Writing for Payment Expert, Previse CEO Paul Christensen details the impact of embedded finance on the financial sector and explains how it can be used to modernise B2B commerce.

 Transformation through technology

Over the past decade, technology has evolved from being a subsidiary of financial services, to an omnipresent component in the way we trade and manage our money. One of the most promising technologies to emerge from this transition is embedded finance, which has paved the way for a new era of more flexible and efficient payments. 

The embedded finance industry is projected to reach a value of $7 trillion globally over the next ten years, and is dubbed a major disrupting force in financial services.

But what is embedded finance, and how does it work? Embedded finance is the integration of a financial solution into a business’s infrastructure. This streamlines access to financial services, such as lending, insurance or payment processing, without redirecting the customer to third-party destinations. A service provider can therefore integrate financial services onto its website or app so that the buyer does not have to go through the manual steps of having to enter bank details when accessing a service or product. In other words, this system acts as a bridge between a brand, customer and financial solutions provider.

Most of us interact with embedded finance technology daily without even realising it. From ordering a coffee via the Starbucks app to paying for an Uber or buying a takeaway on Deliveroo, embedded finance has quietly transformed the consumer payment process. Simplicity is now the ‘new normal’, with customers able to seamlessly complete transactions on a single platform.

While embedded finance has helped deliver smarter, more efficient services on the consumer side (B2C), business-to-business (B2B) solutions have not seen nearly the same level of innovation. One of the starkest illustrations of this is the chronic and ever-growing slow payments problem, which keeps many businesses waiting weeks or months to be paid.

With the journey of embedded finance well underway in the B2C world, now is the time to take the premise of ‘plugged in’ financing systems and apply it to B2B commerce. Embedded finance can be a powerful tool in tackling the slow payments problem and accelerating the recovery and growth of small and medium-sized businesses.

A serious, yet often overlooked pain point

Slow and late payments are a serious burden to suppliers across the board, and stifle small and medium-sized businesses of much-needed cash. A recent survey found that three in five UK businesses are owed money in late payments, while the Federation of Small Businesses lately warned that the late payment of invoices is threatening the survival of over 400,000 British SMEs. The problem isn’t confined to the UK either. A 2021 survey revealed that one third of US small businesses wait longer than 30 days to be paid.

The slow and late payments crisis doesn’t just pose a barrier to the growth of small businesses, but also the overall recovery of the global economy. Slow payments prevent working capital from reaching all corners of the trade network and strap suppliers of the cash they need to adapt to shortages and rising costs, forcing them to reduce production.

This is a key obstacle preventing supply chains from getting back up and running, prolonging both the duration and impact of bottlenecks and delays.

Embedded finance: the gateway to B2B reform

Embedded finance is the perfect tool to be leveraged by B2B networks in order to turn the tide on slow and late payments.

Machine learning analyses past payment patterns to make probabilistic assessments of the few invoices that are unlikely to get paid, enabling the rest to be paid automatically when they are received. Importantly, this technology can be embedded across suppliers’ payment processes – in the Purchase-to-Pay (P2P) platforms, in the Enterprise Resource Planning (ERP) systems, and in payment processing systems, to get capital to suppliers faster.

Embedding instant payment technology into B2B trade is a win-win for all parties involved. Suppliers unlock cash instantly, providing them with the working capital they need to adapt to rising costs and invest in their business. Buyers pay back on their normal terms and strengthen supply chains in the process by unlocking swathes of small suppliers that would otherwise be precluded from offering their services.

So, what does this mean for 2022 and beyond? Embedded finance has transformed the way we pay for goods and services. With business payments crying out for the efficiency benefits that embedded finance can bring, the potential of this technology to innovate the B2B sector is clear. As economies around the world seek the green shoots of recovery and renewal, the implementation of embedded finance into B2B commerce could go a long way in building more robust trade networks and strengthening supply chains against future shocks to the system.