How Embedded Credit improves CLTV for B2B E-Commerce

Devashish Mulye   /    Product Manager    /    2020-12-26


Merchants rely on credit to run and grow their businesses and expand their customer base. Easy access to credit, facilitated by embedded finance, enables merchants to purchase more stock, widen their product portfolio, respond to fluctuating demand, buy high-value SKUs (which could be slow-moving), stock new products, and increase the space and assets in their store. Embedded Finance has shown to double the Average Order Value and Customer Lifetime Value for B2B E-Commerce platforms, depending on the sector (whitegoods, groceries, pharma, apparel, etc)

Very few merchants are approved for loans by formal channels and have to acquire credit from informal sources. Such credit is either too small to have an impact or offered at terms that don’t facilitate their growth in the long term.

B2B E-Commerce platforms that have the ability to offer credit can relieve these bottlenecks for merchants, break through the glass ceiling, and unlock tremendous growth for their merchants and themselves.

What does embedded credit mean for B2B E-Commerce?

Digital platforms catering to merchants and distributors can offer tailored credit products in-context at the point of demand creation on their platform.

  1. Credit Line - Merchants can fulfill demand hikes due to seasonality or festivals by availing credit lines made available by the platform

  2. Merchant Cash Advance - Merchants can meet their short-term liquidity requirements against accounts receivable

  3. Working Capital Loans - Flexible business loans help merchants meet contingencies or expand their business

Read a full list of credit products here.

How embedded credit increases customer lifetime value (CLTV) ?

Here is a snippet from our Fireside Chat with ShopKirana. We discuss how introducing Embedded Credit doubled the Average Order Value and Customer Lifetime Value of ShopKirana. Full transcript available here.

Increased Average Order Value

Access to credit changes how merchants run their business. Without credit, merchants focus on maintaining cash flow. They buy as much as they can self-finance or finance informally, while keeping enough cash on-hand for their working capital needs. They purchase fast-moving products in order to rotate cash faster, take lesser risks (i.e don’t purchase high-margin or new products).  

With access to credit, merchants prioritize their business goals. They purchase more stock, widen their product portfolio, purchase high-margin SKUs, and increase the space and assets in their stores. This helps them grow their business and increase their customer base.This in turn increases the platform’s GMV, AOV, and logistics efficiency.  

Increased share of wallet

A typical retailer is engaged with at least 5 - 6 distributors, with a lot of different goods on offer. A retailer often optimizes for price as well as finance terms. Especially before festivals, merchants go for distributors offering credit. Also expensive SKUs are often stocked at superior financing terms.

Merchants also have a variety of informal financing options. To compete with local distributors, B2B E-Commerce platforms need to provide credit as a part of their product offering. Offering credit seamlessly and at better terms than local competitors, encourages merchants to purchase more from the platform.

Offering credit enables B2B E-Commerce platforms to improve share of wallet, which has multiple downstream effects

Increased retention

Offering credit strengthens the relationship between platform and merchants. Platforms can now offer a variety of products based on deeper customer understanding. Additional parameters about creditworthiness, financial position, etc can be leveraged in many ways, including providing more tailored financial services.

Increased Activation to Acquisition ratio

Typically merchant-oriented businesses face very high acquisition costs. They provide expensive offers/incentives for the activation of the merchant on the platform. Adding credit is known to increase the activation of merchants on a platform in multiple ways.

  1. Stand out from other businesses which do not offer seamless credit.

  2. Enabling flexible payment options lowers barriers to trying out a new supplier (platform)


Platforms can sell to more merchants

Platforms with capital to make available to merchants, will always beat other businesses by becoming the preferred supplier for it's merchants.

Enabling credit gives platforms access to merchants for both up-selling and cross-selling.

Moving upmarket

Larger merchants run their businesses more capital efficiently and rely on supply chain credit to manage their financial positions. They take into account financing terms to decide about experimenting with new SKUs and whether to stock up for festivals etc. Platforms can work with bigger players only if they can provide larger credit facilities.

Bigger players deal with bigger ticket sizes, and they have higher margins. They order more at a time, and create efficiency for platforms. When platforms don’t provide credit, the platform’s target segment is reduced to cash-only merchants who have a much lower AOV for the platform.

Why Embedded Finance?

Embedded Finance Infrastructure natively enables credit for all merchants within a B2B E-Commerce platform. It handles the end-to-end lending flow, including the customer journey, loan offer generation, lender partnerships, and third-party integrations, repayment etc.

  1. Fully managed digitised lending flow within the platform Embedded Finance companies provide UI for each step of the loan lifecycle - loan application, post-approval, and post disbursal. The loan application process is fully digital and is embeddable entirely inside the platform’s app.

  2. Increased approval rates by leveraging platform data- Embedded Finance combines lending expertise, alternative data underwriting, and data from the platform to credit score merchants and approve more customers.

  3. Best loan offers generated by a large lender network - Embedded Finance connects digital platforms to a large and diverse lender network which ensures that your merchants get the best loan offers and have a high probability of being approved.

  4. Tailored Credit Products - Embedded Finance enables platforms to innovate, evolve and tailor credit products to serve the use-cases of the customer in deep collaboration with the anchor platform. Customized credit products that suit the exact needs of the customer provided at the exact time of need work much better than one-size-fits-all products that digital lenders provide.

Embedded Finance provides a more advanced tech stack to digital platforms to help their customers, as compared to traditional digital lending partnerships. Read more about how embedded finance is an evolutionary leap in digital lending.

In conclusion

Ultimately, Embedded Finance enables digital platforms to leverage their unique position to help their merchants. It empowers B2B E-Commerce businesses to innovate for their customers, offer effective credit products, and provide credit to customers who otherwise wouldn’t be able to access it. This sharply accelerates their own growth and the growth of their customers. B2B E-Commerce platforms must embrace Embedded Finance, take credit solutions quickly to their customers, and iterate rapidly. 

Get Started Now

FinBox helps businesses launch embedded credit in just three weeks with its end-to-end software and risk management stack. Traditionally, credit is only available to top 1-5% of your customers. FinBox helps you cover all merchants on your platform.Get in touch with FinBox and start building now!