Helping B2B merchants grow with embedded payments

Wednesday 29 November 2023 09:24 CET | Editor: Irina Ionescu | Interview

Louis Carbonnier, President and Co-founder at Hokodo, discusses how innovative financial services – particularly embedded lending and payments – are helping B2B merchants accelerate growth and, ultimately, support the B2B economy.

As the embedded finance sector is continuously growing, we see banks and other financial institutions as the main benefiters of this success. But how can embedded finance help end -users, especially the ones in the B2B market?

Banks and financial institutions benefit from embedded finance because it’s a tool that enables them to offer their products and services to customers in a simpler and more streamlined way, but, in my opinion, embedded finance is designed equally for the benefit of end-users.

Shopify has often been referred to as the closest alternative to Amazon and is one of the easiest ways for a seller to start operating online. The reason it’s such a good option is because Shopify is more than just an ecommerce platform. Through a variety of in-built tools, Shopify helps businesses access the resources needed to run their online stores. 

The company recently launched products that enhance fulfilment, shipping, social media advertising, and more, but the most valuable aspects of the Shopify platform are those that enable small and medium sized businesses (SMBs) to access financial tools. In recent years, Shopify has embedded multiple financial products that serve the needs of its SMB customers. This includes Shopify Pay, which works in a very similar way to Apple Pay and streamlines the payment experience for end-buyers, and Shopify Instalments, which enables end users to split payment. Meanwhile, Shopify Capital empowers merchants to access loans of up to USD 1 million.Merchants and their buyers gain as many advantages from embedded financial services as the banks do. Payments are seamless, without the need to repeatedly enter card information. Short term financing can be accessed instantly at the point of purchase. Merchants secure flexible business loans without having to leave their online selling platform. In this sense, embedded finance is helping Shopify become a ‘one stop shop’ ecosystem for SMB sellers and their customers.

Are we currently facing a boom in B2B embedded finance? And, if so, why is now the best time for B2B embedded finance?

The trend of embedded finance has been slowly building pace for many years. Long before the first digital services, banking institutions were selling life assurance and other insurance products in an early form of embedded lending known as bancassurance. For decades, cargo insurance has been bundled into B2B shipment orders at the point of need by freight and logistics providers. These weren’t digital solutions by any means, but they were the precursors of embedded finance.

The first iteration of digital embedded finance reached the market for consumers in the early 2010s, in the form of embedded payments and lending. Since then, those early models have begun to mature, while innovative players have made strides towards embedded services such as cards, banking, compliance, and payroll. However, things move slower in B2B. The inherent complexity of the sector and an unwillingness among incumbent players to try something new, combined with unfaltering consumer demand for the latest tech, means that the ‘boom’ hit B2C first.

But now, B2B players are waking up to the possibilities of embedded finance – and they couldn’t have timed it better. Thanks to Open Banking and the growing adoption of API technology, we can see a strong acceleration for embedded finance and the B2B players that can capitalise on this today will be the leaders of tomorrow.

Can you give us some examples of successful use cases for B2B embedded finance?

Banks and financial institutions around the world are working with non-financial companies to streamline processes and improve efficiency for B2B businesses in areas like payments, insurance, and lending. But, innovative companies are also creating a variety of embedded financial tools for accounting, risk management, invoicing, and more.

One of the most mature use cases consists of embedding payments into B2B platforms, allowing for a seamless checkout experience. For example, just like in consumer ecommerce, merchants and marketplaces can integrate payment gateways directly into their platforms. This streamlines transactions between businesses, which, in turn, reduces friction and delays.

At Hokodo, our core product is an example of embedded payments combined with lending. Solutions like ours facilitate easier access to working capital for businesses. Through APIs, sellers can offer instant, flexible, and tailored financing solutions such as payment terms, invoice factoring, or supply chain financing to help buyers address cash flow gaps, while enjoying a superior checkout experience. It works similarly to how BNPL works for consumers.

Embedded insurance solutions help B2B sellers mitigate the risks of various business operations. Taking a look to the freight and logistics sector for an example, we see that offering insurance options for goods in transit or liability insurance for vendors adds security to these transactions. The added value is having that insurance offered to the buyer at the point of need during an online journey. 

For businesses engaged in international trade, embedded finance simplifies cross-border payments and helps to manage foreign exchange risks. This can offer competitive exchange rates and faster transactions, reducing costs and complexities. Meanwhile, integrating financial services into accounting software or ERP systems can automate invoicing, reconciliation, and financial reporting, minimising errors and reducing manual tasks for accounting professionals.

Finally, how can Hokodo’s solutions facilitate customers’ navigation through the B2B market and how can it help businesses achieve growth/ expand their client base?

At Hokodo, we empower European merchants and marketplaces to offer flexible payment terms to their customers. For many sellers, especially smaller businesses, offering payment terms doesn’t come easy, especially when dealing with a buyer they have never sold to before. From credit scoring and fraud detection to financing, insurance, and payment processing – there are numerous moving parts traditionally supplied by a variety of disconnected vendors. When you add in the risk of financing buyers, the challenge becomes too big for some sellers to face.

But, despite the pain points, offering credit is important. It helps businesses grow by encouraging more purchases, higher conversions, and customer loyalty. It is also what buyers expect to see at the checkout, otherwise they might visit a competitor.

However, current processes for offering credit are outdated and not fit for an age where B2B sales are increasingly being done online. Large buyers get access to payment terms while small businesses are shut out. With payment terms taken care of, sellers would have the resources they need to grow and thrive. But as it is, they are spending an inordinate amount of time figuring out how to give buyers the credit they deserve. And this is no small issue, as around 60% of B2B trade takes place on payment terms.

Bringing all the elements of trade credit management onto one platform, Hokodo enables buyers to access payment terms even on their first purchase, while merchants get paid up front and in full. The end-to-end nature of our solutions means that you only need to work with one provider to cover everything. Think about all the time and resources that could save a business.

Hokodo’s solutions are embedded directly into the checkout of the marketplace or ecommerce platform via API or plug-in, meaning that buyers are offered tailored credit limits and payment terms instantly at the point of need. Buyers get the credit they need to thrive, while sellers benefit from accelerated growth, simplified operations, and an easing of cash flow issues. 

About Louis Carbonnier

Louis is the Co-founder and President of Hokodo, where he leads the product strategy and development of the company’s payment terms solutions. Louis was previously the head and founder of the Digital Agency at Euler Hermes, the world’s leading trade credit insurer and part of the Allianz Group. He started his career in strategy consulting at Oliver Wyman, where he was a Principal in the Financial Services practice. 

About Hokodo

Hokodo is a provider of flexible payment terms for European merchants and marketplaces. Bringing all the elements of trade credit management onto one platform, Hokodo enables buyers to access payment terms even on their first purchase, while merchants get paid upfront and in full, and remain 100% protected from risk. Hokodo is driven by rich data and backed by Lloyd’s of London to insure payments and ensure peace of mind. 

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Keywords: embedded payments, embedded lending, B2B payments, merchants, ecommerce, online payments, API, fraud detection, credit scoring, payment processing, personal finance management
Categories: Payments & Commerce
Companies: Hokodo
Countries: Europe
This article is part of category

Payments & Commerce


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