Integrated lending is booming. Over the past year, we’ve seen a slew of retailers offer consumer lending services with new buy-it-now-pay-later (BNPL) offers that have boosted industry spending.
In the UK B2B space, a parallel trend is emerging. Payment service providers (PSPs) and e-commerce platforms outside the traditional financial environment lend directly to their business customers.
The demand for SME financing is expected to continue to grow globally in 2022, leading to an increase in the prevalence of embedded loans, which are still ripe to be taken in Europe.
It is high time that small businesses in Europe were offered alternative routes to credit. For years, traditional bank lending has let SMBs down with poor onboarding experiences, slow decisions, poor customer service, and low approval rates.
Looking at the growth of embedded loans so far, it is reasonable to assume that they will continue to influence how SMEs think about financing. But what exactly can we expect this year?
1) Survival will depend on collaboration
In today’s environment, “everyone is a fintech”. The popular phrase has a lot of truth to it, and the accessibility of technology has made the landscape more competitive; staying in one’s lane is no longer enough. In 2022, we’ll see companies eclipsed by their rivals if they don’t add critical ancillary services to their list of offerings.
Integrated fintech encourages businesses to build directly on the foundations for future growth. In the digital age, doing business is about enabling the growth of your community of customers alongside you. With integrated lending, as the business customer grows, you grow. In this way, integrated lending has the power to elevate, not eliminate, players in the wider ecosystem.
2) B2B growth will be supported by BNPL
BNPL, which allows consumers to purchase goods on credit and pay for them within a specified time after the point of sale, is an integrated lending trend that is enjoying rapid growth and success.
In the B2B space, we are only scratching the surface. A surprising fact given the magnitude of the opportunity. Estimated at more than five times that of the B2C market, credit to B2B SMEs in Europe remains obsolete and ripe for innovation.
As confidence in technology that enables rapid access to finance grows, the opportunities to use integrated finance in many sectors will increase in 2022.
3) SMEs will consider e-commerce platforms as a primary source of funding
The enormous growth of BNPL has been well documented. However, a lesser-known story is the substantial increase in lending solutions offered by e-commerce platforms to their business customers in the UK.
Challenges that have prevented market participants from becoming lenders in the past, such as achieving significant economies of scale and building capital, can be circumvented through embedded lending.
E-commerce platforms, such as eBay, have become a source of financing for thousands of SME customers who can now access credit. Revenue-based financing offers a flexible alternative to the fixed amortizations offered by many traditional banks; access to more data to assess credit risk means loans can be approved much faster.
The results are more customizable, accessible and cheaper sources of financing for SMEs. Plus, they can avoid traditional lenders and the lengthy processes to determine creditworthiness, high fees, and high interest rates that come with them. Mirroring the success of microfinance, flexible risk models allow more traders to access finance, bringing growth to a sector often overlooked by banks.
It’s no surprise, then, that in 2022 the selection of e-commerce platforms offering integrated funding options in the UK continues to expand as European players begin to seize the opportunity.
While each of these trends influences traditional lending structures in its own way, they also work together. The cornerstone of these three trends is leveraging data and technology to improve available products and the customer experience. Invention is not always necessary for innovation, and this is proof of that. Instead of reinventing the wheel, take stock of what already exists to find a better way of doing things.
Those who recognize this and seize the opportunity offered by integrated lending will be the ones who will thrive in 2022. For my part, I am delighted to see how the lending industry will continue to evolve in the UK and Europe this year – and beyond.