Key Insights on the Rise of B2B Embedded Finance
Embedded finance is on the rise in the business-to-business (B2B) payments market, which is projected to reach $1.91 trillion by 2028. However, the three sides of an online B2B transaction – suppliers, buyers, and the platforms they use – have different needs that must be met to not only ensure a smooth payment process for all involved, but to get the most value out of this change to the payments landscape that is here to stay. In particular, meeting the needs of buyers is oftentimes the focus, while the needs of B2B suppliers – especially those selling to large buyers who often have unreasonably long payment terms – is seldom a consideration.
Having financial services built-in to online transactions is business as usual for B2C – think about the experience on websites like Amazon and eBay. Buyers in the B2C ecosystem have many options when it comes to payments – credit card, PayPal, Google Pay, Apple Wallet, among others – as well as a plethora of B2C BNPL options appearing in just about every ecommerce checkout flow. Now, it’s becoming the same way for the B2B sector as expectations around the online purchasing experience shift.
Why Does it Matter for B2B?
Embedded finance options are now becoming expected, even for B2B purchases that have traditionally been handled offline. Prior to 2020, 70 percent of B2B decision makers reported being open to making fully self-serve or remote purchases valuing over $50,000 – with 27 percent of those open to spending more than $500,000. That number is only expected to continue growing as embedded finance takes off and buyers, sellers, and platforms reap its benefits.
According to Forrester, U.S. B2B e-commerce transactions are expected to reach $1.8 trillion by 2023. This would account for 17 percent of all B2B sales in the country. Places that handle digital B2B payments, including B2B marketplaces, apps, and ecosystems (MAEs), know that it makes sense to facilitate payments in any way possible, and are all trying to figure out how to navigate this hurdle and choose the right solution.
The Trends Driving Embedded Finance
One in three B2B buyers purchase at least half of their products on business-to-business marketplaces. It’s safe to say we’re seeing a boom in the marketplaces, portals, and apps powering these experiences. As this space continues to grow, trends are coming to light that are shaping B2B payments strategies – specifically toward embedded finance in the form of invoice funding. They include:
- Increased demand caused by COVID-19
- Marketplaces, Portals & Apps need to build trust with buyers and sellers
- Millennial B2B decision-makers want a digital buying experience
- Increasing competition means marketplaces have to differentiate
- The need for data to inform effective improvements
- Boosting stickiness and increasing the number of transactions
- Driving revenue growth
- Improving UX and ease of use
Buyers Can Buy Now, Pay Later. It’s Time for Suppliers and Platforms to Sell Now, Collect Now
Businesses don’t have the time to sit around waiting to get paid, and that includes suppliers and platforms. They need funds to cover expenses like payroll and supplies, while going after opportunities to grow their business. Our data has found that SMBs have seen an increase in invoice payment terms to 60 days since COVID began compared to 46 days from a year pre-pandemic – a staggering 30 percent increase. These payment delays on top of normal net terms create uncertainty for SMBs, including cash flow gaps for covering payroll, buying equipment and materials, and an inability to have funding ready to go after big projects to grow their business – another financial strain on top of inflation. Our research also shows that in 95 percent of cases, SMBs are waiting 25 days beyond their invoice terms to get paid.
Embedded finance offers a solution to many of the issues facing the parties involved in B2B transactions. It’s all about empowering suppliers and platforms to sell now, collect now – while still giving buyers what they want (net terms.) How? Through embedded instant invoice payments.
Get More Insights on B2B Embedded Finance
To learn more about where the market is currently, the various issues affecting stakeholders right now, where the future is headed, and why instant invoice payments is the ideal future state, download our special report on The Rise of B2B Embedded Payments.