In a digital age, customer expectations are rapidly evolving. We’re witnessing a profound shift in how our business customers operate, with a significant increase in direct-to-customer commerce taking place via ecommerce platforms and marketplaces. These changes underscore the demand for more seamless and integrated financial solutions.
The boundaries between ecommerce, marketplaces, financial services, and lending are increasingly overlapping. Ecommerce platforms integrate banking products, while banks embed their solutions into these platforms. This convergence promises improved service and greater choice for customers, driven by the momentum in the market.
Embedded Finance offers an important opportunity to embed financial services, such as payments and lending, into non-traditional financial platforms. This enables customers to access financing solutions with minimal friction at the point of need. Over the past year, HSBC’s presence in Embedded Finance has been steadily growing, driven by customers seeking convenient and efficient access to banking services where, and when, they need it.
Businesses in supply chains have always required working capital, but recent disruptions and increasing complexity have raised the stakes. Embedded Finance is making the process of getting working capital solutions faster and easier for firms. Companies can apply for trade finance solutions within the same platforms they use to manage other business activities. Banks like HSBC can leverage real-time and historic transaction trading data from these platforms to make more accurate credit risk assessments and speed up decision-making.
The transformative potential of Embedded Finance is most significant for SMEs and merchants engaged in online commerce. Traditional credit checks do not suit this fast-growing segment as they are less sophisticated and have limited information and financial backing to meet the stringent asks of financing providers.
By providing visibility into supply chain activities and leveraging real-time transactional data – such as their sales patterns and payment histories – banks can rely on a new dimension to assess risk and offer faster credit decisions and financing options that traditional credit assessments often overlook. This can potentially enable these SMEs to access financing they otherwise would not have had access to. This can help reduce the trade finance gap, which is estimated to be well over USD 1 trillion.
For larger firms, Embedded Finance promises to streamline operations and drive cost efficiencies too. Corporate treasurers stand to benefit significantly from the automation and real-time insights that Embedded Finance solutions provide. By reducing manual processes and improving visibility and control over financial transactions, these solutions empower treasurers to allocate resources strategically and respond promptly to evolving market dynamics.
From HSBC’s perspective, the Embedded Finance opportunity aligns perfectly with our aim to meet our clients where they are: embedding financial services directly into the platforms they already use and trust. We leverage our global scale and expertise in transaction banking to deploy specialised solutions through strategic partnerships, including with Tradeshift. This enables us to cater to the intricate needs of global supply chains, unlocking liquidity for SMEs, and fostering economic resilience. Fintech companies play a crucial role in this ecosystem; banks need to partner with platforms where customers engage to capture the significant wallet opportunity that Embedded Finance presents.
Despite the innovative solutions available, several factors hinder widespread adoption. Access to data and credit remains a challenge, as traditional credit checks fall short. While there are pockets of success, scaling these solutions requires banks to go beyond solely relying on digital adoption; SMEs often need support to become comfortable with new technologies, and this may require a hybrid model where human involvement supplements the embedded financing experience. Banks also need to transform their propositions to operate in the real-time digital world of ecommerce platforms, through the necessary technology tools and partnerships.
Looking ahead, Embedded Finance appears set for continued growth and innovation. As businesses embrace digital platforms for commerce and finance, the demand for embedded financial solutions is expected to surge. Whether through improving B2B marketplaces or facilitating consumer-facing applications, Embedded Finance has the potential to reshape financial ecosystems, democratise access to capital, and drive sustainable economic growth globally.
Customer expectation is now set; it’s now a question of how banks respond. The rewards of embracing Embedded Finance – from enhanced customer engagement to operational efficiencies – are too significant to ignore. For banks willing to innovate and adapt, the journey toward a more integrated, accessible, and resilient financial ecosystem promises transformative outcomes and sustainable growth in the digital era.
This editorial piece was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2024, which is the latest comprehensive market overview and analysis focusing on the key players and products within the Embedded Finance and BaaS ecosystem.
Vinay Mendonca is Managing Director, Embedded Finance for HSBC Commercial Banking. Since joining HSBC in 2006, Vinay has held Product, Transformation and Strategy leadership roles in India, Hong Kong and the UK. Most recently he was Chief Growth Officer for HSBC’s Global Trade Solutions (GTS) division.
HSBC is one of the world’s largest banking and financial services organisations. Our global businesses serve around 42 million customers worldwide through a network that covers 62 countries and territories. Our customers range from individual savers and investors to some of the world’s biggest companies, governments and international organisations. We aim to connect them to opportunities and help them to achieve their ambitions.
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