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A Guide to Embedded Lending: What Is It and Why Is It Important?

Topics: Finance

Embedded lending is one of the newest fintech strategies companies worldwide are putting into play for business growth. In the U.S. the embedded lending industry is projected to grow at a CAGR of 27.5% in the coming years to top nearly $200,000 million by 2029. Embedded lending offers a powerful advantage – the ability to become an all-inclusive solution for customers, making it an attractive strategy for B2B and B2C companies alike. And, like other fintech-category offerings, it removes much of the friction found in more traditional financial services relationships. In this article you’ll learn what embedded lending is, and why it is one of the most significant strategies for B2B companies on the modern business horizon. 

Embedded Lending Image

What is Embedded Lending? 

Embedded lending allows companies to provide access to lending through their non-financial organizational products and services. In other words, end customers can borrow directly from the companies they’re already working with. Financial institutions are not removed entirely from the equation, just more behind-the-scenes.

For example, embedded financial technologies such as Apruve enable B2B merchants to offer net terms and other forms of trade credit right at checkout. Buyer prequalification for credit lines and onboarding take just a few minutes and are done seamlessly via the Apruve platform embedded in the merchant’s ordering process. B2B buyers save time and effort through a streamlined purchase process, and B2B merchants can offer their buyers automated, financed trade credit.   

B2B merchants may opt to offer embedded payments, a related concept of embedded lending that allows customers to bypass checkout processes and pay with a single click directly on their website or app. 

In addition to trade credit and payments, other popular embedded banking and lending strategies include: 

  • Merchant cash advances
  • Working capital term loans
  • Revenue-based financing
  • Point of sale financing

Are Embedded Lending and BNPL (Buy Now Pay Later) the Same?  

Digital buy now pay later (BNPL) platforms like Affirm and Klarna were at the forefront of embedded lending for B2C companies. BNPL is a pay-over-time alternative to credit cards which makes it easier and less expensive for consumers to pay in installments. Though embedded lending shares many of the same features and functionality as BNPL, it takes the pay-over-time concept a step further for B2B business relationships. In fact, some experts view BNPL as a category of embedded lending. 

BNPL vs. Embedded Lending: Key Differences

  • B2C vs. All Customers – BNPL models are primarily built for consumers in the retail space. Embedded lending is a broader solution for both B2C and B2B customers, and is advantageous in a range of B2B markets.
  • Lending Scope  – Because BNPL solutions target consumer purchasing, there are smaller credit limits, and less data collection and documentation is required. Embedded lending can meet the larger lending needs of enterprise organizations, and can manage more complex transactions with speed and efficiency.
  • Use Cases – While BNPL is primarily used for purchasing, embedding lending allows customers to take advantage of a variety of lending options in a B2B setting. 

Use Cases: Two Examples of Embedded Lending in Action  

Embedded lending can be integrated with many types of B2B business models to strengthen B2B relationships and customer satisfaction. Here are just two examples:

Embedded payments: B2B companies who want to sell directly to their end users rather than or in addition to traditional distributor channels can offer embedded payments with a platform like Apruve. Apruve creates a streamlined purchasing process that allows end-user customers to buy now and pay later through net-terms or long-term financing available right at checkout. Every aspect of the purchase process from credit application to payment is digital, which creates modern B2B buying experiences and allows the merchant to easily scale within a region or country or across borders.

Merchant advances: B2B marketplaces looking to expand relationships with their sellers can provide an advance loan to their sellers based on their platform revenue. The seller - often a small to mid-size business, gains simplified access to funding that banks may not be willing to provide due to organization size. The marketplace helps its sellers grow, which in turn helps the marketplace grow.  

The Future of Finance is Embedded Lending 

Like so many new fintech strategies, embedded lending creates the potential for additional avenues of growth through innovative digital relationships. Experts believe embedded lending will transform not only the banking industry, but also business perspectives on the financial aspect of trade relationships. 

Embedded lending is changing the future of business by:

  • Expanding the concept of vertical integration outside an organization’s industry to finance 
  • Creating large new revenue streams for financial institutions
  • Adding fast and convenient embedded loans to the toolbox for business management and financial planning 
  • Adding new business funding-based strategies to the toolbox for customer service improvement and for engaging new customer segments 
  • Opening up the ability to make credit decisions based on platform-specific revenues in place of more comprehensive historic financial information

With a SaaS partner like Apruve, which offers embedded banking and trade credit services through a payment platform, B2B businesses are positioned to accelerate growth.  

If B2B companies needed one more reason to consider embedded lending, it’s that by supporting their customers’ growth with simplified access to funding, they also establish a stronger foundation for their own growth. B2B merchants that use Apruve to automate high-volume, smaller-value transaction customer segments are finding that embedded lending leads to increased order volume and frequency. The Apruve platform creates digital purchasing experiences that B2B buyers appreciate, and with these segments handled by Apruve, merchants have more capacity to serve their top revenue-producing customers.  

If you’d like to explore growth for your business through embedded lending, get in touch with the specialists at Apruve.

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Apruve enables large enterprises to automate long-tail credit and A/R so you can stop spending 80% of your time and resources on 20% of your revenue. We partner with each of our customers to solve their unique credit, payment, and accounts receivable challenges and build the right credit solutions for your markets, customers, and goals. 

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