For too long, the financial services sector has struggled to keep pace with other industry sectors when it comes to digital innovation. 

Indeed, one survey found only 33% of financial services executives believed their organisation had the digital capabilities to succeed.

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It is easy to see why. Until relatively recently, even something as simple as buying and managing shares online wasn’t a quick and hassle-free experience. 

Today, however, the pace of change in financial services is quickening dramatically, with digital technologies transforming everything from consumer payments to business banking. As many commentators have pointed out, the ongoing COVID-19 pandemic is likely to be a catalyst for further digitalization, as more and more businesses adjust to remote working. 

Undoubtedly one of the most significant digital developments in recent years has been the trend towards embedded finance. This is enabling all manner of companies – not just financial services firms – to provide financial and banking services to their customers by integrating third-party technologies, whether that’s Uber integrating third-party payments infrastructure so that consumers can pay for a ride or a meal without ever leaving its apps, or Money in Excel, the new collaboration between Microsoft and US fintech Plaid, that allows users to automatically import their bank and credit card account data into the personal finance tool. 

The future of embedded finance

In the years ahead, we will likely see more and more brands incorporating a financial services element into their offering. But embedded finance isn’t just about consumers; it’s also transforming B2B payments. 

Today, as businesses across Europe adjust to the global COVID-19 pandemic, cost and efficiency are two key areas where embedded finance can make a difference. 

While many fintech platforms are focused on making it easier for consumers to send payments, businesses need funds to flow easily both ways – to and from their customers and suppliers – and so receivables are just as important as outward payments. 

Let’s consider the example of a lendtech platform connecting lenders and borrowers. In a typical invoice financing scenario, it would be difficult for Lender A, who is offering to buy invoices from Business B to help ease its cashflow challenges, to conceal its involvement from the end customer, because it would have to contact that customer directly to collect the payments due. This could potentially cause issues for Business B, as it may not want its customers to know it is using invoice financing as a cashflow solution. 

Embedded finance solutions are key to addressing challenges associated with two-way payment flows such as this. 

For example, in the scenario above, using the virtual account technology provided by Currencycloud Spark, Lender A would be able to handle accounts in the name of Business B, meaning the end customer would be unaware a lender had been used. And because each business customer gets a unique account number, reconciliation would be handled automatically, another crucial efficiency benefit when you consider the time it takes to manually trace and process potentially thousands of invoices.

The value of this kind of embedded finance solution is best demonstrated when businesses are operating across borders. In our example above, thanks to Currencycloud Spark, Business B would be able to issue invoices in its customers’ currencies. Lender A could be paid locally and avoid high fees, and generate additional revenue and build customer loyalty by offering Business B features such as sub-accounts in which it could hold and exchange money in various currencies. 

Why embedded finance matters in these turbulent times

Currencycloud Spark is the epitome of an embedded finance solution because it operates entirely in the background. The client gets all the operational and efficiency benefits while retaining complete control of the customer experience. 

We often talk about how fintechs are helping to drive growth through their platforms, but right now, amidst the turmoil caused by COVID-19, many business customers will be more concerned about how embedded finance solutions can help them save time and money. 

Operational efficiency is where fintechs can perhaps make the biggest difference to their client base right now. And that’s why solutions such as Currencycloud Spark are a prime example of how embedded finance can show its worth in these extraordinary times. 

Read more about how Currencycloud Spark can help FIs improve their customer experience.

Peter Daunton

Peter is the Product Owner for Collections at Currencycloud. It’s his job to make sure that we’re always keeping pace with the latest collections innovation. With over four years of experience in Product Management, Peter works with the team to define the strategy for Currencycloud’s Collections network, driving improvements in automation and scalability to support our clients’ collection growth.