Unlocking opportunities: The case for embedded finance in SMEs - Startup Observer | Startup

Philipp Buschmann, co-founder and CEO of AAZZUR

Small businesses are predicted to have a resurgence in growth this year. According to ONS, the proportion of trading businesses that reported a decrease in turnover fell from 26% in January 2024, to 22% in February 2024; in contrast, 55% reported that their turnover stayed the same, which is up 5 percentage points over the same period. In addition, the WEF states in the EU, SMEs make up 99.8% of the total enterprises in the bloc and are responsible for over 100 million jobs.

As an SME, when considering ways to optimise growth and fulfil ambitions for the year, embedded finance could be the missing piece to your puzzle. Whether you are a company struggling to boost revenue in the food, beauty, travel, or property industries, you now have the opportunity to offer far more than your standard products and services, by integrating embedded finance solutions. This article will explore how SMEs can take advantage of embedded solutions and create new avenues for growth in 2024.

Setting you up for success

Traditionally, SMEs grapple with the complexities of financial management, diverting valuable resources from exciting innovation to mundane administrative tasks. Embedded finance simplifies this by embedding financial services directly into business operations. From invoicing to payroll management and expense tracking, SMEs can access tailored financial solutions within their existing workflow tools. For instance, imagine a graphic design studio seamlessly processing client payments through its project management platform. By eliminating the need for multiple platforms and manual data entry, embedded finance streamlines operations, freeing up time and resources for SMEs to focus on creativity and growth.

Accessing much-needed capital is a reoccurring issue for SMEs, often constraining their ability to innovate and expand. Traditional lending processes are confusing and time-consuming, creating barriers for businesses seeking funding. Embedded finance disrupts this paradigm by democratising access to capital through alternative financing channels, without the endless checks and paperwork.

Platforms leveraging embedded finance can offer SMEs quick and convenient access to loans, lines of credit, or invoice financing. Deliveroo is a key example of how this can be achieved. Restaurant owners can do a good portion of their business simply by downloading the app and tracking orders, transactions, and revenue with ease. By analysing real-time transaction data and business performance metrics, these platforms provide tailored financing solutions, empowering SMEs to seize growth opportunities and fuel innovation, so the restaurant owner can generate new streams of income without needing to leave their establishment.

Refining Business Operations

Embedded finance doesn’t just enrich your business, it helps it run smoother. Innovative solutions to troubling finances include wider access to credit, access to cross-border commerce, and enhanced security and privacy. AI of course plays a key part in embedded finance’s success. However, people still understandably have their reservations about what it can do and there is much debate over its ethical application. Nonetheless, it plays a pivotal role in driving growth by identifying fraud for example, and strengthening the security of process payments which is a concern of SMEs. By testing embedded finance without any commitment, businesses can see for themselves what aspects of embedded finance work best for them and what doesn’t. A one-size-fits-all approach is not in its DNA, and its flexibility will bring much-needed assurance to SMEs going through a difficult period. As I’ve said, multiple industries can realise the benefits of embedded finance and it doesn’t require a hefty investment to see long-term results.

Convenience in Times of Turbulence

Today, customers want personalised, tailored products and services sold to them when they need them. The days of generic advertising are pretty much over, as the digital age has created a one-to-one conversation between the company and the customer, and this makes customers feel valued and special, and that in turn, creates a harmonious bond of trust between brand and customer. Embedded finance has the power to hyper-personalise. Having owned several businesses, I fully understand that as a brand, your identity is incredibly precious, and one you want to cultivate carefully. With embedded finance, you don’t need to make compromises, and your values can remain aligned. The process is seamless and mutually beneficial. For your customers, it’s a win because product offerings can be tailored to their specific needs, based on data that has been collected and analysed on your chosen platform. Embedded finance has revolutionised the one-stop shop and leveraged data to redefine the customer and their view of your business. We are spoilt for choice nowadays which can make shopping a headache, but with embedded finance, SMEs can maintain consumer loyalty and utilise data analytics to mine stakeholder feedback and turn it into a business plan.

Creating Happy Customers

Loyalty programmes have existed for decades, but thanks to embedded finance have become craftier about how they can entice customers by offering generous perks with just the swipe of a credit card. Major companies like British Airways are doing it with their BA Amex credit card, but SMEs like yours can also reap the rewards! BNPL is the most notable example of how SMEs can enhance loyalty. Everybody is after the next bargain and people have to make choices about what they buy due to the rise in the cost of living. By implementing embedded finance with BaaS solutions, SMEs like yours can boost sales and make the shopping process more flexible for the end customer.

Additionally, as an SME you will be keeping up with trends and predicting the next hot products or services. An advantage of embedded finance is that it does the work for you and helps you become the trendsetter rather than the follower. The vast majority of people now have a phone and use the likes of Apple Pay to make fast purchases, and that can be leveraged in your business. Customisation is the key element, so along with integrating embedded finance, you can give a gift on a customer’s birthday or provide a discount after many purchases. It doesn’t need to be complicated. Starbucks has excelled at its loyalty scheme for example with its app which streamlines payments, purchases, and reward management at just the tap of a finger. This seamless approach is valued by their customers and shows that they understand their preferences and that they want to enable convenience, after all that’s what everybody wants, more time to spend doing the things they enjoy.

Now is the time to be brave and dynamic. SMEs have demonstrated their incredible resilience through the pandemic, global uncertainty, and a cost-of-living crisis, and by adopting embedded finance can be empowered to play a major part in the digitisation of products and services. Customers are demanding innovation, and this expectation can be met with the right tools at the founders’ disposal. Remember, you don’t have to invest a small fortune to see worthwhile results, and you can get started on your journey as early as today.

Philipp Buschmann, Co-Founder and CEO at AAZZUR

Philipp Buschmann is co-founder and CEO at AAZZUR, a one-stop-shop for smart embedded finance experience. Recognised as a rising star in the FinTech space, AAZZUR’s mission is to build profitable banking whilst at the same time empowering consumers to have access to better informed financial choices.

Philipp is a serial entrepreneur with extensive experience of working in Challenger Banking, Financial Services, IT and Energy across the world. He took one of his business’s public – Ignis Petroleum was publicly listed in the US and Germany.

Having started as a developer in Financial Services, Philipp has first-hand experience of the banking revolution from both a technology and financial perspective. His interest in behavioural economics helped inspire AAZZUR’s revolutionary work on customer centricity in banking.

Philipp holds an MBA from the London Business School. He is passionate about entrepreneurship and loves exchanging ideas, insights and discussing FinTech’s future. He has spoken at major Fintech events including Money 20/20, MoneyLive, Finovate, Fintech Matters, and the Future of Retail Banking.