What every business owner needs to know about embedded finance

Business owners are the backbone to the economy, and yet, often find themselves experiencing the toughest of what it has to throw at them. During the pandemic, SME owners found themselves thrust into financial turmoil, unable to access the essential capital and resources needed to keep running their businesses. 

Three years later, and many of these businesses have either closed, or were unable to reach pre-pandemic heights. For those who have survived or sprung up since, they face another challenge of a potential UK recession. 

SME owners needed a lifeline then, just as much as they do now. But there’s a difference now compared to the last recession - there’s more alternative financial solutions available, often through embedded finance. Amidst high inflation, increased taxation, supply chain issues and hiring shortages, now is the perfect opportunity for business owners to find out how they can take advantage of an embedded finance offering through their payment processor, ecommerce marketplace or software provider such as inventory management or ePOS system. 

What is embedded finance?

In the last decade, we’ve heard of many great innovations by fintechs, and embedded finance is quickly proving itself to be one of the most promising areas in the future of finance. So, what is it?

Embedded finance is exactly that, a financial service that is ‘embedded’ into a platform or application, meaning you can access their services directly within the platform you’re already using for your day to day operations as a business owner. 

For business owners, embedded finance refers to traditional financial services such as payments, banking or lending, that are provided directly to them by non-traditional players i.e. not the usual high street banks. These processes and offerings take place within a single platform, and means they are able to access capital and lending instantly, and likely at more attractive terms. 

In addition, the increased competition is resulting in a growing number of partnerships cropping up between fintechs looking to acquire new customers and high street banks wanting to retain their customer base. This is commonplace in our lives already with businesses having the ability to find help through the likes of Klarna, Barclaycard, WorldPay, Elavon and Uber Eats to name a few. With them, the entire customer journey, from application to funding, can take place in-app, in just a few clicks.

How does it work?

When you apply for funding through an embedded finance provider, you’re able to access flexible funding that can support your future business needs. The process is streamlined to within several clicks, and the funding that you’ll receive is agreed upfront, with a tailored offer being made often instant. The way it works is that the embedded finance platform is integrated with the platform, and uses the available customer data to pre-select or even pre-approve a business for funding before you even realise you need it! This process means you cut out uncertainty of rejection, and you already know upfront the amount and price, instead of having to wait days or weeks for a decision. 

This means business owners can access instantly available funding, with a pre-populated application, all at the click of a few buttons in their existing and trusted ecosystem. 

How can embedded finance support business owners?

By using embedded finance services, business owners can make decisions at their convenience that could be used to financially support and/or scale their business. AI and machine learning have been a big part of the personalisation of these platforms, and means that the product is often hyper-personalised. Fintechs are able to use this technology to identify the point of need for SME owners, and offer them solutions, quickly. This can be a huge relief to business owners, who may otherwise face rejection for their funding needs, or even a halt to their cash flow.

Cash flow is THE key pain point for many business owners, particularly when it comes to unexpected costs, upfront payments for inventory or marketing, or delayed payments from clients. Traditionally with banks, there can be long waiting times to get an approval of your application. Struggling businesses may be concerned about a higher likelihood of rejection, and how they may be left in a tight spot. But with embedded finance, this is greatly reduced through pre-approval and improved regular data. 

Conclusion

Business owners have a lot on their plate when it comes to running their business, from staying ahead of competitors to overseeing staff and inventory. Ideally, they want financial services - from payments to lending, to be readily available, trustworthy, and easy to understand.

With embedded finance, platforms, payment acquirers, ecommerce marketplaces and SME service providers are able to deliver a host of financial services within their ecosystem.  Business owners can also select the best product for their circumstances, delivered instantly and from a trusted source. By harnessing the cutting-edge innovation that embedded finance has to offer, platforms can improve customer loyalty and increase customer lifetime value. More importantly, business owners can support their businesses with funding to allow them to grow ahead of the curve, as the economy recovers.