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Embedded financing: Offering financial services has never been easier

Three considerations to help your platform reach its embedded financing ambitions faster.

March 9, 2023
 ·  5 minutes
Embedded finance capital product and man using it

Frontrunner platforms are already proving that embedded financing has the potential to change the financial landscape. A couple of years back, this was a reality restricted to a few risk-takers willing to build the infrastructure themselves at the cost of speed.

While this market is still nascent, high user demand for financial services and faster reliable solutions have brought us to a reality in which all platforms can embed financing. Now is the right time to put this on your roadmap.

In this article, I share the main reasons platforms should add embedded financing to their offering and three things to consider before getting started.

First things first, a recap on embedded finance

Embedded financeallows platforms and marketplaces to provide their users with financial services, such as business financing, and can be done directly through their platform with help from a financial technology partner.

This gives platforms a competitive advantage over traditional players as they can offer their SMB users the financial services they often struggle to access at legacy financial institutions.

Two people discussing embedded financing on a sofa

In 2021, embedded financeaccounted for $2.6 trillionof total US financial transactions and is estimated to exceed $7 trillion by 2026.

If you’re already processing your users' payments, you probably have insights into how their business is doing. With embedded financing, you can anticipate their needs and give them access to fast and flexible cash advances. Here is an example how:

  1. A big sales period is coming up and your platform user is running low on cash.
  2. As a platform that already manages parts of their business, you have a deep understanding of their challenges and needs.
  3. With embedded financing, you can proactively offer them cash advances to stock up and prepare for future sales periods.
  4. This means users can access financial services with speed and convenience at the point of need, from a platform they know and trust, without having to rely on traditional banking services.

With proactive risk assessments, you can offer your users cash advances to help them through slower months or build up stock before a busy period.

So, why isn’t every platform doing this already?

  • Novelty and infancy: financial services were previously only associated with banks or alternative lenders that have been offering them for years. Many platforms are new in this field, which might discourage them from taking the next step. However, since platforms have a closer connection to their users, they have a better understanding of their business. This makes them better positioned to offer tailored solutions instead of the one-size-fits-all solution provided by the incumbent providers.
  • Complexity: many platforms are concerned about the complexity associated with credit risks and regulatory scope. Fortunately, this is something that can be solved. The right partner takes on the complexity and provides a simple solution for platforms.
  • Resources and knowledge limitations: some platforms are worried about not having the right resources to manage the complexity of embedded financing. Fortunately for them, there is now an easy way to get started, which allows them to rely on their partner’s expertise.
Two people discussing embedded financingat a desk in front of their computers

The long-term mindset: Extending your value chain

I've worked directly with SaaS platforms during the last couple of years to understand their ambitions. Their needs and timelines often differ, but one thing they have in common is the ambition to solve their users' challenges.

Let’s take a SaaS food and beverage platform as an example. They’ve spent years building tailor-made solutions for restaurants, such as a cash register or an order management system. They know everything about their users and how they struggle to access the capital they need to grow.

These platforms are perfectly positioned toprovide their users with embedded financingas SMBs are underserved by traditional players with old business models that rely on legacy processes and systems. Embedded financing solves their users’ needs and unlocks additional revenue streams for platforms, diversifying and future-proofing their business.

Three considerations before getting started

As is often the case, you’re probably juggling prioritizing dozens of initiatives that will pave the way for your platform’s future growth. Embedded financing might be on your list, but due to limited resources, you might feel the need to choose other initiatives that align more to your core business.

Faster and more reliable solutions make it possible for all platforms to prioritize embedded financing. To reach your ambitions faster, there are a few things to consider before getting started.

Speed to market

Getting started has never been easier. With an API solution that’s easy to integrate, you can have business financing delivered in your own interface and with your own branding in no time.

Your integration revolves around two API endpoints: one where you retrieve the financing offers for your users, and the other where you instruct us that a user has selected an offer and would like to be paid out. Once you're usingAdyen for Platforms, you can get your capital program up and running quickly.

Partnerships built for the long run

Embedded financing is beneficial for your business and users. With a global partner, you can expedite the process by giving your users what they need without having to build the infrastructure for it everytime you expand to new markets.

At Adyen, our global presence makes it easy for platforms all over the world to reach their short and long term ambitions. All it takes is one integration and you can start offering flexible business financing.

Two people discussing embedded financing in an office setting

Regulatory framework that stands the test of time

Lending is one of the most regulated industries, and the entire market is expecting increased regulatory scrutiny over fintech lending. This mostly focuses on B2C (e.g., Buy Now Pay Later) but is expected to target B2B businesses soon. Regulatory scrutiny can be challenging no matter the industry. As regulations become tighter, the need for a trusted partner that can guide you through the process increases.

With Adyen’s extensive regulatory expertise, you’re in safe hands. Our European banking license and US branch license offer a unique competitive advantage. We adhere to the strictest regulatory standards and can offer financing in the most stringent jurisdictions. Our business model allows us to absorb all the credit risk, which ensures that platforms don’t carry any financial risk.

Before you go

The future is bright for platforms. Many of the challenges and complexities involved in innovating their business models now have a more reliable, scalable, and fast solution for those venturing into embedded financing.

With Adyen Capital, platforms can implement a fully-embedded financing solution at speed, allowing them to give their users access to the capital they need to grow. This unlocks new revenue streams for platforms and future-proofs their business as they become a trusted partner and the platform of choice.

Platforms need to start now if they want to take the lead. Are you ready?Explore how Adyen Capitalcan work for you.

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