Getting SMEs and their financial C-levels over the embedded payment hump

Embedded payments are good for customers, good for the businesses that offer them, and good for the modern economy. So it’s almost surprising that mass adoption seems to be plodding along rather than moving at a breakneck speed. There are several reasons why, but lack of demand and desire isn’t one of them. Recent research demonstrates that although only 9% of small- and medium-sized enterprises (SMEs) currently access financial services through software-as-a-service (SaaS) platforms and marketplaces, a staggering 83% want to. That’s an enormous disparity, and one that demands an explanation.

Some of this comes down to CFO hesitancy, which is understandably rooted in the regulatory and compliance challenges these CFOs often face when trying to integrate financial services into existing platforms. There are multiple regulatory frameworks – Know Your Customer (KYC), Anti-Money Laundering (AML), and the Payment Card Industry Data Security Standard (PCI DSS) – that must be adhered to, and navigating these regulations can be complex, time-consuming, and resource-intensive. Doing so often requires partnerships with fintech companies and leveraging Banking as a Service (BaaS) models to mitigate the burden and facilitate quicker market entry​. Companies already at capacity deem it not worth the extra effort.

Viewed from an integration standpoint, it may seem like the juice isn’t worth the squeeze. But approaching it from the opposite angle reveals the opposite is true. Many SMEs still rely on manual, non-automated processes for managing financial tasks. They can also face friction in their payment processes, with issues such as high costs and a lack of financing options. Although it requires an initial investment in technology and resources, implementing embedded finance solutions can sweep away these inefficient methods in the long term. They can provide faster access to funds, better visibility into real-time financial positions, and more efficient reconciliation and reporting. CFOs must see those benefits from the outset if they’re going to be convinced.

Onboarding matters – but so does trust

Sometimes the paperwork-intensive hassle of changing financial providers is enough to make SMEs simply tolerate the one they are already working with. Incumbent financial institutions depend somewhat on this inertia. To overcome this, embedded payment vendors need to emphasise ease of onboarding and leverage open banking APIs to streamline the process. Onboarding can’t be a headache or a chore.

Seamless onboarding must go hand-in-hand with embedded financing services demonstrating their credibility and legitimacy up front. SMEs naturally prioritise reputation and trustworthiness when selecting financial service providers​​, and this is no different for the embedded finance world. In other words, embedded financing providers must demonstrate that their customers' money matters.

Embedded finance providers should emphasise the strength of Banking as a Service (BaaS), its foundational technology that facilitates the integration of banking functionalities into the everyday websites and applications that consumers use. The trust that customers will show to an SMEs’ embedded finance features begins with the trust SMEs have in their BaaS providers. The good news is that this is only becoming more legitimate and market-tested: the revenue for embedded payments is projected to surge from $43 billion in 2021 to $138 billion by 2026.

Contrast this with old school banks or payment service providers (PSPs) with their high transaction fees for services that were often rigid and slow, limiting flexibility, growth, and profitability. BaaS-driven embedded payments, by contrast, enable businesses to embed advanced, swift, and cost-efficient payment solutions directly into their customer interactions. This revolutionises the way businesses address persistent payment issues, enhances the consumer experience, and fosters stronger customer relationships. BaaS should tout this to SMEs: Work with us for happier customers and better business.

Customisation is king, but security is the prince

Getting businesses and their CFOs over the general hesitancy won’t be done without customisation. BaaS will sell itself based on how well it is able to communicate on how it aligns with a given SME’s specific operation requirements. This must be done by offering a range of features, including the ability to create and sign payment orders directly within clients' management systems, eliminating the need for manual intervention. This customisation must arrive via user-friendly interfaces with clear labels, minimal steps, and inviting visual cues.

But it also must come with a hefty side of advanced security. Think custom multi-factor authentication, which integrates multiple ECDSA keys with IP and DNS data verification, and utilises secure timestamps alongside bidirectional out-of-band communication, to ensure the highest standard of security and compliance. Think real-time payment status updates and callbacks, so SMEs are always on top of exactly what’s being processed (but without cumbersome manual intervention and monitoring).

The only way to get CFOs through the door is to present a rock-solid case before they’ve even signed on the dotted line, and to tout the long-term benefits combined with a seamless onboarding process that makes the whole process as easy as possible. The right provider, the right level of customisation, clear security – all this has to come together first. But it is finally coming together and BaaS ought to keep on this trajectory. The future of the industry genuinely depends on it.