Embedded finance must adapt to put small businesses first 

Leigh O’Neill, EGM – Money, Xero 


The financial services sector has seen a radical transformation over the last decade, spurred on by venture capital funding for fintech startups. According to CB Insights, we saw $75.2B invested in fintech startups globally in 2022. The sector, and its increasing collaboration with incumbent banks has introduced new innovations and changed how we interact with financial service providers. 

This process was all about the “great unbundling” — taking individual features of traditional finance and rebuilding them from the ground up as individual companies. However, more recently, we have seen a number of companies pursue “embedded finance”. This concept takes many of those same financial services and embeds them directly into a non-financial workflow. 

For example, we’ve seen Apple adding buy now pay later (BNPL) functionality to the iPhone, Shopify adding business loans directly into its e-commerce platform, and Xero adding a ‘pay now’ button to invoices with Stripe and GoCardless to deliver online payment functionality. 

This trend is driven by a simple model; consumers and businesses alike want easy access to fast and simple financial services. Yet while embedded finance offerings are convenient and often provide a more beautiful user experience, they can also lead to a major fragmentation of services that too often impact the customer experience, causing confusion or even delinquencies.  

What starts as an easy way to pay one company can become a series of fragmented payment options in seeking to pay several. Individuals and businesses can inadvertently sign up for multiple buy now pay later options, cards and accounts — some of which can be forgotten and left unpaid.  

To prevent this, companies offering embedded finance services – and other industry stakeholders – need to ensure they learn the lessons of unbundling and put the customer experience first. 

Avoid ‘islands’ of customer data 

A core benefit of embedded finance is that it’s already part of existing business workflows, instead of a separate and distinct experience. That means rather than going to a bank or foreign exchange website to exchange money into the local currency, businesses can do that within their existing corporate travel platform, or access invoice financing loans inside their existing inventory app. 

By delivering financial services inside the existing platforms and workflows they use day-to-day, those services not only become simpler to access — but a more seamless part of doing business. 

However, they can only be truly seamless when they don’t require businesses to do a lot of heavy lifting. Traditional financial services have historically relied on manually entering new or duplicate data for loan or credit enquiries; a process that increased the time it took to process and audit customer enquiries and approve or deny the loan.  

Instead, embedding financial services must mean they tie into existing data sources to gather the information needed. Open banking standards, as well as open APIs on small business platforms, intend to make it possible to gather rich and reliable information based on a business’ health and cash flow. As a result, they can make accurate assessments of small business capital requirements possible, without having to go through lengthy and stressful application attempts. 

Creating islands of data that don’t connect with the existing small business ecosystem, or ancillary sources, only makes the experience more difficult to navigate for all involved.  

Give businesses financial clarity 

The unbundling of financial services over the past decade has, generally speaking, led to customer experience improving thanks to better mobile apps with intuitive user interfaces. However, what started as one or two apps has quickly become a dozen or more, each providing an individual service with a sliver of information on a business or person’s finances.  

Worse yet, this has led to an “out of sight, out of mind” mentality for some. The more financial services you have on different platforms, the more likely you might forget to pay that fee or loan debt for the app you used just once. The industry must bear these lessons in mind with embedded finance. While the individual experiences could be seamless, the priority should be making it easy for a small business owner to get a quick view of their finances to achieve the best outcome. 

To achieve this, some companies are looking to become a “super app” — one that encapsulates several different experiences or services in one. Others, like neobank 86400 (now part of Australian digital bank, ubank) have created direct connections to other apps through APIs and open banking standards to provide a single view of an individual’s bank accounts, mortgages, and more. 

The same can be done for small businesses. Through open platforms, small businesses can connect bank feeds from their financial institution to other services, to get a comprehensive view of their cash flow. This allows them to look at their finances holistically and improves the customer experience as a result. 

As the delivery of financial services to both consumers and businesses continues to evolve, the next frontier is a promising one. There’s huge potential to help small businesses access a broader range of services more easily in the tools and platforms they already use. The benefits — easier access to funding and seamless business workflows — are profound, and will only be truly successful if, as an industry, customers are the first and primary focus. 


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