Future trends in embedded finance

Embedded finance is rapidly changing the funding landscape for SMEs, but we have only scratched the surface of its potential. Many B2B vendors have already begun to realize the benefits of offering financing. Developments in embedded finance are progressing rapidly and a number of innovations are expected to be introduced in the coming years. Here are some areas to keep an eye on:

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Increasing use of AI

Artificial intelligence has been on everyone's lips in recent years and the emergence of this field is likely to have a big impact on embedded finance as well. With AI's ability to analyze large amounts of data to identify fraud patterns and predict risks, customer awareness (KYC) and anti-money laundering (AML) processes can be automated to a greater extent and become both faster and more precise. This will not only lead to reduced costs and better compliance, but also better customer experiences.

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New technological solutions

As more and more partnerships are established in embedded finance, companies will find solutions to leverage each other's infrastructure and launch innovative products. Card-based lending and the fact that loan transactions are made automatically through the customer's debit card is an example of such innovation. But we are likely to see even more innovations in areas such as collateral, instalments and transactions in the coming years.

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EU legislation

As part of its efforts to establish a Capital Markets Union, the European Commission has presented a proposal for an SME referral scheme. The proposal means that banks and other lenders would have to refer SMEs to alternative sources of funding, if they denied their application for funding. The idea is that it should encourage operators not to casually reject applications from SMEs in favour of more profitable lending. However, by integrating embedded finance solutions developed for SMEs, banks and other lenders can stay ahead of any legislation. This way, they can avoid having to refer customers to competitors and at the same time improve the experience and service.

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Financing integrated into customer flow

B2B providers of both services and products will increasingly make financing an integral part of the customer flow. By integrating the services into their own feeds, B2B vendors can create more seamless experiences where they have greater control over the customer's buying journey. When customers can resolve financing without having to leave platform they already use, friction decreases and customer satisfaction increases. In addition, suppliers may collect data on customer behavior that can be used to tailor products and services.

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Cooperation between fintech and banks

The role of banks in the B2B segment is changing as fintech companies in different niches have established themselves. Today, more and more banks offer their services to or through fintech companies and virtually all traditional banks have begun to establish banking-as-a-service offerings. In the coming years, partnerships between banks and fintechs will become increasingly common. By working together, fintech companies can benefit from banks' infrastructure and regulatory compliance, while banks can offer their customers new and innovative services.

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Developments in embedded finance will reshape the B2B finance market in several ways. The coming years will see a series of new innovations and collaborations be launched that will lead to more relevant and contextual financial solutions, new revenue streams and a more integrated and seamless customer experience. Companies that can successfully adapt and navigate the embedded finance landscape will stand strong in the future.

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