Embedded financial services are becoming more popular among UK SMEs, Temenos research shows

By Puja Sharma

SMEs turning to services including lending, payments, and collections through non-financial platforms such as e-commerce platforms, loyalty apps, or accounting software, driven by factors including improved customer service, cash flow, and efficiency

Four in ten UK small and medium-sized businesses (38%) plan to use embedded financial service products more in the next 12 months, according to the findings from Temenos, the global banking software company.

Embedded finance, the integration of financial services such as payments, lending, or collections, into non-financial platforms or applications, is the fastest growing trend in the fintech industry. With the platforms operating these products ranging from online retailers to customer loyalty apps, accounting software, or transport providers, embedded finance is bringing convenience, speed, and economy to consumers and businesses across many of the services they use daily.

“Embedded finance is redefining how customers use financial services, and this is just as true for SMEs as it is for consumers, who increasingly don’t interact directly with a bank for many of the financial services they use day-to-day.” Jon Davies, Research Director, TechMarketView, said.

“The end user may not be aware of it, but the bank can still be capturing a lot of the value of these services in the background. To stay relevant, banks are investing in modern technology platforms that enable them to adapt and take advantage of the new business models and market opportunities.”

The research reveals that amid a wide range of financial concerns and a mixed level of satisfaction with the products and services provided by their banks, SMEs are increasingly using embedded financial services. Of the 43% of SMEs that have used at least one embedded financial service in the last 12 months, improved customer service is the biggest benefit (cited by 40%), followed by improved cash flow (38%), getting paid faster and increased sales (both 34%). SMEs also claim to benefit from embedded finance products through more efficient internal operations (31%), a reduced amount of money spent on bank fees (27%); faster customer onboarding (25%); and time saved on financial admin (24%).

The study reveals that younger SME decision-makers are much more likely to be using embedded finance products, with 78% of respondents aged 18-34 having done so in the past year compared to 46% of those aged 35-54 and just 16% of those aged 55 or over. Similarly, two-thirds (65%) of those aged 18-34 plan to use them more in the next 12 months, compared to 42% of those aged 35-54 and just one in five (19%) of those aged 55 or over.

Robert Wint, Senior Product Director, Temenos, said, “To deliver embedded finance requires banking processes such as deposits, loans, and payments- as- a -service from specialist cloud-based API platforms that use a licensed bank’s secure and regulated infrastructure.  This new banking-as-a-service model is gaining popularity worldwide with almost 40% of banks currently pursuing or considering pursuing a BaaS strategy.”

With BaaS, banks need a platform that allows them to elastically scale based on business demand and provide composable capabilities on-demand at a low cost. Temenos Banking Cloud enables Banking-as-a-Service and a recent benchmark proved the capability of the Temenos platform to power the world’s biggest banks and their BaaS offerings with hundreds of millions of customers, efficiently and sustainably in the cloud.

Key Insights :

• Of the 43% of SMEs that have used at least one embedded financial service in the last 12 months, improved customer service is the biggest benefit (cited by 40%), followed by improved cash flow (38%), getting paid faster and increased sales (both 34%).
• SMEs also claim to benefit from embedded finance products through more efficient internal operations (31%), a reduced amount of money spent on bank fees (27%); faster customer onboarding (25%); and time saved on financial admin (24%).
• The study also reveals that younger SME decision-makers are much more likely to be using embedded finance products, with 78% of respondents aged 18-34 having done so in the past year compared to 46% of those aged 35-54 and just 16% of those aged 55 or over. And a growing use of integrated financial products is expected within this generation, with two-thirds (65%) of those aged 18-34 planning to use them more in the next 12 months.