Embedded Lending as Integral Part of an Embedded Finance Ecosystem

The challenge: The Importance of Credit Financing – and the Challenges Businesses Face in Accessing It

 Small and medium-sized enterprises (SMEs) are the backbone of the Swiss economy. They account for a significant portion of GDP, employment and innovation, driving stability and growth in local, national and international markets. However, for these businesses to thrive, access to credit is paramount.

Credit financing is not merely a financial product; it is an essential lifeline that enables SMEs to invest, expand, and adapt to changing market conditions, in these uncertain times more important than ever. Whether it’s for acquiring new equipment, hiring staff, managing cash flow during lean periods or coping with fundamental disruptions such as new tariff schemes, a reliable credit line enables SMEs to seize opportunities and navigate challenges.

 Yet, the journey to obtaining credit from traditional banks is often with major obstacles.

• Cumbersome Application Processes: The lengthy and complex application procedures often involve extensive documentation and multiple approvals, which can frustrate SMEs and delay access to funds.

• Stringent Eligibility Criteria: Traditional banks typically impose rigid requirements, including strong credit scores and detailed financial records, making it difficult for many SMEs to qualify for loans.

• High Costs and Interest Rates: The risk margins applied by banks can lead to elevated costs and interest rates, placing additional financial strain on SMEs seeking affordable financing solutions.

• Limited Flexibility and Options: SMEs often face a lack of tailored financing solutions, with banks offering a narrow range of products that do not align with their specific needs for varying amounts or timelines.

There is some good news: in Switzerland’s emerging, vibrant digital bank and fintech landscape, SMEs can choose from a growing number of modern lending platforms that provide credit solutions.

However, they come with some intricacies too:

• Narrow Focus: Offerings often concentrate solely on asset or project finance, limiting options for SMEs.

• Lack of Comprehensive Solutions: Segmented approach neglects the diverse credit needs of SMEs, from short-term to long-term financing.

• Delayed Access: Immediate access to business loans is often unavailable on these platforms, particularly when credit is needed during critical moments, such as making purchases at the point of sale, in-store and online (Buy Now, Pay Later).

A critical issue that cannot be overlooked is the fragmentation of lending platforms from core banking services. Currently, many of these lending solutions operate in isolation, disconnected from essential banking offerings like business accounts, cards, and payment processing systems.

This separation forces SMEs to use multiple providers, leading to inefficiencies and increased administrative burdens. The lack of integration means that SMEs face challenges in managing their finances holistically, resulting in lost opportunities for streamlined operations and optimized cash flow management.

The Solution: Embedded Finance—A Comprehensive Banking Approach for Businesses

What SMEs need is an Embedded Finance solution that encompasses the full suite of core banking services—business accounts, cards, payment solutions, and various forms of credit—, provided as an all-in-one service that addresses all their diverse financial needs.

One Integrated Experience, Infinite Possibilities

The essence of an effective Embedded Finance solution lies in its ability to offer comprehensive services in a one-stop experience—eliminating the complexities and inefficiencies of managing multiple banking relationships. When businesses can access all major financial services from one source, including business accounts, payment solutions, and credit options, their operational efficiency improves significantly.

• Comprehensive Banking Solutions: A unified finance platform allows businesses to manage cash flow seamlessly. From business accounts designed for everyday transactions to specialized cards for expenses, every financial need is taken care of. Additionally, payment solutions simplify the transaction process, enabling businesses to accept payments from their customers effortlessly.

• Flexible Credit Options: A robust Embedded Finance offering includes a range of credit solutions tailored to various business needs. Short-term payment plans, such as Buy Now, Pay Later (BNPL), are perfectly integrated into the purchasing process, allowing companies to manage cash flow more effectively. Long-term loans can be used for substantial investments in assets or projects, ensuring that businesses have the necessary funds when they need them.

By the way, "from one source" does not imply that a single digital bank or fintech company must independently develop and provide all banking products or obtain the necessary licenses. There is significant potential for strategic partnerships among various specialized providers, allowing them to integrate their financial services on a single platform or within interconnected business processes. This enables businesses to complete a digital KYC and onboarding process just once and then use the services flexibly from that point onward.

Conclusion

An Embedded Finance solution, encompassing all major banking services and provided by strategic partners as a seamless on-stop experience, offers a powerful advantage to businesses of all sizes. By having access to an all-in-one service that includes business accounts, cards, payment solutions, and diverse credit options, companies can experience significant operational efficiencies. Enhanced visibility into their financial data not only improves their own cash flow management but also leads to more predictable credit risk assessments, thereby facilitating easier access to necessary funding from credit providers. Embedding business loans into payment processes at checkout (BNPL) enhances the convenience of obtaining credit precisely when and where businesses need it most.

YAPEAL is considering adding Embedded Lending to its suite of Embedded Finance solutions, which includes business accounts, cards, and payment solutions. Currently, we are exploring partnership opportunities with various digital lending platforms that share our philosophy of collaborating with the best specialist providers. Our goal is to offer our joint customers everything they need in a single, streamlined journey.

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