Imagine making an international business transfer with a tap of your smartphone or, even better, receiving $10,000 from your customer by simply scanning a QR code.
It may sound fanciful, but a new wave of embedded B2B payments is set to make this a reality for businesses in the United States and Canada.
Suppose you’re a business owner or decision-maker. In that case, you may have a few doubts about embedded finance, including:
- Knowing what embedded B2B payments are but not how they work
- How such payment solutions can benefit your business
- How to go about integrating them into your company workflows
Answering these concerns, however, looks essential if you wish to capitalize on new B2B payment opportunities.
The US embedded finance industry is expanding rapidly, to the point where B2B payments are predicted to hit $2.6 trillion in the USA by 2026 -- 252% of its figure three years ago.
The rise of embedded B2B payments in the United States
Source: Bain & Company
In B2B (business-to-business), it means understanding how legacy systems are set to be replaced by digital alternatives.
But what are these new embedded B2B payment options and how can they benefit your business?
Let’s find out.
What is B2B embedded finance?
Embedded finance is the integration of financial services into non-financial institutions.
In the B2B industry, this could cover the following areas:
- Business lending
- Payment processing
- Buying goods on credit, including BNPL and other financing options.
Modernized stacks and application programming interfaces (APIs) are helping give rise to creative new embedded payment options for non-banking providers.
In an interview with Pyments, Tom Priore, chairman and CEO of digital payment provider Priority, pointed out that today’s start-ups may never use a bank.
“Today’s new small business may never interact with a conventional bank. Instead, they can open a deposit account, order a debit or card, and fulfill their financing needs through one unified commerce platform.”
If this prediction is correct, then it’s the ultimate example of how fintech is democratizing financial services, making banking facilities open to small businesses and more flexible for consumers.
But what are the key factors behind this growth? Why are so many companies turning to embedded B2B payment methods?
Want to see how embedded B2B payments can help grow your business? Contact Berkeley Payments today to find out how our real-time payments systems can help you build new long-term revenue.
The top 5 benefits of embedded finance for B2B payments
The flexibility of embedded B2B finance presents many use cases for businesses looking to offer enhanced financial services to their customers.
When done well, they’re set to be a win-win scenario. Buyers get an improved customer experience and sellers reap the rewards of new revenue streams and boosted customer loyalty.
Here’s a more in-depth look at these benefits.
1. Cheaper and frictionless B2B payment processes
Payment innovation seems to be happening all around us, but over half of all international payments are still done by wire, according to the 2022 Digital Payment Survey Report
Wires, however, are expensive and take several days to clear. The average cost comes in at around $25, according to recent Forbes research, with some bank accounts charging an extra fee for business payments.
The cost of wire transfers in the USA
B2B embedded finance products, on the other hand, are designed to eliminate friction from the payment experience. Funds go directly from business to business instead of via a clearing house, which drastically reduces time and cost.
Kartik Kamat is the Vice President of Payments and Digital Banking Analytics at EQ Bank, one of the leading online banking platforms in Canada. He sees frictionless one-time payments as a huge boon to cashflow for both sides.
“The embedded finance system will allow us to bypass the transfer restrictions between different institutions and jurisdictions.” he says. “You’ll be able to send an amount of, say, $100,000 quickly and securely, instead of waiting several days for the payment to clear. This, along with a significant saving in fees, will help enormously with cash management on both sides.”
For businesses that deal with multiple large-scale B2B transactions each day, the time and cost savings could be transformative.
2. Improved cross-border transfers
We’ve already seen how real-time international transfers have impacted the customer-to-customer (C2C) market. Millions of people use the likes of Wise to convert and send money abroad in a few taps of a smartphone screen.
The B2B space makes up 69% of all cross-border transactions, but has yet to reap the benefits of this technology due to larger payment amounts and complex infrastructure.
“B2B international money movement has struggled to keep up thanks to how the SWIFT network and banks are set up”, says Kartik. “Yet legislatory progress with embedded finance in North America is about to change this. We are about to see account-to-account payments hit the B2B sector in an innovative way, so that cross-border transactions occur almost in real time.”
The potential of this for companies with vendors and customers abroad is huge. Settling invoices and accessing payments receivable with the same ease as a C2C instant transfer would eliminate clearing times and be a huge boon to cash flow.
International B2B businesses, with a newfound fiscal agility, would be able to better manage their financial resources and seize growth opportunities quickly.
This is a huge carrot for B2B payment providers to dangle in front of prospective new clients.
3. Gives access to first-party data
Built-in payment services come with a valuable extra that was out of reach for businesses in the past: data.
As customers make purchases or engage in financial transactions, embedded payment systems collect information directly from them. This data may include personal details, transaction history, and preferences.
API integration will allow embedded B2B payment providers to gather insights without relying on third-party intermediaries, ensuring direct access to valuable information that will help you personalize your products for customers and make better business decisions.
Yet, with this opportunity comes added responsibility when handling this data. It will also be essential to familiarize your business with data protection laws and privacy regulations. Robust security measures that safeguard this information will be another must-have.
Thankfully, many embedded finance solutions will come with built-in security features that protect customer data, including secure authentication, encryption protocols and ready-made data protection compliance.
4. Attract and retain customers by adding value
We shouldn’t just talk about payments when it comes to embedded finance, but related products, too, including BNPL and other credit facilities.
Each has the potential to improve the customer experience thanks to how it uses first-hand customer data to personalize its service.
An embedded credit product, for example, wouldn’t just offer more flexibility than traditional lending methods but also eliminate the need for lengthy credit checks, paperwork and form-filling.
Instead, innovative data analytics and machine learning algorithms allow the lender to offer accurate credit limits and payment terms based on what the customer needs.
Embedded payments are also designed with the user in mind. Just like we now pay for an Uber with a tap of a smartphone screen, a customer will be able to make an embedded B2B payment with a click or a swipe instead of manually typing in credit card numbers.
A better user experience means happier customers that are much more likely to stick around for the long-term.
5. Higher conversions and revenue
Varied payment and lending services direct from your website and happy customers that keep coming back for more point to one thing: higher revenue.
Embedded finance is a perfect way to connect your business to additional revenue streams that would have otherwise gone to a financial institution.
If a B2B customer knows they can buy your online product or service quickly and securely (with flexible finance options as part of the deal), then they’re much more likely to click that payment button.
We can also think of embedded finance as an improved, digital version of traditional trade credit without the paperwork and waiting times of years gone by.
The potential impact of embedded finance has led McKinsey to predict it accounting for as much as 50% of banking revenue pools over the coming years.
Why embedded B2B payments are set to grow rapidly in North America
For several years now, consumers in the United States and Canada have enjoyed the benefits of sending instant payments to friends and family thanks to the likes of Venmo and CashApp.
The B2B market, however, has lagged behind, mainly due to regulatory hurdles. An explosion in instant business payments in countries like India and Brazil has demonstrated the enormous potential that open finance has for businesses, and we’re about to see this in action over the coming months.
The US Federal Reserve launched its FedNow service in July 2023. This is a real-time payments (RTP) rail that will allow businesses to build their own embedded payment platforms on top of it.
Kartik Kamat sees this as a major step, similar to the business model that triggered the B2B payment boom in India previously.
“FedNow is an example of a real-time rail that is fundamentally changing the way payments happen in several countries. The United Payments Interface (UPI) in India, for example, is considered a model for real-time transfers. This evolution is set to transform the payments industry going forward”.
Canada, too, has payments rail Interac in place for its own real-time system, a provider that is connected to 300 financial institutions there. This will also allow businesses in the payment system to offer Canadians “new and exciting ways to pay for goods and services”, according to Payments Canada CEO Tracey Black.
“Once these systems come to the market, there’ll be a huge demand for businesses to log into the system and really open it up to the broader ecosystem”, says Kartik.
With such advances in payment infrastructure arriving swiftly, it appears that the sooner B2B businesses can be part of this network, the better for their long-term revenue prospects.
Tap into the embedded B2B finance ecosystem with Berkeley Payments
Embedding a new payment solution into your business may seem like an overwhelming prospect, but Berkeley Payments specializes in making the transition a smooth one.
Our single-integration API gives you access to a ready-made banking infrastructure within hours then our built-in onboarding will let you get customers on board in minutes.
You’ll also get world-class security with advanced KYC verification and FDIC insurance making you automatically compliant with all the relevant regulations.
As part of an embedded finance ecosystem, you’ll be able to offer a bouquet of new services, whether you’re an e-commerce marketplace looking to streamline payments or a young start-up aiming to expand your customer base, including:
- Personalized Mastercard or Visa payment cards
- Customer rewards, like gift cards and credit top-ups
- Lightning quick and secure payments
- Scalable infrastructure that lets you dial up or down your service according to demand
Sign up today to access the growing embedded B2B finance ecosystem and grab your share of the market ahead of your rivals.
Find out the benefits of embedded finance for both your business and its customers. Sign up with Berkeley Payments and use our real-time payments system to access untapped revenue.