Embedded finance for small and medium-sized businesses: approaches and opportunities PayNXT360

Embedded finance for small and medium-sized businesses: approaches and opportunities

Small and medium-sized businesses usually face difficulty finding the right financial support, as the process is very time-consuming. The entrepreneurs are unaware of the challenges in applying for loans to find the right type of credit and navigate the financial landscape. Embedded finance makes it easier for small businesses to provide needed financial support. Recently, fintech companies are providing banking-as-a-Service (BaaS) offerings that make financial services more accessible to their end-users. BaaS platforms offer various financial services such as debit cards, cash management, and credit lines integrated into SaaS products. It helps software platforms to offer new and innovative embedded financial services.

Small businesses can collaborate with embedded finance technology providers to improve their credit metrics, and access debt easily can streamline the key finance operations, including payroll and vendor payments. Small businesses can utilize embedded finance for their growth in four ways:

Embedded Lending: Embedded lending platforms prequalify borrowers by the innovative technology providers using customer data to analyze their ability to repay a loan. It enables lenders to avoid time-consuming data collection and provide efficient loans when the customer needs them. This process can help small businesses to receive financing easily and in no time.
Embedded Payroll: Payroll is a major challenge for small and medium-sized businesses as it is difficult to process salaries on time with increasing compliance requirements and complex tax regulations. Small businesses can use embedded payroll platforms and create automatic payroll files that can be reviewed, approved, and processed on time. These platforms provide events such as clocking in and out, metadata including time of day, day of the week, and location that can process payroll smoothly. Recurring payroll data can also be used to offer early wage access to employees.
Embedded Accounts Payable: As small businesses operate on thin margins, it is hard to manage cash flows. Embedded accounts payable help raise purchase orders automatically when stock is low and schedule vendor payments when orders are received. The business owners can delegate payment authorities to the receiver and allow them to access the payment button and purchase orders.
Embedded Insurance: Small businesses are offering insurance products to their customers, thereby diversifying their product offerings, generating additional revenue streams, and reducing risk. For instance, if a business provides an insurance plan for specified products and a customer's order is lost or damaged, they can claim and get reimbursed for the order cost. This way, the business can achieve customer loyalty.

Few embedded finance companies have recently supported several small businesses' grow. For instance,

In June 2022, London-based embedded financing platform, Liberis partnered with Barclaycard to offer revenue-based financing to small and medium enterprises (SMEs). Under this partnership, Liberis will provide technology for Barclaycard Business Cash Advance, a financing product that offers fixed-cost financing and flexible repayment terms for small businesses. Liberis used Barclay's investment of around US$ 43 million in developing an API-driven embedded finance platform.
In May 2022, MarketFinance, a London-based embedded finance company, raised around US$ 124 million in debt financing from Deutsche Bank to fund SMEs in the United Kingdom. It offers approximately US$ 630,000 to small businesses within 24 hours of applying to help them in their growth plans.
In May 2022, Vyapar, an accounting app, partnered with FinBox, a credit infrastructure provider, to provide credit to around 900,000 Micro, small, and medium enterprises (MSMEs). Vyapar has started offering business loans to merchants in the ecosystem through FinBox's embedded finance stack. The MSMEs get benefits by gaining easy credit access through minimal or no paperwork.

Embedded finance platforms support small businesses' growth by providing faster, easier, and tailored financial products. These platforms are bridging the resource gap between small and medium-sized businesses and corporates; thus, struggling entrepreneurs can more confidently accommodate their capital needs.

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