Embedded finance awareness surges – but what does it offer SMEs?

Over two-thirds of UK financial institutions see embedded finance as a substantial growth avenue but remain cautious of its use, according to a new whitepaper published by Weavr.

Embedded what?

To recap, embedded finance is the integration of financial services into non-financial business processes. 

Uber is an easy example of understanding embedded finance use within an app – users order a car, make their journey and then exit the car, all without doing anything outside of the Uber app. This is because the company has used embedded finance within its app to take care of the payment side of its operation, as well as finding a driver for the user.

Weavr’s independent study found that 65% of UK banking and financial executives say that their business is already active in embedded finance research and development. 

Risky business?

Despite this positive approach, there remains uncertainty about embedded finance as a model. More than two thirds of respondents listed ten or more types of cost and risk associated with developing embedded finance capabilities – and a huge 99% identified at least one area of uncertainty about strategy or execution plan related to the model that was holding them back. 

Three-quarters said they don’t have a clear, shared internal action plan for embedded finance either.

Opportunities for SMEs

The new study is food for thought for SMEs looking for new income streams amidst financial chaos caused by high interest rates, the ongoing cost of living crisis and a predicted end to a business rates freeze imminent. 

One of the key advantages for SMEs is how it lets businesses leverage their existing customer relationships and distribution channels to offer financial services. 

Large companies have been embedding financial services in their B2B processes for decades with commercial terms and conditions and lending options to sell their products more efficiently – and this is now a viable option for SMEs to incorporate into their offerings too.

As well as increasing revenue, embedded finance can also help businesses improve business relationships, simplify B2B processes, and minimise risk.

“What stood out most from the research was that 79% of execs in financial services firms in the UK are discussing embedded finance at least once per week,” says Alex Mifsud, CEO and co-founder at Weavr. 

“The biggest single conclusion is that no financial services firm can ignore the exciting new distribution channel that is embedded finance. As our research demonstrates, more and more banking professionals are recognising that embedded finance innovation is not the same as open banking and cannot be expected to succeed if narrowly interpreted as a derivative of past efforts to develop premium APIs.”

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Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, TNW, UKTN, The Business Magazine and Maddyness UK. She also works closely with agencies such as CEW Communications to develop content for their startup and scaleup clients.