This posting is in Finextra and was penned by the CEO of a Melbourne-based fintech named Fluenccy that provides embedded FX solutions to the SME space. The piece basically starts as an overview of where embedded finance has been sprouting up, more along the consumer and marketplace arena, as well as its relative market size, then moves into more of the business use cases such as payments, banking, insurance and so forth.
‘Today, we see embedded finance in everything from Amazon, Shopify and Uber; the design was created so the user never needs to leave the ‘store’ to fulfil their transaction – making for a much more enjoyable experience. We’ve seen this rise through the popularity of digital wallets like Apple Pay and Samsung Pay, and more prominently now, lending with fintech companies such as Klarna and Afterpay who are driving the Buy Now, Pay Later (BNPL) model…
However it’s thanks to open banking technology and the various supporting regulations like PSD2 that embedded finance is where it is. This, and the increased availability of APIs by financial service providers who are regulated by default. Their regulated status alongside secure APIs means that non-finance companies can connect to their network and that suddenly, the world has things like embedded payments available in many interactions.’
The author then moves into the FX space and makes the case that embedded finance has multiple benefits for both buyers and sellers, including reduced payments friction, lower costs, and improved use of valuable data. Since a growing portion of marketplaces such as Amazon Business is happening with buyers and sellers in different markets, having an embedded FX solution to handle USD conversions transparently would certainly seem to have SME appeal. This can then be integrated via APIs to the company accounting software to normalize the financials. Worth a quick read for those interested.
‘While all this is the next logical step in the area of cross-border digital sophistication, understandably it is still a huge step change for both the SME and the payment providers within the existing business model. But that doesn’t mean it won’t happen. The most progressive SMEs will get it and the most digitally aggressive payment providers will offer it, making sense for their own share of wallet and to remain competitive.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group