Embedded finance is unleashing growth potential for SMEs

In the digital era, the opportunities to build and expand businesses are seemingly endless. We can see increasing benefits for small-and-medium-sized enterprises (SMEs) stemming from access to different digital payments and online marketplaces. However, the plethora of options may make handling transactions feel overwhelming and create a need to streamline processes. In fact, Swift recently published a global survey that found that SMEs see payment process integration – along with security and transparency – as the most important factors to select a payment provider. The survey also found that 76% of SMEs now expect an international payment to be completed within one hour or less. Financial institutions have now an opportunity to partner with platform providers to integrate payments within their platforms to power more frictionless transactions and in turn enable continued expansion and success.

The size of the opportunity

Embedded finance is an increasing opportunity for financial players to serve their customer needs through third party channels. According to Bain, embedded finance already accounted for $2.6 trillion, or nearly 5%, of total US financial transactions in 2021, and by 2026 that figure will exceed $7 trillion, or over 10% of total US transaction value. Embedded finance enables the integration of financial products and services into the infrastructure of nonfinancial businesses – helping transactions move faster, more efficiently and more cost effectively.

Swift’s recent data highlighted the high value that SMEs place on making their operations as simple as possible, emphasising a need to have everything for their day-to-day operations in one place. It’s critical for these organisations to be able to focus on their core business and avoid the hassle and time it takes to switch between platforms. Embedded finance offers promising benefits to reach these goals, with payments integrated within an existing workflow. Innovative software as well as cutting-edge banking services offer potential to unlock new levels of efficiency for both B2B and B2C payments while also reducing costs.

Developing direct or indirect relationships with accounting or cash flow software providers can allow institutions to power SMEs’ payments behind-the-scenes – all while simultaneously serving their external needs directly. For some SMEs, these opportunities could take shape by using an ERP system (e.g., SAP, Netsuite) to directly send cross-border payments. For others, they may use their billing and accounting software (e.g., Xero, QuickBooks) for efficient processes. For those with a focus on international sales, they may use their adopted e-commerce platform (e.g., Shopify) to handle consumer transactions.

Enhanced customer experience

Similarly, major banks can offer end-to-end payment solutions to enhance customer experiences on an SME’s platform in order to power cross-border payments, virtual accounts, card issuing, lending and more. Businesses can benefit from integrating these banking tools into their existing digital platforms for customers to access directly for streamlined operations.

These budding efforts to power frictionless and personalised payments for SMEs are expected to produce positive impacts for economies across the world, but particularly for developing nations – as SMEs are core to their financial development. Moving forward, the growth of APIs and open finance will enable embedded finance to help both major banks and emerging fintechs that will allow for more features to be integrated into other industry platforms used by these businesses. This has exciting potential to open up the payments landscape to offer financial services for global businesses more widely, offering promising implications for financial inclusion.