By Louis Carbonnier, Co-Founder and Co-CEO of Hokodo
Embedded finance services are on the rise. With a new audience within the B2B market, it is predicted that the sector will be worth more than $7 trillion in the next 10 years, with more providers coming into the arena, and more adopters realising the potential of the offering. But what can embedded finance bring to the business to business (B2B) marketplace? And what role will it play in its future?
What is embedded finance?
The term embedded finance refers to the integration of financial services or tools within the core services of a business that does not work within the financial sector. An obvious example would be a white goods or tech retailer offering Buy Now, Pay Later (BNPL) agreements to its customers, to spread the cost of a purchase. But there are many other areas where embedded finance is now finding a niche, from payments to insurance. And the potential for the B2B market is enormous.
Where is embedded finance being used for B2B?
B2B marketplaces are deploying embedded finance for both physical and digital transactions in a range of forms.
Cash had ceased to be King long before the pandemic hit, but Covid-19 sounded its death knell, with contactless payments demanded everywhere. Instant payments are the next step forward. Available for a while now, the technology that integrates payment services with the infrastructure of an app or e-commerce site is now being widely adopted, allowing payments to be transacted at the touch of a button. Digital wallets perform a similar function, albeit working through a third party.
This is where Buy Now, Pay Later comes into play. Already a major part of the consumer experience – with Klarna and Clearpay being the best-known providers – BNPL is only in the early stages of B2B adoption. But the deferred payment system holds a huge amount of potential, allowing businesses to access the goods they need without waiting to acquire the funds to pay for them. Providing rapid decision making with minimal paperwork, B2B BNPL delivers significant benefits for both business buyers and sellers.
Available at the point of purchase, embedded insurance can be found almost everywhere and for almost everything. Consumers can even access one-click insurance for an array of digital purchases – a quick look at Amazon.co.uk is enough to reveal the extent of its ubiquity. And it too is now being integrated into the B2B market, enabling businesses to insure their purchases without the time and tedium of updating existing policies, or researching new ones.
Why is embedded finance likely to play a greater role in the future of B2B?
Until now, B2B has been something of a secondary thought when it comes to fintech. Evolving products and services have been focused on the consumer, and the backend. But having cut its teeth in the B2C market, embedded finance has shown itself to be flexible enough to be applied to any company or industry with a transactional element, allowing the businesses that serve the business sector to extend their facilities and their CX.
With customer experience increasingly important across the business ecosystem, and a digital-first attitude prevailing, organisations unable to offer what are rapidly becoming expected financial services – including embedded finance – will find themselves at a distinct disadvantage, with customers migrating to more amenable suppliers.
Embedded finance changes the game for buyers and sellers alike. It provides sellers with increased revenue, enhanced sales opportunities, and enlarged basket sizes. Meanwhile, scaling businesses can gain immediate access to the goods and services they need, selecting deferred payment to allow for more financial control, enjoying differing payment models to suit their present circumstances, and enhancing the lifetime of their purchases through instant, complication-free insurance. These are all services that are experiencing a surge in demand in the B2B sector.
Business to business e-commerce has long been overlooked, with fewer services and less investment. But with B2B sales accounting for £1.7 trillion (44%) of the UK’s business turnover and raising £21.78 billion in corporate tax every year, it’s time to buck that trend. The UK’s B2B ecommerce sales alone now total £159.3 billion and businesses are looking for more and better services from the suppliers they are working with. Embedded finance is already carving a niche within B2B, helping to facilitate this growth,but it holds so much more potential than is currently being realised. If B2B suppliers wish to secure their place within this growth sector, they are going to need to make sure that embedded finance becomes part of their plan.
Louis Carbonnier is the Co-Founder and Co-CEO of Hokodo where he leads the commercial and product functions. Hokodo is a fintech startup that enables B2B merchants and marketplaces to offer a buy now, pay later solution to their customers.