Is Embedded Finance The Secret To Growing Your Business?

by Kieran Daly
September 22, 2023
Is Embedded Finance The Secret To Growing Your Business?

When it comes to growing your business there are several financial tools and products that savvy business owners can harness to leverage success. These tools and products aren’t limited to just growing enterprises but can also work as supporting elements to ensure that you are always ready for economic downturns.

One such topic that has started to gain more momentum over the past few years is that of embedded finance. Many business owners are starting to use this revolutionary new financing model to future-proof their business as well as provide their dedicated customers with flexible financing. With that being said, let’s look at how implementing embedded financing can help grow your business, as well as how Backd can supercharge that growth.

What is embedded finance? 

Embedded finance refers to the integration of financial services directly into non-financial platforms or applications, enabling customers to access financial products and services seamlessly as part of their regular activities within those platforms. It eliminates the need for users to leave the host platform and visit a separate financial institution to avail themselves of financial services.

In traditional finance, customers typically interact with banks or financial institutions through their dedicated websites, mobile app, or physical branches. However, embedded finance flips this model by bringing financial services directly to customers within the context of their everyday experiences. 

Over the past few years, with the advancement of technology, embedded finance has experienced significant growth. FinTechs and the availability of robust APIs have allowed for easier integration of financial services into non-financial platforms. This is in addition to the change in consumer behavior where modern consumers are increasingly preferring convenience and a streamlined experience. 

Advantages of Embedded Financing

The implementation of embedded financing comes with several key advantages that are shared by both your company and your customers. 

  1. Increased Sales Revenue: Embedded financing can boost sales by providing customers with the option to finance purchases. This can lead to larger transaction sizes and increase revenue for your business.

  2. Enhanced Customer Experience: Offering financing options directly within your platform improves the customer experience. It eliminates the need for customers to leave your site or payment stage to secure financing, reducing friction in the buying process.

  3. Competitive Advantage: Providing embedded financial services can give you a competitive edge in your industry. It differentiates your business from competitors and attracts customers looking for flexible payment options. 

  4. Customer Loyalty: When customers can easily access financing for their purchases, they are more likely to return to your platform or services for future transactions. This builds customer loyalty and increases customer lifetime value.

  5. Improved Conversion Rates: Financing options can reduce cart abandonment rates. Customers who might have hesitated due to the upfront cost of a purchase may be more inclined to complete the transaction with financing available. 

  6. Access to a Broader Market: Embedded financing can help you reach new customer segments, including those who may not have the funds to make full upfront payments. This expands your market and customer base. 

  7. Higher Average Order Value (AOV): Financing options can lead to higher AOV as customers are more likely to purchase additional products and services or opt for premium options when they can spread the cost over time. 

  8. Cash Flow Management: If you are the seller, you receive payment for the sale upfront from the financing provider, even if the customer chooses to pay in installments. This improves your cash flow, and that of your customer as they can avoid diverting a larger sum from their current working capital management.

  9. Partnership Opportunities: Implementing embedded financing can lead to partnerships with financial institutions or FinTech companies. These partnerships can open up additional revenue streams and business opportunities. 

  10. Data Insights: Embedded financing generates valuable data on customer behavior and preferences. You can use this data for targeted marketing, product development, and improving overall customer experience. 

Potential Drawbacks of Embedded Financing

While embedded financing can offer significant benefits to businesses in the B2B sector, it also comes with potential drawbacks and challenges that need to be carefully considered. Here are some of the potential drawbacks of integrating embedded financing in B2B:

  1. Complex Integration: Integrating embedded financing solutions into B2B platforms and workflows can be complex and time-consuming. It may require significant development efforts and technical resources.

  2. Regulatory Compliance: B2B transactions often involve complex regulations and compliance requirements, which can vary by industry and location. Ensuring that embedded financing solutions adhere to these regulations is crucial but can be challenging.

  3. Data Security: Handling financial data within B2B transactions requires robust data security measures. Businesses need to ensure that sensitive financial information is protected from breaches and cyberattacks.

  4. Costs and Fees: Embedded financing solutions may come with costs and fees for both the provider and the businesses using them. These costs can impact profit margins, so businesses must carefully evaluate the financial implications.

  5. Customer Credit Risk: Businesses extending credit through embedded financing may face risks related to customer creditworthiness. Defaulting customers can lead to financial losses.

  6. Dependency on Financing Providers: B2B companies may become dependent on financing providers, which can limit flexibility and negotiating power. Changes in terms or discontinuation of services by the provider can have a significant impact.

  7. Integration Costs: Implementing embedded financing can be costly, especially for smaller B2B companies with limited IT budgets. These costs can include software development, compliance, and training.

  8. Credit Limit Management: B2B companies offering financing must manage credit limits effectively to avoid overextending credit to customers. This requires careful monitoring and risk assessment.

To successfully navigate these potential drawbacks, B2B companies should conduct thorough due diligence when selecting embedded financing providers, carefully review contractual terms, and ensure that their systems and processes are aligned with compliance requirements. Additionally, a well-defined risk management strategy is essential to mitigate credit and financial risks associated with embedded financing.

Weighing Your Options and Making Decisions

When it comes to actually deciding whether to integrate an embedded finance option or not it really comes down to two factors:

  1. Will this increase the conversion rate of my customers?

  2. Does this set my business up for success in the future?

The answers to both of these questions are closely intertwined and they heavily depend on the health of the current macroeconomic environment. With interest rates continuing to increase, affordable business financing has never been in more demand, and with a recession looming over us many business owners will be looking to “recession-proof” their business plans and asking themselves the above questions,

Offering embedded financing can actually increase your customers’ conversion rates as well as increase the overall spend on orders. By doing this you ensure that your business has increased revenue but it is important to ensure that you select a financing partner that is convenient and cost-efficient for your business.

BackdPay: Embedded Financing For The Future

When it comes to implementing an embedded finance option that will ensure the longevity of your business, it’s crucial to choose a partner with your success at heart. At Backd we know that small businesses are the backbone of our economy, and that’s why we believe in reinvesting our success to help fuel yours. Our track record speaks for itself, with $1B+ of financial backing approved to small businesses and over 10,000 businesses having quick access funds with us.

When we looked to the future, we saw a chance to utilize embedded financing to help weather any potential storms. That’s why we created BackdPay, a revolutionary new B2B Buy Now, Pay Later solution that not only helps small businesses looking to make large purchases but also rewards those who offer this embedded financial solution.

Backd will handle all necessary steps to integrate into your purchasing process of choice, as well as all necessary credit checks. Best of all, regardless of the terms that your customers select, you will get paid in full at the time of purchase as well as earning up to a 1% referral fee for all funded purchases.

Don’t wait to provide flexible financing to your customers while earning back for fueling business growth, integrate BackdPay today

What would you do with the right amount of capital?

Working Capital Advance

Easy payment structures offer amounts with fast turnaround, Simple and easy process to access working capital.

  • Flexible - no collateral required
  • $10K - $2M
  • Terms up to 16 months
  • Automatic daily or weekly, or semi-monthly payments

Business Line of Credit

Get instant access to revolving credit with unlimited terms, and the best rates for your business.

  • Draw funds anytime
  • $10K - $750K
  • Unlimited terms, incredible rates
  • Soft credit pull that doesn't affect your credit score