Harnessing B2B potential: The killer use case for embedded finance

Embedded finance is transforming B2B commerce, driving growth, loyalty, and innovation, making it essential for businesses to stay competitive.

In today’s competitive market, embedded finance is no longer a passing trend; it’s a fundamental game changer. Corporate-embedded finance radically reshapes businesses, offering new revenue opportunities and redefining customer relationships. Companies that fail to integrate financial services into their ecosystems risk falling behind. This isn’t a peripheral add-on; it’s the future of commerce. Companies that embrace it now will dominate their industries, while those that don’t may not survive.

Embedded consumer payments have already proven the transformative power of embedded finance, streamlining transactions, boosting conversions, and fueling revenue growth. Shopify is a prime example, now generating over half its revenue through embedded financial services for merchants. When it comes to B2B payments, however, the landscape lags: outdated infrastructure and fragmented systems are stalling progress. B2B embedded lending, while filled with potential, remains in its infancy, hampered by the complexity of business needs and the challenge of creating scalable solutions. Despite this, success stories like Shopify offer clear and reproducible blueprints demonstrating how B2B embedded finance can unlock unprecedented growth.

The case for B2B embedded finance in sales and end-customer distribution is compelling. Its importance and inevitability cannot be overstated: it offers a transformative solution, removing barriers that currently hold businesses from realising their full potential.

Market challenges for corporates today

• Declining growth: In a highly competitive market, many businesses face declining growth and shrinking margins. Retaining customers and growing revenue is particularly tough for companies with commoditised products. Offering differentiated commercial terms and financial products can help these companies outmanoeuvre their competition and secure merchant loyalty.
• Market saturation: Growth opportunities are limited in mature markets where products are commoditized or where there are geographic or product constraints. Most potential customers already purchase similar products, leading to market saturation and restricting new revenue streams.
• Differentiation challenges:  When products become commoditized, they are often indistinguishable from those competitors offer. This lack of differentiation makes it difficult for companies to create a unique value proposition, resulting in a struggle to stand out in the market.
• Customer and merchant loyalty:  Building customer and merchant loyalty is particularly challenging in commoditised markets. Without distinct product features, customers’ purchasing decisions are driven by price or convenience, making it hard to sustain loyalty. For merchants, it’s about support for a hassle-free experience in getting them up and running.

None of these challenges are being taken lightly by decision-makers. A recent survey by Oliver Wyman highlights that most CEOs prioritise organic investments in new revenue streams, followed closely by capital efficiency and cash flow management as their top strategies for creating shareholder value. This indicates a clear recognition that companies must innovate and adapt their offerings to differentiate themselves from rivals and remain competitive. Furthermore, more than 90% of CEOs consider leveraging new technologies a necessary part of driving efficiency and creating new revenue streams, aligning with modern businesses’ need to differentiate themselves in a crowded market. Realistically, the only way for businesses to accomplish any of this effectively in the current market landscape is through B2B embedded finance.

Why embedded finance matters

Embedded finance integrates financial services into non-financial platforms, offering the potential for seamless user experiences and promoting financial inclusion through contextual data. For brands, it creates new revenue streams, boosts customer loyalty, and provides valuable customer insights. Meanwhile, financial service providers benefit from lower acquisition costs and higher profit margins through increased transaction volumes and reduced average costs when distributing through corporate ecosystems.

The idea that financial service providers are looking for new, low-risk business channels is a sensible result of the embedded finance paradigm. Also, according to Oliver Wyman, “35% of the value of the [financial service] industry is accounted for by technology companies. What is often overlooked is that embedded finance is not a playfield only for tech companies. In fact, it’s where incumbents should have their eyes on for future sources of growth.”

The B2B opportunity in distribution

A true upside

By addressing the financial needs of their distribution channels, companies using embedded finance solutions enhance the operational capabilities of their merchants and solidify their role as essential partners.

• Tailored financial packages:  Using data-driven insights from embedded finance platforms, businesses can create customised financial packages for merchants. These packages, tailored to the specific needs and business cycles of both the corporate and the merchants, are more attractive than standard industry terms. For instance, Shopify offers tailored financial solutions that cater to the unique needs of its merchants.
• Commercial product linkage:  Embedded finance allows corporates to link commercial products with financial services. For example, a line of credit tied to volume commitments can offer below-market rates, knowing that the corporate will recover greater margins through increased sales.
• Banking disintermediation:  Traditional financial institution partnerships have long secured preferred rates for a corporate’s merchant ecosystem. However, these offers often extend to competitors and are typically honoured by banks even if a merchant stops buying from their corporate partner. Embedded finance disrupts this model by providing unique financial services directly through the corporate platform, enhancing exclusivity and loyalty.

Overcoming barriers to adoption

The technology landscape and ecosystem for B2B embedded finance is maturing, with more providers offering comprehensive, compliant, scalable solutions and better support and guidance on implementation. The concept is slowly making its way into more mainstream conversations.

“Embedded finance represents a significant and growing market opportunity opening new avenues for firms to increase their footprint and target underserved markets.”
-Deloitte, “Driving Inclusion via Embedded Finance”, 2024.

Successful cases are emerging as a result, and this will accelerate the adoption of embedded finance overall, however, in the meantime, two principal factors slowing down the adoption of embedded finance with corporates remain to be addressed:

1. Inaction and risk aversion: Successful companies often resist change, preferring the status quo. Embedded finance projects are perceived as high-risk without enough success stories to justify them.
2. Lack of in-house expertise: Implementing embedded finance requires expertise that involves business operations, innovation, and a fintech or SaaS provider. Many companies lack the internal knowledge to execute these complex projects effectively.

Proven methodology for success

Technology platforms enabling multi-bank connectivity alongside orchestration and configuration capabilities (with Toqio at the forefront) are gaining popularity due to their agile, configuration-first, cloud-native API-driven architecture and collaboration with experienced consultants for project implementation. Embedded finance is not a one-size-fits-all solution; it necessitates analysing business and end-user needs, determining feasible embedded finance solutions, building and testing financial propositions, and launching solutions to drive adoption. This type of partnership scenario is already proving to work in the food and beverage industry, and we are looking at new ways for customer retention as an example and expanding beyond.

The strategic imperative

Embedded finance offers significant benefits:

• Revenue growth:  Companies adopting embedded finance by directly integrating financial services into their ecosystems have seen revenue increases, enhanced customer satisfaction, and higher sales and transactions. Additionally, it creates new revenue opportunities through fees, credit services, and financial product commissions.
• Customer loyalty and churn reduction: Embedded finance also plays a crucial role in reducing churn by enhancing customer engagement and loyalty. Integrating financial services into business platforms offers more convenient and seamless experiences and access to more services to increase customer satisfaction and retention. The added value and convenience significantly lower churn rates. Platforms that integrate financial services into their offerings create added value and convenience for customers. This integrated approach makes customers less likely to switch to competitors, as the platform efficiently meets multiple needs and enhances the overall experience.​​
• Cost of capital: Working with specialist finance providers offers corporates lower-cost capital for embedded finance solutions, with rates around 4-6% compared to the 8-10% rates they might face. This reduces overall costs and allows businesses to offer competitive rates, enhancing retention and reducing churn.

A call to action

Embedded finance represents a powerful strategy for businesses in competitive, commoditised markets. By leveraging tailored financial packages, linking commercial products with financial services, and reducing reliance on traditional banking, companies can unlock and drive growth, enhance loyalty, and lower churn. As the technology landscape evolves and expertise grows, the adoption of embedded finance will accelerate, transforming how businesses operate and compete.

Embracing embedded finance today means preparing for a more integrated, efficient, and customer-centric future, ensuring businesses remain competitive and relevant in a rapidly changing market.