Embedded Finance, Member Exclusive

Embedded Briefing: SMB servicing presents strong potential for embedded finance

  • Across the US, UK, and Europe, the SMB embedded finance market presents a $110 billion opportunity.
  • SMBs are demanding easier access to capital, simplified financial management, and card issuing capabilities.

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Embedded Briefing: SMB servicing presents strong potential for embedded finance

SMB servicing is one of the hottest spaces in fintech right now. Historically underserved by traditional finance, the small business sector is getting some deserved attention from embedded finance platforms that have figured out how to form sticky and profitable relationships with them.

The problem with SMBs is that they’re too small to warrant specific attention and tailored offerings from traditional banks, and too diverse for one-size-fits-all solutions. Platforms solved this problem by bringing a variety of business solutions onto a single user experience, forming deeper relationships, and enabling SMBs to customize the offerings themselves.

They’re using platforms for all sorts of business functions, ranging from payment processing to inventory management and customer management. Better yet, business owners have shown a strong demand for more of these offerings.

What embedded systems have gotten absolutely right about SMBs is that they love things to be integrated into their workflows. They don’t have huge teams or specific people for specific tasks, with often just a few people looking over everything. Business solutions that fit right into their business-doing practices really hit the mark.

And as a traditionally underserved space, the market is still up for grabs.

According to the Boston Consulting Group (BCG), the embedded finance market for SMBs in the western world potentially represents a $110 billion total addressable market – $60 billion of that coming from the US, and $50 billion from Europe and the UK. This number represents around 45% of the total revenue from SMB banking.

The current market itself is very profitable and as yet growing – worth $2.5 billion in the US and $1 billion in Europe and the UK.

Despite the high demand and potential, the industry is still very young. While less than 5% of SMBs source financial solutions from embedded platforms, it is worth noticing that less than 10% of platforms even market their product. In terms of individual products, this is where penetration stands:

  • 34% of respondents use a platform for payment processing
  • 9% of respondents use a platform for financing
  • 3% of respondents use a platform for card issuing
  • 3% of respondents use a platform for banking

The penetration of platforms, however, has increased drastically over the years – from 30% in 2018 to 75%-85% now. What’s powering this is the availability of multiple functionalities on the same platform, actionable financial insights, greater access to capital, cash flow management, and cash advances. 

The BCG predicts three products will power SMB adoption of platforms in the coming times:

  • Cash advance

Liquidity is a massive problem for SMBs, with limited reserves to operate. Traditional markets have been unable to serve the SMB loan appetite, and even with the emergence of neo-banks, the problem persists. SMBs across industries are interested in better financing options.

  • Bank accounts

While SMBs have sufficient access to banking accounts with both traditional and new-age providers, and high satisfaction on this front, there is still space for them to improve their offerings with SMB-specific solutions. These include accelerated settlements, simplified cash flow, and cross-border payments.

Of the SMBs surveyed, 79% said end-of-day settlements would be an important upgrade for them, 75% felt so about fast account opening, and 72% said so about integrated experiences. 

  • Card issuing

SMBs want to be able to spend on platform-issued credit and debit cards. They wish for such payment cards to be customizable to their specific needs, and integrated with their business’ overall financial management.

Such programs will grant SMBs greater visibility of and insights into their spending and consequently be able to optimize the flow. The features they’re interested in include spending limits, being able to control what expenses can be done, and rewards.


Chart of the day

Source: Trimpliment

Consumers globally now have access to a plethora of financial services, many developed for very niche markets. Similarly, financial services’ distribution channels have evolved such that just about any brand today offers some kind of product. In such an environment, the less-technical and more-soft part of financial offerings has risen greatly in importance for consumers.

The market demands services to be user-friendly, integrated, ethical, accessible, and comfortable. 

A survey found that the most important thing for consumers today is an omnichannel experience, they don’t want to open a page within a page within a page just to make or receive a payment. Similarly, with new communication channels, they expect complete transparency from their provider. This applied to things like bank charges, the time it takes to complete a transaction, and risk management actions are taken.

Similarly, consumers want a reduction in bank charges – especially hidden ones. They’re also much more interested in availing of additional services from their banks that help them manage their finances better.

Customer service standards have also risen – consumers no longer want to wait in lines at the bank for simple troubleshooting. Users want a quick resolution of their concerns and want to get help whenever and where ever they need it. 

On the flip side, financial service providers today are much better equipped to live up to these standards. They have access to a wide variety of data, from spending habits to attitudes toward saving. Using these insights they can create and deliver much more customized and intimate financial products to meet customers’ new demands.

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