Fuelled by the power of embedded finance, embedded lending is pushing the boundaries of SME funding to new frontiers. Mikkel Velin, Co-CEO at YouLend, explores the trends shaping the future of borrowing and what this means for the lending industry in 2022.
Embedded lending is booming. Over the past year, we’ve seen huge numbers of retailers offering lending services to consumers with new buy-now-pay-later (BNPL) offerings providing a much-needed boost to spending in the sector.
On the other side to consumer financing, a parallel trend has emerged rapidly in the B2B space in the UK, with e-commerce platforms and payment service providers (PSPs) from outside of the traditional finance sector, lending directly to their business customers. In 2022, the prevalence of embedded lending, which is still ripe for the taking in Europe, is predicted to surge across the region as SME demand for finance continues to grow on a global scale.
This will bring many benefits. After all, it’s high time that small businesses across Europe were offered alternative avenues to accessing credit. Traditional, bank-based lending is plagued by low approval rates, slow decisioning, poor service and bad onboarding experiences. New players have an opportunity to leverage their technology capabilities to offer excellent service offerings to their merchants, and benefit from those strong customer relationships.
With this in mind, it’s clear that embedded lending will continue to have a profound impact on the future of borrowing. But what, specifically, can we expect to see in 2022?
1) Collaboration will be key to survival
In a competitive landscape, simply staying in your lane is not enough. The catch-all phrase ‘everyone’s a fintech now’ certainly has some truth. But in 2022, firms who aren’t already offering critical ancillary services to customers will have to reconsider their approach in order to stay ahead of their rivals.
Embedded finance technology allows firms to build directly on the foundation of their future growth. Doing business in the digital age is about enabling your customer community to grow alongside you. With embedded lending, when the business customer grows, you grow. In this way, embedded lending has the power to elevate, not eliminate, players across the broader ecosystem.
2) BNPL will open the door for growth in the B2B space
One embedded lending trend that we’ve seen experience rapid growth and success is BNPL, enabling consumers to buy goods on credit and pay for them within a set period after the point of sale.
But we are only just beginning to scratch the surface when it comes to B2B – which is surprising considering the scale of the opportunity at hand. Estimated to be over five times larger than the B2C market, B2B SME lending in Europe remains antiquated and ripe for transformation.
As companies and consumers gain more and more confidence in the technology that underpins rapid access to funding, opportunities to utilise embedded finance across multiple sectors will continue to snowball in 2022.
3) eCommerce platforms will overcome traditional hurdles to offer financing
Whilst the huge growth of BNPL has been well documented, lesser known is the rapid growth of eCommerce platforms offering lending solutions to their business customers in the UK. Via embedded lending, challenges that have prevented other market players from becoming lenders in the past, such as building capital and having strong economies of scale, can be sidestepped.
Thousands of SME customers are now accessing credit via e-commerce platforms, such as eBay, as a source of funding. Revenue-based financing provides a flexible alternative to fixed amortizations offered by many traditional banks; access to more data to assess credit risk means loans can be approved much faster.
The result? More customisable, accessible, and cheaper sources of funding for SMEs whilst avoiding the lengthy processes to determine creditworthiness, expensive fees, and high interest rates that so often come with traditional lenders. Flexible risk models allow a much wider pool of merchants to be approved for financing, mirroring the success of micro-financing in bringing growth to a sector often overlooked by banks.
Therefore, it’s no surprise that in 2022, the uptick of e-commerce platforms offering embedded financing options in the UK will continue to boom while European players start to wake up to the opportunity.
Whilst each of these trends are influencing traditional lending structures in their own way, they are also working together. At the centre of all three lies the harnessing of data and technology to create a better product and customer experience. Certainly, invention isn’t always needed for innovation. Rather than reinventing the wheel, there’s tremendous value to be had in taking stock of what exists already to find a better way of doing things.
Those that recognise this and act upon it to seize the embedded lending opportunity at hand will be the ones to not only survive but thrive in 2022. I for one am excited to see how the lending industry will continue to evolve across the UK and in Europe in the new year – and beyond.
A Smarter World: What role will electronics play in 2022
There has been a sharp increase in technology and devices designed to make our lives simpler, faster and more productive in recent years.
Industry 4.0 is taking the digital revolution of the late 1900s one step further, combining cyber-physical systems with the power of the internet of things (IoT) to automate computerised decision-making and enhance efficiency. As a result, intelligent technology has surpassed the simple tools and gadgets people enjoy using every day; it has become a driving force for innovation and problem-solving for businesses worldwide.
The first generation of ‘smart’ technology products provided enhanced connectivity, allowing people to stream video on smart televisions or communicate wirelessly between devices. But with the development of artificial intelligence (AI) and machine learning (ML), our devices do more than simply talk to each other; they collect and interpret data to inform user experience and automate processes that would typically require human guidance.
From watches to phones, building controls to medical equipment, we are heading towards a ‘smarter’ world at lightning speed. So, in 2022 and beyond, technology will continue to evolve and improve its capabilities to deliver personalised, mechanised solutions that will optimise functions and enhance our day-to-day lives.
How will smart tech change our way of life?
The pandemic has significantly impacted global technology trends, with lockdowns contributing to heightened activity within the consumer electronics industry.
The demand for games consoles, smart televisions and other entertainment devices led to an 18% increase in the global consumer electronics market (excluding North America) in the first half of 2021, reflecting pandemic-related behavioural changes and consumers’ growing expectations for premium electronics. Following the outbreak of COVID-19, the public is also more conscious of their health and the limitations of our health services than ever before. Wearable technology such as smartwatches — which can remotely monitor and record physical health data — is, thus, becoming increasingly appealing.
As more and more businesses embrace remote working models, employees are enhancing their homes with innovative home technology, too. Demand for devices such as mobile stereo headsets and headphones spiked in the wake of lockdowns. Organisations are also embarking on digital transformation to secure online networks and optimise energy efficiency in modern offices.
The future of the electric vehicle market also looks bright. With governments facing global pressure to reduce carbon emissions, major automotive manufactures like Bentley, Volkswagen and Audi have pledged to cut fossil fuel cars from their product portfolios by 2030. And despite the pandemic-related semiconductor shortage that crippled the automotive industry, UK electric vehicle sales jumped 186% in 2020.
How will the electronics industry meet demands?
In a digital world, technology is embedded in everyday objects, and ubiquitous computing connects devices through continuous networks of sensors and servers — all of which must be carefully designed and produced by electronics manufacturers. As a result, the future of electrical engineering will depend on the industry’s ability to address the technical and logistical considerations for delivering these advanced systems and equipment.
From smart grids to intelligent lighting, IoT has the potential to revolutionise the way we live. With technology permeating so much of our lives already, local governments are investing in ‘smart cities’ that will harness data collected through the IoT and cloud-based technology to tackle social issues and improve urban life, sustainability and transport. However, the IoT will also be essential to developing new electronics.
Brexit, the pandemic and labour shortages have impacted supply chains and threatened to stunt the industry’s ability to keep up with ever-increasing demand. But embracing IoT can streamline processes, provide accurate real-time data to mitigate supply chain disruption and improve the overall quality of printed circuit boards (PCBs) and other core components within electronics. Plus, as sustainability is a core focus for businesses across sectors in 2022, developments in AI and ML will be crucial to ensuring systems are operating with the minimum energy output.
From remotely controlled wire cutters to industrial robotics performing monotonous tasks in factories, investing in robotics will also be crucial for electronics manufacturing services providers. While the industry focuses on training the next generation of engineers, adopting robotics will reduce the likelihood of human error that might affect manufacturers’ abilities to continue delivering high-quality electronics products at scale.
Investing in workforce intelligence now, leads to an optimised tomorrow
Michael Cupps (Senior VP, Marketing, ActiveOps) discusses four critical ways in which a new world of workforce data improves organisational function.
As governments work rapidly to respond to the Omicron variant, businesses experienced its effects as a timely reminder that flexibility is an essential part of any attempt to open offices again.
Even in a hybrid work environment, the unpredictable nature of the world and people’s lives means that organisations will need workforce management methods and tools that are flexible and intelligent to make the transition a success.
As a result, it’s as important now as ever to look at how data is the key to getting direction during these changing times – and how some of the data requirements that might seem burdensome can be a source of optimisation.
Attitudes on workforce data are continuing to change with the times
The pandemic has already forced a sea-level change in how operations managers understand their workforce and workload and plan their operations. While traditional workforce management data was based on looking around the office to get a sense of things and historical data around skills, schedules, inventory, and so forth, the pandemic left many operations managers in the dark as their teams worked remotely. Many organisations had already adapted to this change, implementing new methods of understanding productivity and performance and managing employees that were effective when working from home.
As hybrid working becomes the norm, the question remains for managers, where are my people most productive? Working from home is the preferred option for many employees, but not all of them – and not all types of work can be adapted to remote working.
More recently, other layers have started to appear that present a challenge to operations managers. One layer is eligibility – as in, who is allowed to work in an office or not.
Of course, US organisations will still be feeling the effects of the government’s attempt to enforce a nationwide vaccine mandate. Still, other countries are facing similar legislation – Western Europe is experiencing what can only be described as a ‘COVID-19 reality check’ when Austria became the first country to enforce a total lockdown since the vaccine rollout. The news of a rising number of cases has led to drastic actions from Schallenberg, with the announcement that Austria will enact compulsory vaccinations in early 2022, which has sparked violence in Vienna as tens of thousands of people protest the measures.
While vaccinations have been the key to the UK’s return to normality, nations that continue to struggle with controlling the virus will have an eye on Austria’s vaccine mandate and consequently fear that it will be a sign of what’s to come. With the ever-changing pandemic situation in Europe, businesses must prepare for the uncertainty.
If other Western European countries follow Austria’s example, vaccination mandates will inevitably add a new and novel challenge for businesses. Across every industry, management teams are already feeling overwhelmed. After two years of new variants, new vaccines, and new restrictions on the workforce, Austria’s mandate, as well as Biden’s Executive Orders in the USA, exemplify a new risk to the growing stability that vaccinations gave us.
Some organisations are implementing their own mandates regardless of national policy – the upshot being that, as a result, operations managers now need to know who is allowed to work in a particular location at any given moment. And of course, as the Omicron variant becomes more widespread and its effects are felt in society, organisations will need to rapidly adjust their plans to keep employees safe and comply with the law.
This can all feel very burdensome for operations managers: more data to gather, more lenses through which to look at workload, resources, and availability. But while there may be some initial pain associated with responding to these new requirements, I believe that they present an opportunity to create a more optimised future of work.
Understanding comprehensive workforce data can make business life more manageable. Thereby, it’s crucial to outline the four ways it contributes to a productive workplace.
1: It creates a well-balanced and engaged workforce
It’s no secret that your employees will have preferences for where they work. Understanding those preferences and factoring that into your planning can help ensure your employees are engaged in their work, improving productivity, well-being, and retention. If you can layer that information with data on employees’ performance in different environments, you have another part of the picture to help you balance your workforce. Of course, that data may need a third layer – who is eligible to work in which locations – and that needs to be handled correctly so that you comply with any local or national laws that are in force or will come into force.
2: It helps to reduce costs
This has already been discussed concerning the pandemic in a few places. As organisations move to hybrid working models, their need for office space reduces the costs associated with it. That could include rent, power, heating, water, insurance, and facilities.
But the cost argument goes beyond the maths of office space. Armed with the correct data, organisations can ensure that their people are working where they are most productive and happiest. That can reduce costs, mainly in decreased absenteeism, costing thousands of pounds per year.
That reduced cost could be used to help balance the books in a tight year – or it could mean that funds are available for training and coaching programmes that improve employee performance or even on rewarding high-performing employees.
3: It broadens the scope for your talent pool
Although gathering and analysing more data might feel burdensome, the truth is that it enables you to implement hybrid working models effectively and with confidence that they will deliver. And that means that you gain all the benefits of a hybrid work environment – including a vastly expanded talent pool. With minor roles a part of the norm, you can hire anyone from any country, allowing you to create more diverse and talented teams than you could before.
4: It can help make a positive contribution to sustainability efforts
Most organisations are considering reducing their carbon footprint and becoming more sustainable. If your organisation uses data to support a hybrid workforce, you should see a reduction in emissions on multiple fronts. You may see reduced emissions as fewer employees commute and those who commute less. You may see a reduced need for office lighting and heating – not to mention a reduction in office waste – as footfall in the office decreases.
The workforce data you gather to enable all this will help demonstrate a contribution to your organisation’s emission reduction programme – or could even form the basis of starting one if you haven’t already.
Availability is the new eligibility
It’s essential to start thinking about gathering data in a different light. Eligibility is arguably the most pressing (and stressing) requirement for organisations right now, and the temptation can be to find a solution that focuses solely on eligibility. But to take a broader view, eligibility data isn’t that different from the other data you’re gathering about employees and where they can work. You’re trying to build a picture of where your workforce is based – and eligibility is just one more layer on top of others, such as where your employees prefer to work and where they are most productive. When you consider the challenge in those terms, the uses for the data, you’re gathering suddenly expand. We’re calling the blanket term for this data “availability.”
Of course, gathering availability data – and indeed all the workforce intelligence that makes the four things I’ve mentioned possible – is the trick. In a hybrid world, that data needs to be gathered automatically, wherever employees are based, in real-time, to give managers as much detail as possible. But at the same time, organisations need to find solutions to prevent managers from drowning in data, which will prevent them from getting on with their jobs.
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