Embedded Finance Enters a New Era of Growth and Maturity

Embedded finance is rapidly evolving, integrating financial services seamlessly into non-financial platforms and products. This new era marks significant growth and maturity, driven by technological advancements, strategic partnerships, and rising consumer demand for convenient, integrated solutions. Businesses across industries are leveraging embedded finance to enhance customer experience, boost engagement, and open new revenue streams. As adoption accelerates, it is set to reshape how individuals and companies access and interact with financial services in everyday life.

Embedded finance is transforming the way global trade works, offering instant access to funding and giving small and midsize businesses new opportunities once out of their reach. Picture a scenario where trade finance is instantly available at the click of a button, seamlessly built into online transactions. This isn’t a far-off dream, it’s the reality that embedded finance (EF) is bringing to life, reshaping international commerce.

Traditional trade financing methods can be slow, complicated, and inaccessible, leaving many SMEs unable to obtain capital. EF represents a multi-billion-dollar chance to simplify processes and support business growth. By embedding financial tools into platforms outside the banking sector, EF enables features like invoice factoring and supply chain financing directly within a transaction.

The change in purchasing and payment habits is being fueled by e-commerce growth and systems powered by API frameworks. EF draws on technologies such as APIs, blockchain, and AI, APIs enable instant data exchange and quick loan decisions, blockchain secures transactions, and AI speeds up risk evaluation. AI also broadens SME access to funding, whether through EF integrated into e-commerce or B2B buy now, pay later solutions.

New EF API providers like Plaid and Stripe Treasury are emerging, Plaid links bank accounts, while Stripe connects payment cards, both facilitating rapid data transfer and instant credit decisions vital for trade finance. Alongside fintechs, major banks like HSBC and Standard Chartered, as well as giants like Amazon, Alibaba, and PayPal, are tapping into this growing sector.

Future Market Insights predicts EF revenue will rise from $63.2 billion in 2023 to $291.3 billion by 2033. As EF develops, it could create fairer access to global trade, enabling companies of every size to grow and contribute to the economy.

Shopify, in its October launch of Shopify Finance, highlighted that entrepreneurs innovate quickly, but traditional banks lag behind. A Shopify-Gallup study involving nearly 47,000 business owners revealed that 60% identified lack of funding as their top hurdle. To address liquidity gaps, Shopify Balance offers next-day payments to merchants, while Shopify Capital provides fast loans to qualifying sellers, regardless of their scale or financial track record.

In late 2023, FreshBooks, known for its cloud-based accounting tools, teamed up with YouLend to give more than 100,000 US-based small business customers flexible financing. Platforms like these are well-positioned for EF integration because they own the customer relationship, have detailed transaction data, and can embed finance without disrupting the user journey.

Traditional Banks Embrace EF

The EF boom in e-commerce is catching the attention of established banks, sparking partnerships between financial institutions and fintechs to leverage mutual strengths. HSBC, for example, created Semfi with Tradeshift in October to embed payment and trade financing options for SMEs within Tradeshift’s global B2B platform. This gives small suppliers quick and transparent access to invoice financing directly via e-commerce channels.

Some banks are developing their own banking-as-a-service (BaaS) models. Standard Chartered’s nexus platform lets e-commerce players offer EF services, leading to the launch of Audax, which provides similar embedded tools for other banks. BNY’s Trade Network Access Service (TNAS) connects banks to a worldwide trade finance network, cutting complexity and costs while expanding market access. This plug-and-play setup enables even smaller institutions to offer advanced trade finance solutions.

According to Joon Kim of BNY Treasury Services, TNAS helps users tap into thousands of relationship-management applications globally, delivering value without the need for in-house system building. Kim believes EF can impact the entire trade finance chain, from large institutions to the smallest players, by offering frictionless services such as letters of credit and trade distribution in one integrated solution.

He adds that digitalization and collaboration will continue pushing the sector forward, moving away from outdated manual workflows.

Technology Driving Trade Innovation

Singapore-based fintech Xalts, which specializes in AI-driven trade finance solutions, acquired the Contour Network to improve digital connectivity between banks and corporates. Xalts develops vertical AI agents that handle end-to-end trade finance operations, reducing integration costs and timelines through flexible data handling.

This approach enables organizations to embed trade finance effortlessly into existing processes, since AI agents can manage the entire transaction cycle, including interactions with banks. Online marketplaces are leading EF adoption, embedding finance into their ecosystems to boost loyalty and open new revenue streams.

Amazon offers various working capital products to its sellers, from daily advances to invoice financing. Alibaba partners with lenders to provide trade finance and extended payment terms, while PayPal Working Capital offers cash advances based on sales data. As trade documentation becomes more digital and standards improve, helped by initiatives like SWIFT interoperability testing, EF’s potential in global trade will expand even further.

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Source: gfmag‍