Embedded finance is one of the biggest revenue growth opportunities for B2B SaaS providers, service providers and marketplaces (collectively referred to as “B2B platforms” in this article).
Juniper Research predicts global revenue from embedded finance will exceed $183 billion in 2027, 3 times more than the already considerable $65 billion generated in 2022.
Embedded finance is loosely defined as a “non-financial software platform providing financial services”. It usually brings up the image of consumers buying home furnishings or clothing online on credit. However, B2B makes up over two-thirds of all payments globally and it is in B2B where the majority of this growth lies.
Payments are still surprisingly manual in many businesses and automating payments is a major value add B2B platforms can offer their customers. Offering payments will also generate new payment revenues and increase service usage by making it easier for their customers to buy on their platform. On the consumer side, merchants offering Buy-Now-Pay-Later have seen a 60% increase in basket size.
The embedded finance implementation challenges
While the opportunity is large, there are also important challenges for B2B platforms who want to embed financial services. In our area of card issuing and payouts, implementation can take 18 months and $2m+ and that is just to connect to one provider. And you will likely have to integrate with multiple providers.
In this article, I will summarise the top-5 challenges B2B platforms face when implementing embedded finance. I will end this article by explaining what is required to overcome these challenges.
1. Selling a financial product is different from selling SaaS
When offering financial services to larger businesses, your sales team will have to sell financial services to controllers or CFOs. They may not be used to dealing with this audience and the questions and objections they raise.
SMEs may not have a controller or CFO and the service may be sold to the CEO, head of sales or head of marketing but even then finance specific questions and objections will come up.
2. Compliance and regulation are hard
To offer embedded finance services you have to work with white label financial service providers. They are under pressure from regulators to ensure the rules are followed. Because B2B platforms own the customer relationship, the financial service provider has to pass some of their responsibilities over to you.
This requires training and processes that your organisation may not be used to. It also requires that you have people in your organisation who understand the relevant regulations and can make sure the right procedures are followed. These people are expensive, in demand and may be underemployed when you first start out.
3. Financial services require a different product expertise
B2B platforms are often driven by visionary founders and product teams. They are deep experts in their target market and know what their customers want. However, they are less likely to know what the CFOs and controllers of their customers want when it comes to financial services.
4. B2B platforms will need multiple financial service providers
Many B2B platforms have a regional or even global customer base. Most financial service providers have a limited geographic footprint because they need licenses everywhere they operate. That often leaves a mismatch between the B2B platforms countries and those of their financial services providers.
Additionally, most financial service providers focus on just a few products, e.g. card acquiring, card issuing, FX, lending etc. B2B platforms often need many or all of these.
Both of these issues mean most B2B platforms have to work with multiple providers and stitch the solution together themselves.
5. The best providers change over time
There is still a lot of innovation happening in the embedded finance market. The best provider for you today may not be the best provider for you tomorrow.
Additionally, some providers have a low or no setup cost but higher marginal cost which makes them ideal when starting out. Others have a higher setup cost but lower marginal cost, making them preferred when you already have high volumes.
You are therefore likely to have to switch providers over time, again driving up costs.
How B2B platforms can address these challenges
The challenges highlighted in this article are evidence of a missing layer or providers that solve these challenges.
At Yordex, we're creating this layer. Functioning as an orchestrator of financial service providers, we eliminate the need for engaging with multiple financial service providers. Additionally, we offer a diverse range of value-added software and services to assist you in offering the best service to your customers, simplifying compliance, and avoiding having to integrate again and again.
To find out more about how Yordex can help you launch embedded payments in weeks, please contact us.
