September 26, 2023

Enterprise JM

Do the Business

Embedded Finance Could Be SMBs Silver Bullet

Small to mid-sized businesses (SMBs) face significant obstacles when it comes to payments friction. These payment complications can take many forms, with 45% of SMBs reporting that manual reviews are a top challenge, 43% complaining about the high costs of making payments, 41% reporting time-consuming payments processes and 35% lacking financing options. The average SMB cited no less than four different payments challenges. 

Reducing these challenges requires choosing the right financial partners, and for many of these SMBs, traditional players in the banking industry are not meeting expectations. This month’s PYMNTS Intelligence examines how embedded finance solutions can help SMBs ease their payments complications. 

SMBs scramble for solutions

More than 60% of SMBs said they desire embedded financial services to help them smooth their payments processes, and half of them believe that these embedded finance solutions could help them analyze their payments data and provide insights into their day-to-day operations. 

The data analytics functionalities that come with embedded finance often mean a higher upfront cost for the businesses that leverage them, but this is widely viewed as money well spent. Fifty-five percent of surveyed SMBs said they are willing to weather a potential financial burden to attain these insights and provide their customers with a superior payments experience.

Embedded finance solutions can also help bridge the payment expectations gap that exists between buyers and suppliers. The former group told PYMNTS they preferred to pay suppliers by regular automated clearing house (ACH) or check, while suppliers preferred receiving payments via methods that give them faster access to funds, such as real-time payments. Shifting to a more convenient digital payments experience powered by embedded finance can offer a seamless payments experience for both groups, reducing their reliance on different payment methods in favor of a singular transaction system that meets both of their needs.

Exploring embedded finance solutions as an alternative 

A recent study found that 47% of SMBs would be willing to pay the same amount or more for embedded finance solutions over solutions provided by traditional financial institutions, a clear demonstration of the superior services embedded finance solutions can provide. 

This willingness to switch to embedded finance among SMBs is paying dividends for the entire industry. New embedded finance solutions could claim up to $32 billion in SMB financial services revenue by 2025 and expand the overall SMB financial services market by up to $92 billion.