As embedded finance began gaining traction throughout 2023, Airwallex wanted to explore the appetite among small and medium-sized businesses to receive financial services through their software or marketplace provider.

We commissioned Edgar, Dunn & Co to run a comprehensive, global survey of 1,000 small and medium-sized businesses (SMBs) in the US, UK, China, Australia, and Singapore, and the results show a massive opportunity for SaaS platforms and marketplaces to fill the gap left by traditional banks.

Some of our findings include:

• 83% of SMBs are interested in accessing financial services through their software platforms.
• Only 9% of SMBs currently access embedded finance from their existing software platforms.
• Only 13% of SMBs in the retail sector expect their financial requirements to be met by banks.
• 76% of SMBs say they would even be prepared to pay extra for the convenience of accessing multiple financial services through a single platform.

It’s clear that SMBs continue to be underserved. Traditional banks aren't building the necessary financial infrastructure or technology to support these SMBs who increasingly need to grow and expand their capabilities across borders. Fintechs are expanding their services to enable platforms or marketplaces to embed financial solutions into their products to help underserved SMBs. For fintechs who are doing this well, there is a global opportunity here for the taking.

Source: Airwallex

Why traditional banks are falling behind

The main pitfall of traditional banks is the common story of legacy technology and speed of iteration, which we’re experiencing in every industry, not just finance. The more your company grows, the harder it is to move and execute as quickly. There are more stakeholders, more processes and more iterations. It’s no wonder that many fintechs were founded by former bankers. It means fintechs are set up from day one to move faster and adapt to these upcoming needs that we're starting to see.

While, 15 years ago, SMBs weren’t trying to find financial solutions from platform software providers, our research clearly shows that now they are, because traditional banks aren’t able to catch up quickly enough. I expect we're going to start seeing much more consolidation and acquisition from traditional financial services providers who can't iterate as quickly.

Source: Airwallex

Off-platform to on-platform: Cost centre to revenue centre

Our report found that 83% of SMBs are interested in accessing financial services through SaaS platforms and marketplaces, yet only 9% currently access those services through their existing software providers. Combined with the fact that 76% of SMBs are willing to pay more for one-stop solutions that can be accessed through a single vendor, there is a massive, untapped opportunity in the market for SaaS platforms and marketplaces. This opportunity lies in generating new lines of revenue streams and creating new ways to monetise.

It’s about turning a cost centre into a revenue centre. Think about things that your customers or partners might already be doing off-platform and bring these services onto your platform. For example, payouts have historically been a cost centre. But if you can move payouts off of traditional financial rails and have them occur via an issued card instead, with interchange these payouts suddenly become a revenue opportunity instead. Our research found that businesses can increase their per-customer revenue five times by offering embedded financial services.

Similarly, you can also offer enhancement services. Offering local accounts and FX capabilities before the payout can enable customers to convert funds before paying, and all of a sudden you have yet another opportunity to monetise. Considering that half of SMBs are facing issues with converting funds and collecting global cross-border payments, there is a lot of untapped potential here.

Source: Airwallex

The big opportunity lies in shifting the view of embedded finance. Instead of considering it as an expense, it should be viewed as a way to capture what customers are already doing, just elsewhere. Bringing these services on-platform doesn’t simply offer monetisation opportunities, it also creates a better overall customer experience and increased customer loyalty. 

The impact of embedded financial services on the customer experience

Embedded financial services will improve the customer journey, increase customer retention and boost loyalty to the platform. The more services you’re able to offer, the more likely you’ll be able to keep your customers engaged, which means they’re less likely to look at other providers because you’re already solving their needs.

For example, we found that SMBs today are more likely to choose an expense management solution that will help them simplify their workflows by offering global payouts, employee cards, and automated reconciliation, all in one place. Facilitating these additional features can enable platforms to both attract new and retain existing customers, especially if these services are made available at a global scale.

Embedded finance: Here to stay

Most crucially, the data shows it’s not an isolated phenomenon. The financial services landscape is quite different in varying regions, yet our research found that SMBs are aligned across regions in their desire for financial services that are easily accessible and customisable to meet their specific needs. And with this, they are less concerned about price and more concerned with efficiency and flexibility. Our research shows that we’re in an environment where embedded financial services are in a nascent phase in which demand outstrips supply. By acting on consumer demands, platforms can gain a first-mover advantage over competitors.