Why embedded finance is integral to the future of B2B e-commerce

Ethan Cumming
Content Writer

Estimates suggest that the value of the embedded finance market is expected to reach at least $7 trillion in the next decade, which would make it worth double the combined value of the top 30 banks on the planet today. However, despite becoming an increasingly competitive and saturated subdivision of financial services, many B2B e-commerce operators remain unaware of how embedded finance could help them to grow.

What is embedded finance?

Put simply, embedded finance is the integration of financial services or tools – traditionally provided via a bank – within the products or services of a non-financial organisation. 

The truth is, as a consumer, you probably already use embedded financial tools every week without even thinking about it. When you pay for an Uber ride, order a takeaway from Deliveroo or purchase a new pair of trainers using PayPal, you are interacting with a variety of embedded financial technologies. Quietly, these tools have transformed the relationship between consumers, companies and financial institutions for the better.

Embedded finance streamlines payments and purchasing processes by reducing barriers to entry for various products and services. For example, in years past it may have been necessary for a consumer to visit a physical bank to get a loan for a substantial purchase. Now, services like these are being made available easily at the point of need.

But the benefits of embedded finance are not just confined to B2C transactions. Recently, a batch of promising startups have begun to enhance B2B trade through the provision of embedded services such as buy now, pay later (BNPL) and trade credit insurance that are more accessible, affordable and effective than legacy solutions.

Embedded finance examples

Now we know how to define embedded finance and understand the impact it has had to date, let’s take a look at some specific areas of embedded finance.

Embedded payments

By enabling instant payments at the touch of a button, embedded payment solutions make life easier for consumers and business buyers alike. 

Rideshare apps like Uber and Bolt are excellent examples of companies that utilise embedded payments in order to create a smoother experience for consumers. Payment technologies are integrated within the app, meaning that customers don’t need to carry cash in order to ride and, more importantly, aren’t required to enter their card details for every transaction. Instead, upon completion of their journey, consumers are automatically charged the price they accepted before departure.

Since the launch of Apple Pay in 2014, digital wallets have become another integral way for companies to embed payment technology in their apps or websites. Enabling contactless mobile transactions and instant online purchases, digital wallets nullify the time spent inputting card details or pin numbers at both digital and physical checkouts.

Clearly, embedded payments are already commonplace on websites and apps where consumers purchase goods and services. As B2B transactions continue to move online – over half of business buyers already rely on web stores for frequent purchases – we will see a growing number of merchants and marketplaces offer these seamless options alongside more traditional payment methods like credit card and Direct Debit.

Embedded lending

Embedded lending allows buyers to access deferred payment facilities or short term financing at the point of purchase, without the need to visit a bank or engage with a traditional lender. 

In consumer e-commerce, embedded finance is more commonly known as buy now, pay later, and is well-known among consumers thanks to the ubiquity, success and – only recently – the negative publicity of Swedish BNPL giant Klarna.

B2B Buy Now, Pay Later providers like Hokodo have developed similar embedded lending solutions which enable businesses to access an improved, digital version of traditional trade credit. Solutions like ours eliminate the need for the cumbersome paperwork and lengthy approval waiting times associated with trade credit, allowing buyers to access payment terms instantly, even on their first purchase.

Embedded insurance

Before the days of embedded insurance, buyers seeking to insure a new purchase would need to endure the often difficult process of finding an appropriate insurance product at an agreeable cost.

These days, insurance products and policies are available as add-on services at the point of purchase. With just one click, consumers are able to insure flights, concert tickets and high cost items, eliminating the need to manually seek insurance.

Embedded insurance also has an important role to play in B2B trade. One example is found when buyers make an online purchase for stock or materials from overseas. At the point of sale, the buyer may be prompted to add cargo insurance to their order to protect against the risk of loss or damage to goods during transit.

Embedding financial tools in B2B

As we’ve discovered, embedded financial tools have already cut their teeth within consumer e-commerce over the past several years, and have recently started to permeate online B2B trade. But we’ve only scratched the surface when it comes to the potential of embedded finance.

These solutions have the flexibility and universality to be applied to any company or industry where a transactional element is present. If implemented correctly, they have the potential and momentum to fully revolutionise payments and broaden the horizons of innovation within financial services.

If they haven’t already, businesses not utilising embedded financial technology in their apps or websites will soon begin to lose revenue to digitally savvy competitors who have taken steps to improve their customer experience with embedded payments, insurance, lending and more.

Even large banks and traditional financial institutions, notoriously slow to adapt, have begun to take notice of the opportunities offered by embedded finance. However, the legacy systems these incumbents have in place are not fit to make the real-time decisions required for the sale of embedded financial services.

Instead, the most effective embedded finance solutions are those offered by agile startups who have built customisable end-to-end tech stacks from the ground up. This is especially important in the context of B2B trade, which is considerably more complex than consumer commerce. 

Businesses selling to other businesses need flexible and scalable embedded financial solutions which can be integrated into their existing platforms with ease. Hokodo offers just that – an end-to-end embedded lending solution built for B2B which covers everything from credit underwriting and fraud risk assessment through to financing, payments and collections. Book a demo today to find out how you could fuel the growth of your B2B e-commerce platform with embedded lending technology.