The technology-driven era of modern society has captured the vast area with ease for a diverse set of activities including financial transactions. Embedded finance for SMEs in the same context is the revolution for SMEs from tiring sessions of banks. Embedded finance provides financial services to SMEs at the right period by reducing friction and opening the new possibility for new clients to get engaged with.
As per the survey, there can be two major models that can support digital platforms that have shifted into embedded banking for SMEs.
- Pass through services – Here the platform will serve as a gateway to third-party financial services.
- ● Platform Own products –Platform branded financial products can be offered under the platform’s name.
Embedded banking finance can support SMEs and consumers to get the required banking services when they need them, within the platforms and interfaces that they are habituated to use on daily basis to flow of life and work. As per the predictions in the market, embedded banking for SMEs can capture 26 % of the global SME banking revenue by the year 2025.
SMEs get benefitted through a set of services that satisfy their day-to-day need for banking. These services they can access easily through the common platform of daily business conduct. Even the complete market for embedded finance for SMEs could be worth $124 billion by 2025 expected.
The leading banks and platforms are giving thought to finding out the secure and best position for them in the emerging sector along with the suitable partner support to help them deliver the creative hypotheses at scale.
SMEs are ready to explore banking services from the digital platform
There can be many sample banking services to get opted for but SMEs haven’t rushed into those like fintech, etc. from the old banking techniques. Even Accenture’s global SME survey shows that the calculation will change in the future. This they said as digital platforms are focusing on SME clients with embedded finance facilities.
Digital platform leaders range from the gig economy, e-commerce, marketplace, transactions, and social media to cloud-based accounting, financial management, support solutions, and productivity. Even the digital platform has earned a high degree of trust in small business owners.
Benefits for SMEs:
- SMEs are happy with the accessibility of embedded finance to have the financial services on the spot whenever they need them.
- They don’t need to log in to another app for the financial aspects like bank transfers or filling out a loan application, etc.
- Even the additional benefit comes with embedded finance which is value-added services like finance management and analytic tools.
SME banking market growth with embedded finance via the platform economics
SMEs are more interested in transactional embedded finance products like accounts, cards, etc. than financial products including materialistic financial decisions like loans or overdrafts. As per the survey, it is revealed that the transactional banking product revenues are mostly at risk due to the embedded finance leaders or players. Initially, banks will not get connected to the platform efficiency by losing their primary transactional relationship but rather observe consistent dissolution of share of wallet.
There can be chances that embedded finance for SMEs will push SME banking market growth via platform economics. The emerging trend of embedded finance may generate new scope for opportunity by making SMEs more flexible to invest more in value-added banking services. It can reach under banked SME crowd and deliver new product offerings as per the demand of the market.
In the coming next five years Embedded finance for SMEs can create a software as a service or SaaS for commercial banking. Here the old business models can transform into the new infrastructure. So, this is the time for each bank and the platform to decide the area to get expertized to fit itself in the changing environment.
Banks and digital platforms
The collaboration of banks with digital platforms will give a call to varied opportunities in the future.
- Banks – Banks can connect with digital platforms to reach the massive pools of SME customers. It can generate potential revenue streams without suffering the cost of end-to-end distribution. Now the leading banks are thinking about the chance to compete under their brand supported by their products and services. After that find where to collaborate with the digital platform leaders to fetch the solution to SME challenges. It will help reach a new population of customers.
- For Digital platforms- Digital platforms can provide easy accessibility to branded bank financial services for business transactions. Even the digital platform needs to partner and connect with a bank for financial offerings and create a solution to SME problems.
The maximum crowd of SMEs is warming to embedded finance
As the survey says that the SME situations will change by connecting to the digital platforms that can provide access to SME clients with the ease of seamless experience that they offer.
The projection as per the SME survey says:
- There is 41% of SMEs that are interested in using banking services through a digital service provider and even the interest gets enhanced with the increase in the business size.
- The next population is 44% of SMEs would prefer digital platforms to offer such services connected to a conventional bank. The need gets falls as the size of the business gets enlarged.
- Here 47% of the SMEs want to pay the same or more for embedded finance than traditional banks. Here also the interest rate increases with the size of the business.
The coming years can be the time for the banks in the majority to decide what their strategy can be related to embedded finance and to set about putting this into the action stage. SMEs can opt-in future for the digital platform support with embedded finance to grow.