Case 2: Purchase Order Finance (PO Finance)
For businesses with complex, wide-reaching supply chains, managing supplier payments can have a major impact on cash flow and procurement. PO finance helps businesses cover supplies and raw materials required for delivery without having to wait for payments, ensuring that a lack of liquidity never slows down orders or inventory. By embedding finance within your clients’ ERPs, banks can streamline the process of extracting data from purchase orders, helping clients secure necessary funding faster and at the right price to minimize risks of stockouts or delayed orders.
Use Case 3: Buy Now Pay Later (BNPL)
While BNPL is increasingly popular in B2C, it’s yet to fully realize its potential in the business world. By integrating BNPL directly into your clients’ ERP, banks can quickly analyze the creditworthiness of a business to deliver fast, tailored decisions at a reasonable borrowing rate. Not only does this help your customers source the flexibility they need to manage their own cash flow, but it also reduces the lending risk for banks through more robust underwriting while lowering acquisition costs.
Use Case 4: Invoice Finance (Receivables Finance)
Outstanding invoices are major risks for customers, with varying payment terms or unreliable suppliers leading to potential holes in a balance sheet. As with other forms of finance, the efficiency of invoice financing is limited by incomplete access to data, slow underwriting, and steep rates based on an incomplete view of risk. By offering invoice finance through ERPs, banks can provide speedy access to capital, improving working capital efficiency and increasing cash flow for customers, while managing risk at scale.
Use Case 5: Virtual Accounts
In line with the increasing digitization of business processes, virtual accounts, including virtual IBANs, virtual account management (VAM) and virtual ledger management, can centralize clients’ data and financial affairs in a single digital platform, ready to integrate with other services. By embedding virtual accounts within your clients’ ERP system, banks can help clients streamline and automate payment processing, providing better cash forecasting, and leverage more value from existing business data, while offering additional services to increase customer revenue.
How to make the most of the embedded finance opportunity
The way banks digitally engage with their business and corporate clients is changing – banks need to account for more complex customer needs, changing systems and evolving market pressures. Embedded finance creates the opportunity to build closer, more valuable relationships with clients by putting your services at the heart of their business through ERP and trade finance integration. By providing more targeted products based on complete, robust customer data, banks can retain and grow business customers, develop and deliver new products and grow market share among modern, tech-first businesses.
To find out more about how embedded finance is creating new value-creation opportunities for banks and their clients, join our webinar on the 20th June where you can see a live demo of use cases with Vishal Shah, Head of Embedded Finance and Dr. Natascha Bell, Senior Solutions Manager. Secure your spot now here!