SME financing: powered by Banks, FIs, and Embedded Finance platforms

Written by Lady Kay ???? ?????

In my current place of residence, we use an estate management app that allows us to purchase electricity units, pay community bills, and manage administrative projects and other services.?

I don't need to leave the app to pay my power bill, service charge, or a community bill.

The estate management app, a non-financial platform, is able to provide embedded payment services? - bills payments, wallet top-ups, and bank transfers - to clients through its partnerships with banks and fintechs.

Partnerships over competition ????

In developing financial ecosystems, the relationship between commercial banks and fintech startups is often framed as a rivalry. But this misconstrued narrative of competition overshadows the opportunity for both parties to collaborate instead of competing for total market dominance.?

By working together, financial institutions - commercial banks, MFBs, and digital banks,? and embedded finance platforms can create a synergistic relationship that benefits both parties—and provide underfunded SMEs with better access to financing options.

Shared goals: financing SMEs ??

SMEs are the backbone of many global economies, including African economies. African SMEs contribute to job creation, informal sector growth, and general economic development. Despite their economic significance, many SMEs face limited access to credit due to stringent lending requirements, high interest rates, or lengthy application processes.

Embedded finance platforms bridge the SME funding gap by offering financing solutions directly within platforms SMEs already use, such as e-commerce marketplaces, supply chain networks, and accounting software. However, in order to scale their offerings, embedded finance platforms need the help of legacy banks and financial institutions.

Embedded partnerships: Everyone wins ??

When established financial institutions partner with finance startups and businesses, the partnership creates an enabling environment and growth opportunities for both parties.?

Banks bring significant capital reserves and decades of experience managing risk. Embedded finance platforms, often operating with leaner resources, can rely on that expertise to underwrite loans and expand their offerings.

Navigating the complex regulatory landscapes is challenging for fintech startups. Banks, with their established compliance frameworks, can provide the regulatory backing necessary for embedded finance platforms to operate efficiently.

Banks, often burdened by legacy systems, can accelerate their digital transformation by integrating API services developed by finance startups.

While fintech platforms offer speed and convenience, many SMEs still count on traditional financial institutions to be more reliable and stable. Partnering with banks will help embedded finance platforms establish credibility and encourage product adoption.

Banks can earn through partnerships by sharing transaction fees, lending revenues, or subscription models.

Embedded finance platforms will gain access to a wider network of commercial and digital banks. An expanded market will help finance startups scale their services faster than they would independently.

Through partnerships with embedded finance platforms, banks gain access to this underserved market, expanding their customer base without significant upfront costs.

Embedded collaboration drives SME growth ??

The future of SME financing lies not in rivalry but in collaboration. Embedded finance platforms bring agility, innovation, and user-focused design, while banks offer trust, capital, and regulatory expertise. Together, they create a powerful ecosystem capable of addressing the financial challenges SMEs face today.

By combining their strengths, these partnerships will drive financial inclusion, simplify financing processes, and provide more personalized financial products that are tailored to fit the needs of SMEs.