Embedded finance can help businesses unlock new growth. Here’s how

Imagine a world where a small business never has to interact with a bank. Through its ecommerce platform, accounting service, or logistics provider, this company can access a host of financial services, such as loans, insurance, and even investments.?

Well, there’s no need to imagine - this is a reality, thanks to the rise of embedded finance.?

Defined as the integration of financial services into non-financial organizations, embedded finance is on the rise in Southeast Asia, where it’s presenting new opportunities for platform providers - many of whom are SMEs themselves -? in the region.?

The rise of embedded finance?

A report by Ernst & Young projects that the global market size for embedded finance will reach US$606 billion by 2025, of which US$305 billion is expected to come from Asia Pacific.

Southeast Asia is likely to make up a considerable slice of Asia Pacific’s embedded finance pie, says Toh Su Mei, CEO at SME-focused digital bank Anext Bank , a wholly owned subsidiary of Ant International.??

“The region is home to a growing tech-savvy, mobile-first population,” she says. “Southeast Asian consumers have now gotten accustomed to utilizing financial services embedded on digital platforms they interact with every day - you now have digital wallets and ‘pay later’ options on apps like Lazada and Agoda. So why shouldn’t financial services for businesses mirror the same?”

At the same time, Southeast Asia still struggles with financial inclusion. In 2022, at least six in 10 people i n the region were unbanked or underbanked.?

This extends to small businesses as well. According to Anext Bank’s recent survey of Singapore SMEs, one-third of respondents found it difficult to access financing, as they didn’t meet the requirements of existing options in the market.?

Embedded finance, therefore, could help close this gap by creating alternative avenues for small and micro businesses to access more tailored and relevant financial services.?

It also opens up opportunities for platform companies - including ecommerce, logistics, and procurement startups - to expand their offerings and see new growth by providing financial services.?

A whole new world?

Platform companies today have access to a huge pool of data about their customers and the capabilities to analyze and understand this data, more so than ever before, Toh says. This means that a platform that wouldn’t typically offer financial services could leverage this data to do so effectively.?

For example, a procurement startup can see and track the types of products a small merchant orders, as well as the frequency and value of those orders. If this particular merchant has a consistently high order value and frequency, and makes payments on time, one can make reasonable estimates about the state of this merchant’s business and cash flow.?

While a traditional bank may not be able to give this merchant a loan - since it doesn’t meet traditional eligibility criteria - the procurement startup can assess how well the merchant’s business is doing based on the data and conclude that it would be able to take on and repay a loan.?

In this case, the startup could offer a “pay later” model for this merchant to help with its cash flow management, or small loans for it to expand its product offerings.??

With embedded finance, these platform companies can drive growth within their organizations by creating new product lines, which in turn create new revenue streams. It also enables greater user stickiness - after all, if your customer can get everything they need on your platform, why would they need to go anywhere else??

Additionally, businesses can gain access to new kinds of data about their customers, allowing them to better understand and meet their needs.?

“Embedded finance allows companies to value-add to the customer experience,” Toh says.?

Putting the pieces together?

While offering embedded finance solutions has many benefits, companies face challenges with implementation. How do you set up the infrastructure to support this? What kind of security does there need to be? What are the regulations you need to adhere to??

That’s where solution providers can come into the picture, Toh says. Fintech companies like Rapyd and Mambu can help businesses integrate financial services into their platforms.?

Banks, too, are beginning to offer embedded finance solutions. For example, under the Anext Programme for Industry Specialists (APIs) , the digital bank partners with businesses in Southeast Asia, enabling them to offer financial services on their platforms.

“Through the program, we aim to scale accessible financial solutions for SMEs across the region by enabling financial services on platforms they’re doing business on,” Toh says. “We’re also helping solution providers in ecommerce, payment services, trade, procurement, delivery, and services - many of them who are SMEs themselves - unlock revenue opportunities.”?

For example, Shopmatic , an ecommerce platform based in Singapore, joined APIs to offer financing solutions to merchants. Many sellers on Shopmatic are new business owners who are just starting out. They often require short-term financing to get their operations off the ground but aren’t able to access it through traditional means.?

According to Nicole Poon, Shopmatic’s COO, the firm wanted to help small-business owners save time and effort by allowing them to apply for financing directly on the platform. By partnering with Anext Bank, it was able to launch a loan product within Shopmatic Pay, its digital payment solution. These loans, which range from S$5,000 to S$300,000 (roughly US$3,700 to US$233,000) are managed by the bank.?

“Our merchants on the Shopmatic platform now get access to funds easily for setting up their business, managing inventory re-orders, and running marketing campaigns, especially when they need to cater for a spike in orders during popular shopping festivals and seasonal periods.” says Poon.?

“We’ve seen positive interest from our merchants thus far. We'll continue to take in feedback and work with Anext Bank to tailor suitable financial solutions for their business needs.”?

To a new age

While embedded finance is still nascent in Southeast Asia, it has the potential to become a part of everyday life in the region, just as digital payments have.??

From Toh’s perspective, embedded finance will play a crucial role in driving greater financial inclusion in Southeast Asia, which in turn will drive greater economic growth and development in the region.?

“Financial inclusion is a collective effort across the ecosystem - banks, industry partners, and even public sector agencies,” she says. “We believe that innovation will happen faster when we do it together in an open and collaborative manner, and we are glad to be playing a part in this process.”?

Currency converted from Singapore dollar to US dollar: US$1 = S$1.34.

***

Anext Bank, a Singapore-based digital wholesale bank regulated by the Monetary Authority of Singapore, is on a mission to make financial services accessible and effortless for SMEs. Adopting an open and collaborative approach, it believes in joining hands with industry partners to provide SMEs with simpler, safer, and more rewarding financial services.

Its Anext Programme for Industry Specialists (APIs) aims to scale accessible financial solutions for SMEs across the region by enabling financial services on platforms where they’re doing business. This initiative also seeks to help solution providers in ecommerce, payment services, trade, procurement, delivery, and services unlock revenue opportunities.

Learn more about how APIs can open up new opportunities for your business on Anext Bank’s website .

***

This content was produced by Tech in Asia Studios, which connects brands with Asia's tech community. Learn more about partnering with Tech in Asia Studios.