Unlocking the Potential of Embedded Finance for Software Platforms and Marketplaces

Embedded finance is on the cusp of transforming the landscape for software platforms and marketplaces. While this financial innovation promises significant opportunities, there are certain hurdles to its widespread adoption within Software-as-a-Service (SaaS) platforms and marketplaces. PYMNTS spoke with Luke Latham, the general manager of Australia and New Zealand at Airwallex, and Tom Randklev, the global head of product at CellPoint Digital, to shed light on what businesses need to know about embedded finance solutions, as well as the strategies behind merchants benefiting from financial services innovation.

Latham emphasized the challenges that small- to medium-sized businesses (SMBs) encounter when managing and adopting financial services. These difficulties include payment processing, disbursing payments, handling multiple payout methods and currencies, and a lack of automation. However, he pointed out that software platforms and marketplaces are well-positioned to seamlessly integrate financial services and products into their regular user experience, thanks to their close relationships with customers.

For example, eCommerce marketplaces can leverage their existing visibility into payment flows, which is crucial for embedding a robust risk management framework to offer credit or loans to customers. This positioning allows them to take a leading role in the evolution of embedded finance.

Embedded finance goes beyond simple one-click payments; it involves ensuring security, compliance, and navigating complex regulatory environments. A solid foundation is essential for the success of embedded finance initiatives.

The appeal of embedded finance lies in its ability to merge with the increasing digitization of daily life and meet the evolving behavioral expectations of end-users. Latham noted that any financial product or service that traditionally disrupted the user experience is ripe for integration, creating efficiencies and a delightful customer experience in the SMB market. This shift can improve customer acquisition, reduce acquisition costs, and enhance retention rates.

Businesses contemplating embedded finance face a pivotal decision: whether to buy, build, or partner. Both Latham and Randklev advocate for a strategic approach. They highlight the complexities and costs associated with building financial services in-house and emphasize the importance of finding an excellent partner with expertise in compliance, governance, and financial services nuances.

Latham further advised platforms to consider product offerings, geographic coverage, and revenue models when choosing a FinTech partner. He stressed that embedded finance is far from a one-size-fits-all solution, and companies should focus on their core competencies and success metrics when embarking on this journey.

The consensus among experts is that partnering is often the most efficient and cost-effective way to enter the embedded finance space compared to buying or building solutions. Randklev added that, as businesses succeed in their partnerships on embedded finance, they can gradually develop their own capabilities in this area.

Looking ahead, software platforms and marketplaces can unlock the full potential of embedded finance by prioritizing compliance, forming strategic partnerships, and embracing emerging trends. Randklev expressed excitement about the applications of generative AI in embedded finance, while Latham anticipated the integration of advanced AI and data analytics to offer personalized financial products and services tailored to specific industries.

As the world becomes increasingly digital, embedded finance is poised to expand globally, enabling platforms to serve a broader audience while catering to industry-specific needs.