Online marketplaces: embracing embedded finance to benefit both customers and vendors     

Published On : 09/27/2022

By Tom Bentley, CCO, Vodeno

Global retail eCommerce sales are expected to total $5.5 trillion worldwide in 2022, an increase of more than five times in the space of a decade. In this booming sector, online marketplaces are growing rapidly – by 2025

In large part, this growth has been driven by changing consumer behaviour. The effortless ‘one-stop-shop’ nature of online marketplaces has propelled their growth, with 81% of consumers citing convenience, competitive prices (63%) and a wide product range (52%) as reasons for their appeal.      

As competition in the online marketplace sector grows, those wanting to retain the best vendors and largest customer bases are looking to embedded financial products to add value and help accelerate the business of their vendors.  

Banking-as-a-Service (BaaS) providers have unlocked the ability of non-financial companies – like online marketplaces – to offer these financial products directly into their ecosystem, setting an innovative path toward growth and vendor retention.

Merchant financing: helping to accelerate small business<span style=”font-weight: 400;”>

BaaS providers, with the necessary regulated and licensed banking partner, can facilitate lending between online marketplaces and vendors through merchant financing. Merchant financing is a lending solution that offers up-front capital that can be used to produce or buy goods, with repayments drawn from the revenues of those goods once they are sold. The ability to easily access credit combined with the flexibility to repay through revenues is invaluable to small businesses.

Although still in its relative infancy, merchant financing is an effective and efficient way for marketplaces to offer vendors credit.

By providing fast and reliable access to credit, the marketplace directly supports its vendors’ growth. For vendors, the benefits are clear – the finance is repaid once goods are sold and profits are realised, empowering their vendors to take full control of their cash flow in line with turnover. 

With the effective use of such capital, vendors are likely to experience greater sales volumes. As a result, the marketplace can experience its own growth, all while bolstering its vendor relationships and fostering greater client retention. 

In essence, working with a BaaS provider to offer merchant financing allows online marketplaces to act as both bank and sales partners to vendors. With consumers expecting variety, convenience and competitive prices, online marketplaces must place the retention of their best vendors at the heart of their growth strategy, and merchant financing provides an effective solution for those looking to achieve this.  

Embedded finance: wide market appeal

Merchant financing is one way BaaS providers are enabling embedded finance to create customer journeys that are both frictionless and integrated with value-added banking products at the right time.

By offering BaaS-powered solutions on their platforms, online marketplaces help grow and retain their best vendors, in turn, those vendors bring in the best customers. Marketplaces that also offer embedded financial solutions directly to end customers enhance consumer spending power, bringing increased sales for vendors. These methods create a virtuous circle for the platform, vendor and customer. As vendors expand their business, they attract more customers, resulting in growth for the marketplace.

For context, the global embedded finance market is expected to grow in value from $43 billion in 2021 to $248 billion in 2032. Again, online marketplaces stand to be a key beneficiary of this boom.

The state of play

Through powerful Application Programme Interfaces (APIs), BaaS providers offer embedded financial solutions that are quick and easy to implement and cost-effective, allowing clients to offer solutions that are tailored to the make-up and needs of their customer base.

As online marketplaces combine both a B2B and B2C proposition, they can access the full range of opportunities that BaaS and embedded finance provide. Through the power of BaaS, online marketplaces can serve as sales enablers and banks for both vendors and customers and truly fulfil their ‘one-stop shop’ promise. 

Author Bio:

Tom Bentley is the Chief Commercial Officer of VODENO. Tom is an expert in the banking and financial services sector with more than 12 years of experience. Tom joined VODENO from Thought Machine where he was responsible for growing its business across Europe. Prior to Thought Machine, he held executive roles at banking software company, Temenos, across Asia and Australia, working with some of the most disruptive fintechs in the world.    

Uma Rajagopal

Uma Rajagopal has been managing the posting of content for multiple platforms since 2021, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune. Her role ensures that content is published accurately and efficiently across these diverse publications.