Connect with us

Business

Embedded Finance: The Opportunity Ahead

Unlocking Growth with Corporate Embedded Finance

By Eduardo Martinez Garcia, CEO & Co-founder of Toqio

The current financial landscape is undergoing a significant transformation, disrupting the long-established dominion of major banks and other large financial institutions. Embedded finance, a concept that has thrived in the realm of digital consumer products, is now steadily infiltrating the corporate domain, poised to revolutionize the financial sector further.

This paradigm shift is manifesting in a multitude of ways, with digital embedded finance increasingly becoming an integral part of corporate digital offerings. Distributor payment processing, lending services for suppliers, and supply chain financing are all becoming commonplace – the versatility of corporate embedded finance knows no bounds. Despite the diverse applications the core objectives remain consistent, including enhancing B2B processes, mitigating risks, and fortifying business relationships.

Corporate embedded finance promises to deliver substantial value over the course of the next decade. A burgeoning opportunity beckons, estimated to be worth an astonishing USD 3.7 trillion over the next five years alone. Remarkably, more than 50% of businesses have expressed a preference for cash flow financing through platforms rather than traditional banks, as per a report by McKinsey. The shift observed in consumer embedded finance adoption is creeping into the B2B landscape, and moving more quickly all the time. Consequently, if the high level of adoption of consumer embedded finance carries over into the B2B space, and it’s certainly expected to, we’re genuinely looking at the next big thing.

Customer experience takes the helm

Customers are no longer passive passengers in their financial journeys; they have emerged as the navigators, steering the industry’s course while financial institutions focus on risk management. Banks and non-banking financial institutions (NBFIs) remain pivotal, but their control of products is waning. Companies, intimately acquainted with their customers and partners, possess a deeper understanding of their collaborative ecosystem. Consequently, they are better equipped to tailor their financial offerings to meet the needs of their business relationships.

Take Amazon, for instance, which has been offering loans to small businesses operating on its platform for years. Amazon evaluates risk based on a merchant’s payment history, sales volume, projected revenue, and other critical data points. This approach enables Amazon to provide additional value to its sellers while securing a foothold in the financing market. The close rapport Amazon shares with its small business partners positions it with substantially less risk compared to conventional banks.

Shopify has also ingeniously woven embedded finance into the very fabric of its offering. While its core service revolves around delivering an efficient, subscription-based e-commerce platform, it also provides payment processing and lending services, among a myriad of other financial solutions. Shopify boasts an extensive reservoir of data, allowing it to make informed decisions about the financial products it can offer to merchants, all while keeping risk to a minimum.

Decentralizing financial services

Historically, financial products have fallen within the purview of major corporations either through partnerships with third parties or in-house service creation. Nevertheless, the rise of digital channels has expedited the decentralization of financial services, and it’s snowballing. Companies spanning various industries, from automakers to retail giants, are recognizing the immense untapped potential in taking control of many functions traditionally handled by financial institutions. While financial institutions will endure, their role is evolving. Their strengths are assessment, management, and specialized services. They must pivot towards analyzing data from a multitude of sources, diving into data lakes to provide genuinely useful risk assessments.

Incumbents aren’t going to disappear

Incumbent banks have demonstrated their staying power and adaptability time and time again, mostly due to being able to leverage their size and relative dependability. They’ve capitalized on their vast customer bases, regulatory compliance expertise, and extensive branch networks to maintain a competitive edge. Additionally, incumbent banks have finally begun to recognize the need to adapt to changing customer expectations and digital transformation.

The future of core banking is likely to strike a balance between fintech disruptors and established incumbents. Collaboration and partnerships between incumbents and fintech startups tend to drive innovation, offering customers cutting-edge digital experiences. Big banks are probably going to find their place in the market modified, and not necessarily in a bad way.

Navigating the path ahead

Incumbents and financial behemoths have long been oriented toward long-term financial products, such as 30-year mortgages. But what about short-term business loans? Consider the restaurateur seeking a swift three-month loan to renovate a kitchen or the farmer unable to repay a loan until the crops are harvested and sold, a process spanning six months or more. For traditional banks, these scenarios represent short-term debts, a situation they tend to avoid. This presents a prime opportunity for companies to tailor products that cater to these specific needs, allowing them to define the space.

The evolution of embedded finance is commencing with payments, as it represents one of the least regulated segments in finance, offering ample room for innovation. Credit, closely trailing payments in significance, holds paramount importance. What’s really exciting is that as corporate giants blaze the trail, they pave the way for others to follow suit. This means that small and medium-sized enterprises will also be able to get involved, making embedded finance more inclusive within a given business ecosystem.


Eduardo Martinez Garcia is the CEO & Co-Founder of Toqio. He is an avid entrepreneur who has set up and run successful global ventures in the UK, Spain, and South Africa over the course of the last 20 years.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Achieving efficiency for scale amongst tradesperson-run SMEs

Written by Marius Stäcker, CEO, ToolTime

Despite the fact that UK smartphone penetration stands at 98% amongst 16 to 55-year-olds, British tradespeople are still largely reliant on pen, paper and basic computer software for the administration of their businesses. Between quotes, invoices, material orders and worker communications, paperwork can become unwieldy, confusing and a time drain.

Running businesses in this way creates a tough choice for tradespeople: spend more time on paperwork but less time getting the work done, or slow down potential client and customer communications and risk lost sales or complaints. Historically, navigating this choice has been a balancing act, and has created added stress for tradespeople who are already running at max capacity to keep their small businesses running.

In 2024, tradespeople have a third option – leveraging digital tools to eliminate time-consuming paperwork, and build better communication links between team and customer alike. Not only this, but onboarding new technological solutions can make the trades more attractive to young talent, and help businesses achieve organisational and planning shortcuts which save both time and money. By overhauling business processes to enable digital efficiencies, tradespeople can take on more work – and grow.

The time to grow is now

Despite the challenges of stalled economic growth, rising mortgage costs and a cost-of-living crisis last year, many small trade businesses made the most of the opportunity to service the large number of homeowners opting to stay put, rather than sell up.

Many found there was plenty of work to go around, with trends indicating long-term growth for SMEs in the trades as younger generations demonstrate far greater reliance on tradespeople than their parents. In fact, those within the 18 to 34 age bracket are reported to have made more than twice as many call-outs for tradespeople as those aged 55+ in 2023.

The challenge for SMEs in the trades has been keeping on top of the work coming in – not least because of what the UK Trade Skills Index 2023 termed an ‘alarming’ skills gap in the construction sector. Kingfisher reports that the shortage is so severe that the UK is set to lose out on £98bn of growth by 2030 as a result. This skills shortage creates a paradox for those in the trades – more work, but without the resources to accommodate demand.

So, whilst the time is ripe for small businesses in the trades to look towards expanding, they can only do so with the support of new tools. Business owners need to strike whilst the iron is hot, but scaling operations isn’t always easy; managing more staff, more jobs, and more paperwork is no mean feat.

This is why improving efficiency is so essential to businesses looking to scale; streamlining operations is critical, and getting buy-in from staff requires tools that are easy to use and help, not hinder, the daily workload.

New challenges require new solutions

The manual recording of invoices, quotes, receipts and customer details not only takes more time, but makes it easier to lose track of vital information, and lengthens the tax returns process. On top of this, tedious administrative tasks take a toll on the individual – burnout is common among small business owners, and factors like the cost of living crisis create added pressure to retain and acquire new customers.

Digital job management solutions have the power to revolutionise traditional industries – like the trades – helping small businesses to realise new efficiencies, eliminate paperwork and modernise their image to appeal to young talent. As accessibility to digital tools increases, awareness is spreading about the benefits new software and technologies can bring to a wider scope of businesses; more than 80% of UK construction companies now cite digital transformation as a key priority for the coming years.

And it doesn’t have to be complicated or difficult to roll out. The availability of cloud-based software has made digital tools easier than ever to get hold of, as well as bringing down the cost of their adoption. The cloud allows everything to be managed entirely remotely from a range of devices, enabling an entire team to store documentation, and to input and access information whenever it’s needed, from wherever they are.

By incorporating simple digital tools to help automate things like invoice generation, quotations, and job scheduling, it’s possible to save around 30% on precious working time. By streamlining operations, construction companies can offer workers a better work-life balance, and take tiresome administrative tasks out of the job description. The bottom line is that digital tools are creating an immediate return on investment for small businesses that can no longer be ignored.

Continue Reading

Business

Bridging the Gap: Evaluating Technology Companies’ Efforts in AI Consumer Education

Agata Karkosz, Leader at FPAcademy at Future Processing

AI is becoming increasingly influential across various sectors and industries. And its impact is only expected to grow in the future. In fact, AI adoption has more than doubled since 2017, with businesses making larger investments to scale and fast-track development.

With such rapid advancements taking place, it is important to educate consumers about navigating the complexities of the technology.

The Current Landscape of AI Education

There are several companies actively providing education and training in the field of AI. Google AI has been offering AI and machine learning courses to consumers for a few years now, while lesser-known companies, like Coursera, edX and Fast.ai, have also entered the space.

Nevertheless, these offerings are often catered to people interested in learning and developing skills in the technology, rather than the everyday consumer. In fact, research released last year by leading software development company, Future Processing, found that more than two-thirds of UK consumers aged 50 and above felt technology companies needed to do more to help them understand AI.

Respondents were asked what AI applications and tools they are currently using, with AI voice assistants and customer service chatbots coming out on top. But, because the technology’s capabilities are wide-reaching, companies need to up their game to ensure the average consumer is in the know.

Educational Initiatives: Are They Enough?

Companies must work harder to help consumers of varying levels of technical expertise understand AI. Doing so will help demystify AI and build consumer confidence and trust.

Understanding this need, Google AI offers resources such as the “Machine Learning Crash Course”, a free online course designed to introduce individuals to machine learning concepts. Microsoft, too, has its AI School, an online platform supplying free courses and resources covering various AI topics, while other major firms, including Facebook, Intel, Amazon and NVIDIA, have sparked similar education initiatives.

Still, due to fresh technological advancements and research breakthroughs, as well as increased data availability, open source and collaboration efforts, rapid industry adoption, and greater funding and investment, the challenge for companies comes in maintaining up-to-date and readily available education materials.

The Challenge of Simplifying Complexity

The inherent complexity of AI arises from the interdisciplinary nature of the field, combining elements of computer science, mathematics, statistics, neuroscience, and engineering. AI involves complex algorithms, sophisticated mathematical models, and intricate programming structures that are hard to rationalise.

Balancing the need to simplify AI concepts for broader understanding while retaining the essential information poses a significant communication challenge for businesses. Oversimplifying may lead to misconceptions or a lack of appreciation for the complexities involved while providing too much detail can result in confusion.

Successful communication often involves using relatable metaphors, real-world examples, and interactive experiences to engage consumers and help them grasp the fundamental principles without getting lost in technical intricacies. Effective communication about AI requires collaboration between experts, educators, communicators, and the general public to ensure a more informed and inclusive understanding of this rapidly advancing field.

Transparency and Explainability

Enhancing transparency and explainability in AI systems has become a key focus for technology companies to address concerns related to bias, accountability, and trust. Several efforts have been made to make AI systems more understandable and interpretable. Some common strategies and initiatives include:

Interpretable Models

Many technology companies are working on developing AI models that are inherently more interpretable. This involves using algorithms and architectures that produce results that can be easily explained and understood. For example, decision trees, rule-based systems, and linear models are often more interpretable than complex deep neural networks.

Explainable AI (XAI) Techniques

Explainable AI is a research area focused on developing techniques and tools that help users understand the decisions made by AI models. Techniques such as feature importance analysis, saliency maps, and attention mechanisms aim to highlight the factors influencing the model’s predictions.

Ethical AI Guidelines

Many companies have established ethical AI guidelines and principles prioritising transparency and fairness. These guidelines may include commitments to avoiding biased data, providing clear explanations for decisions, and involving diverse perspectives in the development process.

User-Friendly Interfaces

Technology companies are investing in user-friendly interfaces that allow users to interact with AI systems more intuitively to enhance transparency. Dashboards, visualisations, and plain-language explanations help users understand the model’s behaviour and outputs.

Addressing Challenges and Gaps

AI education faces several challenges that stem from the diverse nature of the field, the varied backgrounds of learners, and the evolving landscape of information dissemination.

The rapid evolution of AI is a primary challenge, but a lack of standardisation, diverse audience backgrounds, and the spread of misinformation have also hampered the public’s ability to understand the technology.

The highest concerns surrounding AI are privacy, transparency and security. This is supported by Future Processing’s research, with respondents aged 50 and above ranking security and data privacy as their highest concerns when using AI, followed closely by misinformation and question misinterpretation.

But, through ongoing collaboration and dialogue, governments can establish standards which foster diversity and inclusivity, provide up-to-date resources, and emphasise practical application to deliver more effective and equitable AI education.

The Role of Ethical Guidelines

With AI frequently coming under the spotlight, technology companies are increasingly recognising the importance of ethical guidelines and policies in AI development and usage.

Many have published official documents outlining their ethical principles and values concerning AI. These documents typically cover commitments to fairness, transparency, accountability, privacy, and avoiding biases in AI systems. For example, Google and Microsoft’s respective AI Principles are publicly available documents that articulate the companies’ ethical commitments.

Learning to Embrace

Continuous efforts in AI consumer education are imperative to navigate the evolving landscape of AI, bridge educational gaps, address ethical considerations, and ensure that individuals are equipped with the knowledge and skills needed in an increasingly AI-driven world. The commitment to transparency, inclusivity, and ethical practices will contribute to building a more informed and responsible AI community, meaning we can embrace all it can bring to the table, rather than dwelling on its shortcomings.

Continue Reading

Business

Leveraging Technology for Sustainable Logistics and ESG Compliance

by Will Lovatt, General Manager and Vice President, Deposco Europe

A growing number of consumers are demanding packaging that is sustainable and environmentally friendly.. Consultancy, McKinsey, recently launched a survey to explore people’s attitudes to the topic across 11 countries worldwide. In all surveyed countries and across end-use areas, the majority of respondents claim to be willing to pay more for sustainable packaging,

Of course, features and functions remain important, but the sustainability and ESG (Environmental, Social, and Governance) aspects of the logistics process are becoming increasingly significant in consumers’ purchasing decisions.  The entire supply chain, including the sourcing of raw materials, manufacturing processes, packaging, delivery methods, return policies, labour practices, and initiatives for regeneration, is under scrutiny. Today’s informed consumers are making deliberate choices, favouring brands and delivery services that align with their values on these fronts. Therefore, it’s essential for brands to not only maintain high standards of service but also to provide a variety of delivery options. This range should cater to immediate needs as well as offer solutions like batched deliveries at convenient pick-up points, catering to the growing demand for flexibility and sustainability in the shopping experience.

Regulation and risk management

Consumers are undoubtedly a driving force in ESG-focused logistics transformation, but businesses must also meet a growing number of regulations that are driving the need for ESG considerations in the logistics sector. For example, the European Union’s Sustainable Products Action Plan includes several requirements for businesses to provide information about the environmental impact of their products. Now, we expect regulators to be closely monitoring final mile delivery and whether zero emissions vehicles are being utilised, at least within urban areas.

From a risk management standpoint, ESG considerations are critical. Neglecting ESG risks exposes businesses to reputational harm, financial penalties, and legal repercussions. Today’s consumer sentiment is such that unsustainable logistics practices can prompt consumer boycotts or lead to regulatory fines, underlining the importance of ESG compliance in modern logistics operations.

The role of technology in greening logistics

So what can businesses do to mitigate ESG challenges? To address ESG challenges, businesses must transition from traditional paper-based systems to advanced technology solutions. These solutions enhance visibility across the entire supply chain, from production to delivery. Distributed order management systems, for instance, offer real-time insight across extended fulfilment networks, enabling the optimised allocation of consumer orders to the most suitable stock sources, balancing cost and speed. In today’s era of stringent ESG and sustainability standards, it’s crucial for organisations to have comprehensive oversight over the movement of goods and the various stakeholders involved, beyond mere timing. This technological shift is essential for meeting the evolving demands of ESG compliance and sustainable logistics.

Actively tracking the credentials and integrity of every checkpoint in the supply chain is now everyone’s problem. Consumers care deeply about the ethical sourcing of raw materials and the labour practices of third-party logistics firms involved in product sourcing. Technology can allow organisations to map the complete movement of a specific customer order, from acquisition to  final shipment, and then notify that customer directly.

Organisations then need to implement sustainable practices in the warehouse, leveraging technology to optimise operations. This includes using technology to determine the most efficient customer packaging sizes, reducing waste, and guiding staff on consolidating orders to minimise shipments and cut carbon emissions. Additionally, offering consumers options like click-and-collect can align with their existing plans, promoting sustainability rather than just delivery speed. Providing flexible delivery options is increasingly seen as crucial, as the fastest route is typically not the most eco-friendly.

A sustainable future

As data and computer security threats evolve, we’re now transitioning to increased controls around how our products are made, procured, packaged and shipped to the public. For a variety of reasons, from ethical to legal and public sentiment, ESG considerations and controls are becoming increasingly important in logistics and fulfilment.

Alongside this, the trajectory is for more sales to be made via Direct-to-Consumer channels, the desire for more convenient services and customer willingness to hop brands means that businesses  must prioritise sustainable practices. Consumers now expect the ability to customise delivery parameters and choose from transparently-priced options, or they will take their business elsewhere. Brands must manage their order and delivery options effectively to stay competitive.

The key to improving supply chain management lies in adopting sustainable order management and fulfilment technologies. Companies should invest in the latest platforms that support best practices in ESG strategy. These advanced solutions enable compliant processes, cost-efficient operations, increased sales, efficient DTC fulfilment and positive customer experiences.

Continue Reading

Copyright © 2021 Futures Parity.