Why embedded finance is the future of digital trade

June 13, 2022 | By Claire Thompson

Tapping a phone to pay for takeout or virtually hailing a rideshare has become almost second nature for many of us today.

The combination of technology and APIs behind these wonder apps is referred to as embedded finance, and it continues to revolutionize how we as consumers shop, make payments and access other digital services. We are now primed to get what we want, exactly when we want and need it in our personal lives — but how about when we are at work?

To date, these convenient and seamless experiences have been lacking in our work lives, but this is set to change. While the potential for embedded finance in the business-to-business space is huge — with the estimated market value set to hit $7 trillion over the next 10 years — the systems that large companies, small and medium-size businesses, fintechs and banks rely on today remain fragmented and complex, often hinging on wads of cash, invoices and mountains of paperwork. Not to mention endless platforms and passwords.

Consider the freight and logistics ecosystem. A manufacturer in Vietnam might rely on numerous systems to book container space to send its goods to Europe, track the shipment, receive payments from customers and apply for credit to buy materials or expand the business. These fragmented legacy platforms and systems pose challenges to large companies, so it’s even more prohibitive for smaller businesses that often struggle to access the global marketplace and gain visibility into their finances, let alone access credit they need to run their business.

And, as the pandemic starkly exposed, the supply chain we rely on is fragile. That’s why we need collective action to overhaul and streamline the global trade ecosystem to make sure it’s more intelligent, accessible and responsive for all. Embedded finance has the potential to have as big an impact on solving our supply chain issues as it has on improving consumers’ lives.

Embedded innovations accessed through one digital platform enable businesses around the globe to operate more efficiently. By integrating the diverse strands of their operations into an intuitive one-stop digital platform, businesses can make and receive payments and access financing and value-added services more easily, enhancing operations and improving liquidity.

If your customers are offered the exact product they need, at the exact point they need it — all within one digital space — why would they look elsewhere?

But embedded finance is much more than a solution to back-office problems. It’s a significant commercial opportunity for organizations across the value chain — an opportunity to differentiate, focus on experience and drive adoption and customer loyalty. If your customers are offered the exact product they need, at the exact point they need it — all within one digital space — why would they look elsewhere?

Fintechs will flourish by integrating comprehensive digital solutions, and banks will stay ever closer to their customers, providing them with the services they need while removing the barriers to finance through transparent and up-to-date risk profiles and transaction history.

The drive behind embedded finance is coming from businesses wanting this integrated and intuitive experience they enjoy in their personal lives, and it will be enabled by the rise in technologies and regulations that democratize data and enable globally scalable platforms that support multiple-party integration.

While the demand is real, the challenge is getting the right infrastructure in place and making sure the myriad international organizations across the trade ecosystem work together to realize the benefits that truly embedded finance offers.

For embedded finance to succeed in the B2B space, we need partnerships that go beyond transactional relationships. To offer multiple value-added services within one digitally integrated platform, multiple providers must work together. We need collaboration from network and platform technology providers, fintechs, large companies and financial institutions if we are to truly meets the needs of organizations large and small across the global trade ecosystem.

Innovators must facilitate trust across the broad ecosystem participants, and they must have established relationships and bring partnerships to life to understand user and market needs.

Embedded finance is the destination point for how businesses will deliver and consume services in the future, and businesses cannot afford to dawdle when it comes to figuring out their digital strategy. If the retail space is any indication, embedded finance will revolutionize global trade networks as swiftly as a rideshare arrives at your doorstep.

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Claire Thompson, Executive Vice President, Global Trade, Enterprise Partnerships, Mastercard