What's So Special About Embedded B2B Finance?

SIMON FARMILO | April 14, 2021

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The rise of buy-now-pay-later in the consumer world provides a powerful example of what embedded finance at the point of need can do for brands.

Consumer debt ethics aside, B2C buy-now-pay-later providers can proudly point to the fact that implementing a BNPL solution can increase basket sizes for retailers by 20-30%. The concept, although around for years in various forms, has now been delightfully served as an option during the customer’s checkout process and the marketing has been simplified and on point.

Even as merchants must pay for the privilege of offering BNPL (keeping it interest free for customers) upwards of 4-6% per transaction, the benefits have been too good to resist.

Although let’s face it, regulation aside (there are significant hoops to become licenced in B2C finance), underwriting to consumers is easier than extending credit to businesses thanks in part for the need to understand factors such as business servicing capacity, shareholder control, bespoke pricing, industry risk and not to mention the exposure risks associated to loaning out more significant totals.

Therefore B2B lending speed and embedded innovation naturally lags behind B2C. That said, there have been remarkable steps forward over the last two years as more and more millennials and digital natives take over business buying decisions.

Existing B2B finance models
For many B2B suppliers or merchants, a referral programme to a business finance provider is nothing new.

The benefits can be obvious, especially as the alternative is to embark in to the dangers of offering trade terms and all the cashflow and collection troubles that come with it. By introducing business finance, suppliers can get paid upfront and those pesky risks evaporate.

When used effectively in a negotiation, financing offers can also allow suppliers to remove expected buyer discounts. Total order values and loyalty increase (as in the consumer world) and accessible finance even helps a buyer’s businesses become more successful — resulting in increased volumes of purchasing.

Still, referral programmes of this nature have their problems. Even with same day B2B funding available, finance applications can hold up the buying process.

This means suppliers who are keen to leverage the buyers peak interest, antagonising don’t close sales as quickly as they could and run the risk of the of the application declining or extra customer frustration and fatigue.

While the benefits for introducing finance in to the sales process still outweigh the negatives, more improvement in the experience can be achieved.

Enter Fintech-as-a-Service.

Embedded pre-approvals
Imagine a situation as a B2B supplier or merchant where you can provide a pre-approved finance offer straight to eligible businesses through your own CRM.

This level of proactivity provides you with a powerful tool in drawing in loaded sale opportunities from customers who are primed and ready to transact. The advantage over your competition is significant as your customers already know they can painlessly purchase from you once they’re ready for more stock.

A new revenue stream also opens for your business as your FaaS provider hands you commission for each loan a buyer takes.

This example highlights the power of pre-approving customers in a proactive capacity. For this level of FaaS to work a customer permission gate is required, either as part of a customer onboarding/sign-up process or through invitation.

With a white-labelled or co-branded experience, buyers can securely connect via open banking through a third party (FaaS provider) and be reassured that no visibility of this data given to their supplier. Other business data sources (e.g. payment or accounting software) can also be connected at this point.

Through providing these connections through the supplier or merchants portal, buyers can sit back with the knowledge that they will be notified if and when they qualify to purchase goods or services on finance. Once pre-approved, sellers can push a message to their buyer from their CRM system along with any sales pitch or offer they like.

Convincing buyers to give this connection permission in the first place is a challenge that clever marketers and UX specialists will need to overcome.

Embedded at the point of need
Again, we only need to take BNPL as an example of an embedded finance solution served beautifully at the point of need. Buyers, motivated at the time to transact, are more likely to have the determination to apply for finance within the same CX process.

Unlike traditional loan referral schemes that remain disjointed with long and possess awkward handover points, through FaaS, an embedded financial product is especially attractive when done right. It can merely feel as a simple ‘way to pay’ option in the buyer experience. No application forms; no double entry of business data; no waiting.

The challenge therefore is to create seamlessness, integrated and quick decisioning. Again, still a relatively tall order for B2B finance especially the higher the loan total is (despite advances in innovation and same day funding).

The potential for more instant decisioning will need to be enabled through a) improvements in API sharing and open finance analytics to confident business underwriting and b) buyer adoption on online services and platforms.

This later point can already be seen in the growing gulf of funding accessibility between online and manual powered businesses.

For example an eCommerce buyer, generating rich volumes of data through online sales and excessive B2B Software-as-a-Service (SaaS) use has the perfect data points that can be integrated in to support lending applications. In contrast, a blue collar business, with a limited online presence and who only drops a shoe box full of receipts to their accountant every 90 days, will find it more difficult to provide the data required for quick decisioning.

The new normal
Embedded B2B finance is here to stay and serious FaaS providers are emerging.

More and more suppliers and merchants will be leveraging the power of this new technology trend to create a more successful, loyal and satisfied buyer. Through proactive pre-approvals, B2B sales teams can be armed with more empowered conversations and unique advantages over the competition.

Alternative business lenders operating as an embedded finance FaaS will also benefit by leveraging the scale of the B2B supplier and merchant channel, accessing more businesses through wider mass distribution.

Soon, simply plugging in an embedded finance solution in to your existing CRM system will become a painless experience. B2B lending products of the future, through speed of underwriting and integrated data points, will be commonplace as an attractive option during the sales process.a


Bank of the West

Bank of the West is a regional financial services company chartered in California and headquartered in San Francisco with $83.8 billion in assets as of December 31st, 2016. Founded in 1874, Bank of the West provides a wide range of personal, commercial, wealth management and international banking services through hundreds of locations in 23 states and digital channels.


How to Boost Digital Banking Amid Coronavirus

Article | April 4, 2020

Banks have an Essential Role to Play as Systemic Stabilizers. COVID 19 has created disruptive economic fallout within human society across all religions/races/geographies/countries/continents. The path ahead is hence a dangerous one, driven by epidemiological uncertainty. While this situation is occurring for the first time in human history, this has also been an eye-opener to have a more comprehensive look at the way we operate. The footfalls of branch banking have decreased to a large extent, and banks have urged customers to use digital channels. Table of Contents • COVID 19- An Accelerant to Digital Transformation • How to Increase Digital Banking Adoption - Start with a comprehensive plan - Keep employees morale up to get back on solid ground - Leverage digital and traditional channels - Enable Seamless Customer Experience • Conclusion COVID 19- An Accelerant to Digital Transformation The coronavirus (COVID-19) outbreak is indirectly promoting digital transformation, as many service providers, including banks, have significantly decreased or even closed their offline services, asking their customers to adopt the digital banking for any assistance. This trend is resulting in speeding up digital transformation. But, the question here is, are customers ready for this drastic change? Yes, slowly yet firmly, Banks are witnessing customers picking up services that have distinguished digital capabilities. The mechanics of customer interaction has quickly shifted from physical handshakes to virtual communication over personal & extensive digital channels. Learn more: https://capital.report/blogs/6-digital-banking-best-practices-during-the-covid-19-outbreak/8287 Consultant McKinsey & Co, in an article titled Leadership in the time of coronavirus: COVID-19 response and implications for the banks, reports that Banks have already taken a series of actions in reaction to the spread of COVID-19. Common steps we’ve seen include establishing a central task force, curtailing travel, suspending large-scale gatherings, segregating teams, making arrangements for teleworking, and refreshing external-vendor-interaction policies. It also highlights some of the fundamental changes banking organizations are going to need to make in the way they do business. Workplace dynamics and talent management, already evolving in a digitizing world, maybe durably changed after an extended period of remote working,” it says. “Likewise, customer routines and expectations may also shift further in meaningful proportions, both in terms of digital adaptation and the expectation for proactive communication and care. How to Increase Digital Banking Adoption Digital is not a destination but it's a journey with more and more innovations and discoveries happening across multiple industries. But with COVID 19, it is a forced change for human society to adapt to a digital and contactless mechanism for business transactions between individuals or companies across the border (B2B, B2C, B2G, G2G, etc). The countries which are adopting this methodology are more likely to succeed in the new digital paradigm post-Covid 19. Below are some simple steps you can use to increase customer engagement with digital banking: Start with a comprehensive plan To increase awareness of your digital banking platform, it is always essential, to begin with, a first cut action plan. In the current crisis, there are immediate actions banks can take to help retail and small business customers, support the use of digital channels so that customers can bank from home. In the United States, many banks struggle to increase digital adoption among their customers; for example, nearly half of banking customers either never use their mobile app or do so infrequently. According to McKinsey& Company, In the United States, the most satisfied customers use digital multiple times per week, the second-most satisfied customers do not use digital at all. The least satisfied banking customers are those who use digital tools infrequently, less than once per month. This is because customers go through a learning curve as they adopt digital tools, and most banks under-support their customers in the adoption journey. In the current environment, banks should redouble their efforts to smooth customers’ transition to digital. Here’s how: • Easy-to-find and clear communication • segment-specific campaigns • remote coaching and advice, • And unified experiences across each journey, such as written and video explanations for how to accomplish specific digital tasks, along with ways to try them out. Banking services that involve branch interaction, digital tools can still play an important role by providing information on adjusted hours, essential services, reduced staff numbers, heightened safety precautions, social-distancing measures, and digitally-enabled queuing. Keep employees morale up to get back on solid ground One of the first things that can go for a toss in such challenging times is the morale of employees. It is natural for employees to feel frustrated. The uncertainty of the company's future, the fear of recession, and uncertainty around jobs can damage motivation, productivity, and can create a lot of fear among employees. This entails bank managers to set precise directions for remote teams that are pursuing common goals. Bank managers should also take this opportunity to delegate and empower their employees for decision making. Both intrinsic and extrinsic motivation through rewards, clear spans of control, and meaningful appreciation can go a long way in supporting employee morale. A vital portion of the employees is working from home facing operational challenges, such as internet-bandwidth issues, network connectivity, technology glitches, and childcare priorities. Following practices could help these banks perform a more effective distributed-work environment: According to McKinsey &Company, following practices could help these banks perform a more effective distributed-work environment: • Enable technology setup and infrastructure for remote work. • Supporting remote-work technology and infrastructure • Assisting employees with home-office setup • Ensuring adequate VPN bandwidth • Providing remote application access • Adopting a suite of digital tools that facilitate effective communication, and decision making, such as videoconferencing, file sharing, real-time communication, coediting, and task management, and • Ensuring that agents have the necessary tools and resources to handle calls from home while maintaining customer-data-confidentiality standards. With all these features, it is also critical to ensure that agents are well-equipped with the necessary tools and resources to handle calls from home while maintaining customer-data-confidentiality standards. Leverage digital and traditional channels The more frequently a person sees a message, and in more places, the more likely they are to engage and take action. Banks need to maximize awareness by promoting their message across channels. Promote it in their branch and online, on ATM screens and in the call center. Banks can also find ways to cross-promote digital banking. For example, during the new account opening process, it should encourage consumers to enroll in online banking. Or, if a bank or credit union is doing a credit card promotion, they can use it as an opportunity to cross-promote its mobile app. Enable Seamless Customer Experience For banks, spending on customer experience was essential before the current crisis, both from a “good business” perspective and a “good bank” perspective. Now, these aspects are even more relevant. It is highly important for banks to make their genuine concern for their customers clear and to make customer interactions with the bank as easy as possible. COVID-19 has brought customers already under health and financial stress. They will need ready access to bank products and services. It is now more important, then, to reach customers through digital channels, stay connected through innovative communication channels, meet the needs of vulnerable populations, and stabilize critical infrastructure. • Banks should encourage more customers to use remote channels and digital products whenever possible. • Enhancing current digital offerings, identifying key functionalities, that can be improved quickly • Speeding up the procedure to increase limits on online transactions and simplifying password reset. • Keeping clients involved via SMS, mobile apps, and digital media • Minimize disagreeable surprises to customers (such as potential branch lockdowns) • Encourage fraud-prevention measures, clarify the availability of solutions on digital channels, and • Define preventive measures to ensure the health and safety of clients and employees in branches. According to McKinsey & Company, some financial institutions will need to address such technology gaps in order to offer a seamless digital customer experience. This will require planning ahead by scaling infrastructure capacity and network bandwidth, stress testing and scenario planning, managing near-term patches, and identifying urgent weaknesses in architecture. Learn more: https://capital.report/blogs/9-best-fintech-apps-to-use-while-at-home-during-the-coronavirus-lockdown/8273 All in All Coronavirus difficulties provide an opportunity for new businesses to thrive based on a new digital reality – completely digital and contactless. Digitalization has found a new meaning and it is going to reach newer areas. The world is thinking about implementing ways to lessen the disruption caused to humanity. This is the perfect time to focus on digital transformation by realizing the necessities accelerating it.

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The Importance of Financial Literacy During Uncertain Economic Times

Article | April 4, 2020

What does it mean to be financially literate? Is it more important to be able to balance a checkbook or to understand the power of compound interest? Does a financially literate person pay down student debt or consumer debt first? And does a truly financially literate person even take on debt in the first place? A growing number of fintechs – many of them Finovate alums you’ll meet below – have devised innovative ways to help young people in particular, become better earners, savers, spenders, and investors.

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NFTs - A hype or a Lasting New Investment Asset Class?

Article | April 4, 2020

NFTs are at the moment a real buzz. The word NFT stands for non-fungible token, which means a unique, irreplaceable cryptographic object. It aims to manage ownership of digital content (digital collectible items) by storing the ownership in the form of a digital certificate on a blockchain (usually on the Ethereum blockchain, but other blockchains can also be used). This way the buyer can prove that he is the owner of a certain digital item. The fact that the NFT token is unique and irreplaceable, generates traceability of the owner, but also ensures authenticity and (digital) scarcity, thus resulting in its value (via its uniqueness it becomes a collectible item). This makes it an attractive asset for both buyers and sellers. For sellers, creating (= minting) an NFT gives an easy option to monetize (without intermediaries like galleries or auction houses) their digital content (products), like digital pictures, animations, music, videos…. Additionally NFTs have the feature that the author can also get a percentage of future transaction amounts (thus profiting of a future increase in value of the NFT). The buyer can invest in digital art and can be sure of the uniqueness and his ownership (i.e. the bragging right that you own the art) and the ownership can easily be transferred to any other buyer in the world (becoming the new owner) with the click of a button. NFTs started in 2017 with CryptoKitties (a game to breed and trade digital kittens) and CryptoPunks and gradually increased over the last years, but it exploded in 2021 (i.e. in 2020 the market was estimated to $250 million over the whole year, while in the month of February 2021 alone already $360 million of NFTs were traded), with some record transactions, like: The record is held by the digital composite called "EVERYDAYS: The First 5000 Days" of the digital artist "Beeple" (Mike Winklemann), which was sold at Christie’s for $69.3 million. Of the same artist also a video was sold for $6.6 million. Christie’s auctioned recently also an NFT of 9 virtual rare CryptoPunks for a record amount of $16.9 million The first tweet on Twitter of the co-founder and CEO of Twitter Jack Dorsey was sold for just under $3 million The Canadian singer-songwriter Grimes (also known as the partner of Elon Musk) sold for around $6 million of digital artworks, including an NFT of about $400.000 for a 50-second video. NBA’s Top Shot has generated more than $230 million in selling NFTs of NBA highlight videos, with a top transaction for a movie of Lebron James dunking, which was bought for over $200.000. These NFTs have become the digital equivalent of the paper sports collection cards. While those transactions get the news headlines for their record amounts, thousands of NFTs are also sold for a few thousand euros. E.g. a selfie of Lindsey Lohan was sold for $59.000, Bad Luck Brian yearbook photo for $36.000 or the "Charlie bit my finger!" YouTube clip was sold for $761.000, not to mention the thousands of transactions that do not get any media attention at all. These enormous prices definitely attract a lot of media attention and investors, but nonetheless NFTs remain difficult to grasp. While for traditional art, the owner has the physical artwork in his possession, this is not the case at all for NFTs. For example, the NFT for the Beeple picture sold for the record amount can perfectly be downloaded on the internet at no cost. This downloaded file will be identical to the digital file owned by the buyer (i.e. the copy is literally as good as the original). Obviously, this is a new technology which raises a lot of questions and issues, e.g. What do you actually own? The NFT is just a digital certificate on a blockchain. The blockchain does not even contain the digital artwork, but just a link to a location where the digital artwork is stored. This raises automatically questions like: What is the legal ground of an NFT? Can you claim the ownership in court, i.e. will the courts consider the blockchain as sufficient proof of ownership? Will the judge even understand it? Will it have the same legal basis in any country in the world? Can I win at court if someone exploits commercially the digital content owned by me? What happens if the link to which the NFT refers is no longer available? Does the NFT lose its value? Can the link be adapted? What is the exact digital asset I am owning? On the blockchain a hash of the digital asset, together with some ownership info, is stored. However if someone changes 1 (invisible) pixel to a digital artwork, the hash will no longer match. Do I also have the ownership of this new (nearly equivalent) digital artwork? How transparent and well-defined are the properties of ownership? E.g. do you also buy the copyright and reproduction rights? Are you allowed to ask royalties if the digital item is downloaded/published? Are you allowed to ask BigTechs (like Facebook or Google) to remove all copies they store of your digital asset? NFTs are typically sold via intermediate platform (like OpenSea, Rarible, Superrare, Foundation, AtomicHub, Nifty Gateway, KnownOrigin…), managing the contact with the artist, setting up the NFT, managing the transactions on the Blockchain and also storing the digital artwork in the cloud (i.e. location to which NFT refers). This raises a number of questions about the trustworthiness of those platforms: Will they ensure the link to the artwork remains available (i.e. not lost or broken)? Even if they go bankrupt? More and more decentral IPFS network or blockchain based storage is used to mitigate this risk. Does the platform ensure an artist does not create multiple NFTs of the same (or slightly changed) digital asset? Do they ensure that the NFS is minted by the real artist (creator) of the content and not by an imposter? Which procedures do they have in place for verifying that? Even though the decentralized nature of the underlying blockchain ensures trust, buyers and sellers still need to trust the platforms facilitating these NFT transactions. This is for me a general issue of blockchain use cases (cfr. my blog on blockchain "ttps://bankloch.blogspot.com/2020/02/blockchain-beyond-hype.html" - Blockchain - Beyond the hype), i.e. although the blockchain entry can be perfectly trusted, the end-to-end user journey is much more extensive, thus requiring still trust in a central party. How future-proof are the blockchains? With blockchains in full evolution, will the Ethereum blockchain (or other blockchain on which an NFT is held) still be around in 5 years or in 10 years (or not be replaced by a more popular and more modern blockchain)? Will it be possible to keep the decentralized nature of this blockchain while volumes increase enormously? Beginning of June 2021 the Ethereum blocksize (of the full blockchain) was over 800 GB, an increase of more than 100% compared to the year before. This shows that storing the full blockchain (and then we do not even speak about the resources required for mining) has become more and more a specialist job, hence more centralisation and less guarantee that a lot of parties will continue to keep track of the full blockchain. Furthermore it means it becomes less straight forward to prove your NFT ownership, without consulting a specialized party which stores the full blockchain. Is the energy consumption for an NFT sustainable and will it not negatively impact the future success of NFTs?. For example, the energy consumption to create an NFT of a simple animation is equal to using 1.5 million times a pressure cooker. However with blockchains switching more to Proof of Stake-consensus mechanisms this will likely be resolved in the coming years (although Proof of Stake raises naturally other new concerns about centralization and potential manipulation). Are the NFTs currently sold for a lot of money sufficiently time-lasting? This question can be raised for both the digital artworks as for the technology underpinning it: Are the digital artworks not too time-specific, i.e. linked to current, non-lasting hypes? E.g. will YouTube movies which are popular now still be remembered and popular in 5 years? In the traditional art, certain historical artists (like Monet, Van Gogh, Picasso…) have an established reputation/track record, but for this digital art there is of course no historical records to turn to and as a result it is very difficult to predict future trends. NFTs are also more and more used in games, to describe ownership of virtual plots of land or unique weapons or armors. This makes the NFT practically usable, but what is the value in a few years when the game is no longer popular? Is the technology sufficiently robust? Not only is there a risk due to the above-mentioned dependency on blockchains and the platforms for storing the digital asset, but besides that you also have to ensure the file format of the digital content can still be read or ensure you can still access your digital wallet. Due to popularity of the underlying blockchains (like Ethereum), NFTs are confronted with high transaction costs(high gas fees to get your NFT on the blockchain). While this transaction cost is marginal for the above record amount NFTs, it does pose an issue for cheaper NFTs (as transaction cost become too significant compared to the NFT price). The whole process of minting, buying and transferring NFTs is not so user friendly, i.e. you need to onboard on an NFT platform, you have to acquire the right crypto-currency (e.g. if the NFT is on the Ethereum blockchain, you need Ether coins, i.e. Bitcoins won’t be usable) and you have to pay with crypto-currencies, which is still not so user-friendly (i.e. typically via a browser plugin, which might be easy for a computer specialist, but still difficult to setup for the common layman). Clearly the concept of NFTs is great, as there is a need for managing ownership of digital content. With more and more digital content being produced and some artists even only exclusively producing digital content, there is a need for them to make money and NFTs are a good way to do this. However the too strong focus on the underlying (blockchain) technology and the bullish prices, make it still too much a playground for the (mega)-rich, than a common investment asset class. However even if it remains such a playground, it is still interesting to follow. As there are as many as 100,000 people who have $1 million or more stashed in crypto-currencies, there is an enormous audience with the means, interest and risk appetite to try out NFTs. For them, there is the cool factor of trying out something new, the potential of making same profits as with crypto-currencies, the emotional and bragging aspect of owning digital arts (compared with owning parts of the moon or owning a star. This has no legal ground, but is still very romantic and fun) and the Robinhood aspect of pushing governments to change and fighting the traditional art system (cfr. the actions on Robinhood to stop the short-sellers on the share of GameStop). This being said, NFTs are clearly an excellent real-live experiment, where fundamental questions around ownership, value, digitalization and authenticity are being addresses. The question remains however if ownership can be managed outside governments, i.e. as ownership requires laws to protect the owner, it is very difficult to manage this outside a government. Clearly governments should sponsor some kind of register of such digital ownership. This will ensure that there is legal ground and also long-term continuity, as unlikely governments will disappear/go bankrupt. However if done by a government, there is no real need for a blockchain, as you have a central, credible authority, which could perfectly store the ownership (personal details of the owner) and the full digital content (so not just a hash) in a traditional database. While governments are starting now to explore an alternative for crypto-currencies in the form of CBDCs (cfr. my blog "https://bankloch.blogspot.com/2021/05/cbdc-new-kid-on-block.html" - CBDC - The new kid on the block), this will likely happen as well for NFTs. In the meantime, it is good the conservative art world is shaken up by these kinds of innovations.

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Connected Finances: Top Benefits of Using IoT Technology in Banking

Article | April 4, 2020

Technology has always been the main force behind changes in the banking sector, and now the Internet of Things is going to change the nature of banking itself. If we step back from such isolated technologies like blockchain or the smartphone and try to see the global picture, we easily notice that something is changing, and that’s the way of global digitalization in the financial sector.

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Bank of the West

Bank of the West is a regional financial services company chartered in California and headquartered in San Francisco with $83.8 billion in assets as of December 31st, 2016. Founded in 1874, Bank of the West provides a wide range of personal, commercial, wealth management and international banking services through hundreds of locations in 23 states and digital channels.