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Embedded finance/B2B convergence an important trend: Galileo report

While B2B technologies and embedded finance are two hot fintech trends, the intersection of the two will make things interesting in the coming months. That’s one of the revelations from the Galileo Embedded Finance Report, a survey of 450 C-level B2B executives commissioned by Galileo Financial Technologies and conducted by Juniper Research.

Galileo’s chief revenue officer Seth McGuire said that while everyone is discussing embedded finance and B2B technologies as separate issues, their intersection is less discussed. And it is that blend of trends that he sees as a growing fintech movement.

The study defined embedded finance as any financial services task in a non-financial user experience. That breadth allowed the researchers to explore some exciting areas.

Embedded finance is top of mind

The first finding is that embedded finance is on the minds of most executives. Roughly 85% were aware of or thinking about it, and more than 60% have launched some form of embedded financial service. Of the remaining 40%, 60-plus% are considering it.

McGuire said that those percentages are significant given the many considerations executives contend with today. But given that the three top pain points addressed by embedded finance today are customer retention, cash flow management and revenue growth, it makes sense that they are.

How embedded finance benefits companies

Embedded finance is seen as a way to retain clients, McGuire explained. It can deliver both value and secure interactions.

“You make that simpler and easier, and you are creating another interaction with the client,” McGuire said.

Embedded finance also helps companies with cash flow management. If they own some pieces, they can control the money movement and manage the process through the various new experiences they offer. It also helps companies make more money.

“Financial services can be interesting if you’re using an outsourced product,” McGuire observed. “It becomes margin. It’s an incremental product that you’re delivering to an existing customer that potentially expands you to new customers but gives you greater yield when you’re doing it because you’re using another product.”

Executives have more than a cursory knowledge of embedded finance, McGuire added. They’re thinking hard about their customers’ needs and how to retain them. They’re considering the benefits of lending, credit and other options. Building an embedded experience by offering digital capabilities within interactions is paramount.

Using multiple vendors leads to problems

Complicating many companies’ embedded finance journeys is dealing with multiple vendors. Of the 63% of businesses currently using embedded finance, 78% work with two or more providers. (Fintechs are the preferred providers.)

It’s partially because many fintech begins by addressing very narrow niches. McGuire saw this when he helped build Twitter’s business development platform. As successful companies grow, they expand their offerings across verticals. Sectors consolidate. It happened to Galileo, who recently acquired Technisys. Galileo itself was acquired by SoFi.

McGuire said that B2C is well ahead of B2B on this journey, especially with embedded finance. B2C led the way in starting with a digital client mindset and building backwards from that. What does the customer need, and how do they build it?

“B2B is seeing that now,” McGuire said.

TZ digital banking from left Luis Valdich, Seth McGurie Galileo, David Kilin
Seth McGuire (centre) speaks on a panel at Fintech Nexus 2022 in New York City

The sourcing of multiple providers is easier to understand once you realize how companies tend to begin their embedded finance experience, he added. They start with wanting to offer a single service and find a provider to meet that need. Then another need arises, and they find a provider that addresses that.

When companies begin looking for help

Once it becomes harder to manage and scale, Galileo enters the picture. They provide knowledge of ecosystem construction and can address the ramifications of new additions while ensuring those popular pain points are solved.

Two-thirds of companies (68%) prefer to offer embedded finance services from a non-bank provider. They’re not a bank but want to provide some services. Successful models are digital-first organizations, so follow their lead.

Where embedded finance is headed

McGuire said that as embedded finance ages, look for added capabilities in more complex areas such as invoice factoring. There are more developed models for lending working capital. Companies best know their customers’ needs and have the data to back that up. With appropriate guidance, let them take the lead in creating a path.

McGuire looks forward to seeing embedded finance capabilities improve in the coming years. One exciting area is customer privacy protection while providing better risk and fraud service models. Galileo recently partnered with Datavisor to provide more robust fraud management.

“Areas like that where you will see the industry coming together with more bits and pieces…I think that is an area where you will see more innovation,” McGuire said.

  • Tony Zerucha

    Tony is a long-time contributor in the fintech and alt-fi spaces. A two-time LendIt Journalist of the Year nominee and winner in 2018, Tony has written more than 2,000 original articles on the blockchain, peer-to-peer lending, crowdfunding, and emerging technologies over the past seven years. He has hosted panels at LendIt, the CfPA Summit, and DECENT's Unchained, a blockchain exposition in Hong Kong. Email Tony here.