Power Pairing

Embedded Finance Meets Card Innovation

Financial services and products embedded into a single seamless, convenient, and easy-to-use customer experience have long been taken for granted by consumers. Experts from HSBC and Visa discuss how the embedded revolution is now gaining traction in the corporate space – unlocking much-needed efficiencies and cost savings for treasurers and procurement managers.  

The partnership between banks and technology firms that has enabled businesses to integrate financial products and services on their own platforms has been one of the major successes of the rapid digitalisation of recent years. Indeed, embedded finance is now so prevalent it is hard to think of a sector or industry that has not been impacted by it.

According to a study published last year by consultant Bain, financial services embedded into e-commerce and other software platforms in the US alone accounted for $2.6tr., or nearly 5%, of total financial transactions in 2021. It predicts this will exceed $7tr.  – more than 10% of total US transaction value – by 2026. Bain further expects the three largest embedded finance markets in the US (payments, lending, and banking) to see revenues double from $22bn in 2021 to $51bn by 2026[1].

For Arati Kurien, Global Head of Commercial Cards Product Management, HSBC, the robust growth of embedded finance in the US in an accurate indication of the enthusiasm being shown for it globally. Much of the growth has been driven by consumers’ keenness to make payments via websites and platforms, with the e-commerce boom a major catalyst for its acceptance. Consumers take embedded finance for granted nowadays, she points out, whether it be for online shopping or booking an Uber.

But, says Kurien, embedded finance and its ability to support transactions without either party having to redirect to a traditional FI is now having an impact beyond the world of consumer payments. Corporates are also looking to exploit its potential in the B2B space. 

Friction-free experience

In particular, she says, organisations are showing considerable interest in leveraging its benefits in areas such as procurement, with solutions that integrate embedded finance into platforms for buying goods and services. “Here, banks can offer up card and trade solutions directly within the platform and the corporate can actually pick and choose the solution it wants to use for each of its procurement elements. The convenience alone of having such a virtually friction-free experience means for procuring is proving highly attractive to corporates.”

Clive Cornelius, Head of Travel and Entertainment and Procurement Commercial Products , Visa Business Solutions Europe, echoes Kurien, noting that historically there has been a lot of friction in the B2B space. He adds: “Visa is actively engaged and wholly committed to reducing this friction in the payments ecosystem. We see embedded finance as vitally important for streamlining operations, increasing efficiency, reducing risk and adding value to businesses by providing safer and easier access to financial services in non-financial platforms.”

“As Visa’s mission is to be the best way to pay and be paid, embedded finance is a strategic opportunity for us to continue to dream, design and build the future of payments. In support of that mission Visa has collaborated with Taulia, an SAP Company, enabling us to create synergies in working capital management and support our issuers in enabling integration into one of the world class ERP providers”

Like Kurien, Erwan Le Grand, Commercialisation and Account Management Corporate Cards, HSBC, is keen to highlight the critical impact retail consumer adoption of embedded finance has had on its development for corporate applications.

Le Grand says: “Every corporate employee is a consumer at the end of the day, and banks are very conscious that the experiences they have in that sphere of their personal life are nowadays expected to transfer into their world of work. And if they don’t, it becomes to be seen as a friction.

“So, the onus is on banks to adopt those behaviours and present solutions to our clients that leverage them in the corporate space. The easier we make it for the user, be it the procurement manager or accounts payable officer, the more successful the bank will be at retaining and strengthening those corporate relationships.”

For Kurien, another major attraction of embedded finance is that it enables banks to further support efforts to offer their services at the time point when the bank’s clients need them rather than redirecting them to pay via their banks.

She says: “Certainly at HSBC, that is the crux of our approach to developing embedded finance solutions for clients. We look carefully at what our customers are using as their platform, where they need a financial service to enable, for example, supplier financing or a card-based working capital solution, and place our services where our customers need them.

“Embedded finance is not only a game-changer for corporates but also banks, as it helps them to break down silos and reach customers where they already are present and transacting, opening up the ability to reach more customers, offer better customer experiences and better understand customer needs. It’s a win-win for both parties.”

While corporates initially focused on payments applications for embedded finance, its swift development in recent years on the back of rapid digitalisation and the rise of APIs has made more sophisticated applications possible. Kurien continues: “Payment solutions have traditionally been the first target for corporates, but now working capital and trade solutions are currently really coming into their own within the embedded finance space – through cards in particular.”

In highlighting the tangible benefits of embedded finance solutions for corporate treasurers, Kurien points in particular to the efficiencies and the associated cost savings they can generate. She says: “Treasurers can expect a reduction in manual processes, including for data and reconciliation, and greater visibility and control with real-time insights over their financial services. That, along with the cost-saving implications, certainly helps drive the business case for embedded finance. And the fact that implementing embedded finance does not mean investing in a whole new platform or major new technical project is a big plus.”

Collaboration is key

For HSBC, one of the most important foundational tasks in creating embedded solutions for clients is to develop strong collaborative relationships with corporate platform providers themselves. Le Grand says: “Being able to embed HSBC’s financial services in systems that our clients use every day is critical for us. Therefore, we are keen to forge relationships with strategic platform providers that have a crossover with our client base – and we’ve done just that through tie-ups with the likes of Oracle, SAP and Coupa. Choosing the right partners to work with is a mapping exercise. We’re looking at where our customers are, what our customers are using, and then looking at strategic partnerships that will make sense, where benefits can be shared across our bank’s client base.”

In practice, HSBC generally prefers to work collaboratively with platform providers from the early stages of designing embedded finance solutions and determining the services that will be integrated into them. “That is important as it means the bank is co-creating for our clients, as opposed to just enhancing a product offering on our side and assuming it might be useful to our clients,” explains Le Grand.

“The difference is that platform providers know what their customers are using it for, such as procurement, and understand the pain points for them. For our part, we know what they need financing for. The challenge is to bring them together so they work as an integrated solution. Where possible we also like to have pilot customers work with us on the journey, as they can provide valuable feedback.”

With adoption of embedded finance for applications such as procurement and supply chain financing still at a relatively early stage, albeit growing quickly, banks are mindful of the need to carefully explain its many potential benefits to corporates. Le Grand points out that cards, for instance, have been a long-standing financing tool for corporate treasurers and, more recently, for procurement managers. Integrating them into embedded finance solutions opens up a host of additional benefits.

He continues: “Cards have shown to be a great way to generate a new source of revenue, as well as unlocking working capital from the existing flow of supplier payments. But those traditional applications of cards can still generate noise - corporates have to set up new projects and siloed environments for the use of cards across a large number of employees, for example. In a world moving towards seamlessness of experience for the consumer at home and the employee at work, that noise, the inefficiency, is not really what corporate treasurers are looking for.

“An important task for banks, therefore, is to clearly explain how embedded finance is different and a powerful means of getting to that friction-free regime all treasurers want. When developing the business case for embedded finance, it is therefore critical to stress that a single financial services platform removes silos and the need to manage multiple projects.”

The integration of cards into an embedded finance solution alone can open a host of tangible benefits for treasurers and procurement managers, including favourable chargeback rates and fraud protection on every transaction. For treasurers specifically, it can generate new sources of revenues, the ability to accelerate payment to suppliers, leveraging the interest-free credit period that the bank offers. It can also help improve working capital by extending the DPO. “Corporates can enjoy up to five months of interest-free credit on a transaction, which is extremely competitive when you start looking at alternative ways of financing,” says Le Grand.

Building a story together

Once an embedded finance project gets underway, it is vital that the bank and corporate hold regular reviews of its progress. That, says Le Grand, invariably means considering the programme’s objectives at any point in time, and how those are being or can be best met by, for example, looking at additional solutions that can enhance and grow the initiative.

He says: “The key to further successful development of an embedded finance programme is to clearly demonstrate the potential gains to the client. That could be, for example, greater cash flow, more suppliers being onboarded, or more protection made available over supply payments. Those regular reviews with the bank are essential. They help the client think about next steps and what is available to accelerate the growth of the programme.

“What we are certainly seeing in the marketplace is the use of complementary solutions to support supplier acceptance, for instance enabling automation of card acceptance or straight-through processing [STP].

“Card solutions have traditionally focused mostly on small-ticket items or the lower-range ticket items. But as soon as there are a lot of those ticket items, or larger-ticket items, then it’s going to be a point of friction for the supplier. So, automation at that stage become paramount to continue growing the programme. And that’s where acquiring better technology and actively helping to create a regime that eases the transition to automated processing for suppliers becomes especially important.”

While STP is currently in vogue as a complementary solution, Le Grand expects that card-to-account solutions will also become available in the marketplace in the near future. “These can deliver the same working capital benefits for customers with less restriction from a card utilisation perspective. In practice, the customer feels as if they are using their card programme, but the output is actually a bank transfer into the supplier’s bank account – there is no longer a card visible in the mix.”

Le Grand says: “Ultimately, our task is to customise some of these complementary solutions to address the corporate client’s priorities. And that means working closely with them. It actually encourages the forging of deeper relationships, better conversations, and more engagement. Those are probably some of the biggest long-term benefits of collaborative working and focusing on taking our services to where clients need them. If the corporate client has the trust of the banker, and the banker has the trust of that client, and the data to produce a story that is aligned to the corporate objective, that is something both can build on further in the future.”

Win-wins all round

This collaborative attitude of mutual trust has indeed been proving fruitful. Notable corporate successes for HSBC with embedded finance include one client in the utilities industry for which it had been running a conventional card programme for well over a decade. Le Grand says the programme “needed a refresh” and the bank suggested an embedded card as a way of upgrading the client’s delivery of financing.

Le Grand enthuses: “Happily, the client programme been completely re-energised – it has delivered 30% growth in spend this year alone. But it’s not just about growth in annual spend because that growth also translates into a similar increase in rebates. So, again, a win-win for all. The client is developing the programme further, looking at the other side of the equation, the AR side. It’s a great story.”

Elsewhere, the bank has been in embedded finance discussions with a major multinational retail group that were initially limited to its UK arm but quickly developed into interest in a global AP solution.

Le Grand says: “We’ve been looking at deploying a virtual card programme through an embedded solution within the SAP the customer is using. The discussions are ongoing but it shows how from a simple card conversation and an AP analysis that was destined to support a department in the London office of that multinational, the ambition has grown substantially. 

“The team within the corporate have really taken it on. They quickly came to appreciate the power of embedded finance through our discussions. Now they are looking at cards much more as a strategic, embedded option to address their entire payment span, securing the resulting financial benefits for the organisation on an ongoing, global basis.”

But the success here is not all down to the bank and corporate interaction. It is also important to remember the crucial role being played by firms that provide platform technology, concludes Kurien.

Kurien says: “Our strategic technology platform partners act as a gateway and can help us bring financial services to our clients at exactly the point that these are needed along with bringing the latest advances in technology to bear in that customer/user journey. Banks, card schemes and platform providers - we bring different strengths to the table and by collaborating closely, we can leverage each other’s expertise, resources, and networks to deliver innovative and value-added solutions to our clients. It’s yet another instance of how engaging with embedded finance delivers a win-win for all.”