SMEs navigate a complex financial landscape. And the traditional banking sector is increasingly falling short of meeting the diverse needs of these dynamic enterprises. Australian SMEs have had enough and are proactively looking for solutions beyond the rigid offerings of traditional banks.
New research from consultancy firm Edgar, Dunn and Company and Airwallex shows 19 per cent of Australian SMEs are accessing financial services through their on-demand software platforms, compared to a global average of just nine per cent.
Those might be software platforms that offer accounting products, payment services, or company expenses and cards, for example.
And those who haven’t made the switch yet are about to. A total of 71 per cent of Australian SMEs say they’re ready to switch their banking solution provider for a like-for-like alternative from their software provider.
Embedded finance in particular represents a paradigm shift where financial services are seamlessly integrated into the daily operations of on-demand software as a service (SaaS) platforms and marketplaces.
Basically, it means putting a financial service into a non-financial product, journey or platform. Think of the payments you make in Uber, a coffee shop that lets you order and pay in their app, or Shopify which embeds banking.
Businesses can bypass the banks and merge their own offerings with financial solutions.
Industry-focused software platforms, which really understand the ins and outs of the sectors they serve, can provide tailored financial solutions that a mainstream provider could never facilitate. One example might be a construction industry platform offering high credit limits and cashback on card payments to ease vendor payments, tackling the issue of payment term standards that the construction sector often has to battle.
Embedded finance takes advantage of rich customer data available to those on-demand software platforms and marketplaces, allowing them to accurately assess eligibility for financial products and personalise user experiences.
It also provides an opportunity for SaaS platforms. It’s a symbiotic relationship between financial services and technology-driven platforms that will deliver exponential benefits.
Our research highlights that SMEs aren’t just looking for isolated financial solutions but a holistic ecosystem that caters to their financial needs within their existing workflow. This opens the door for on-demand software platforms to provide not just financial services but a complete financial toolkit that seamlessly integrates into the daily operations of these businesses.
Worldwide, 82 per cent of SMEs have expressed a strong inclination to use FX services offered by their software providers, with 80 per cent showing a similar interest in payment acceptance and multi-currency business accounts, and 76 per cent keen on using business credit cards. The potential market for embedded financial services is huge.
Beyond revenue, embedded finance can help SaaS platforms and marketplaces reduce customer acquisition costs and improve user retention. It transforms these platforms into one-stop solutions, allowing SMEs to manage both operational and financial workflows within a single interface.
While the potential for embedded finance is immense, there are some barriers that SaaS platforms and marketplaces must navigate to fully harness this opportunity. The challenges range from complex regulation to deep technical knowledge through to all the operational considerations and complexities that come in these spaces.
With so much change happening in this space, there’s a wealth of fintechs right here in Australia that have the financial infrastructure, relationships with multiple banking partners and established licensing to make it work.
Embedded finance is a game-changer for on-demand software platforms. It offers a win-win scenario, meeting the financial needs of SMEs while driving growth and customer retention.
As this relationship between technology and finance continues to evolve, we’re only going to see more businesses turn to fintechs as the banks fall further behind.
