Blogs
embedded finance
B2B marketplaces
AirBnB
Shopify
Shopify Pay
network effects
market consolidation
super apps

Toward super apps: An embedded finance blueprint for B2B marketplaces

Vasavi Sinha   /    Content Lead    /    2022-03-09

LinkedInLinkedIn

“The hardest part of B2B solutions isn’t selling them, but buying them” Brent Adamson, Principle Executive Advisor, Gartner

Which brings us to the chicken-and-egg problem that most B2B marketplaces struggle with. Acquiring clients is one part, monetizing their lifetime value is the game. Most B2B marketplaces find that businesses on their platforms fail to transact, or do not transact as often. That hinders the marketplace’s ability to gather workable data to cross-sell or nurture relationships beyond transactions.

The flaw: B2B marketplaces approach a B2B buyer’s journey the same way as B2C. That’s where gaps appear. Conceded, the divergence is narrowing due to digital distribution models and information ubiquity. Yet, there are fundamental differences in the two sales journeys.

For one, the B2B buyer journey was, and remains, much more complex compared to B2C. There is a higher stakeholder play spanning across supply chains and logistics, procurement and bulk ordering, and most importantly, finance. 

The B2B buyer is looking for ease of navigation throughout the buying process. They would prefer a proxy for core operating systems, offering accounting, finance, inventory etc. under one umbrella. This disincentivizes the need to bundle together multiple software. A marketplace that powers these ancillary functions seamlessly can monetize the real value of its onboarded businesses.

Therefore, a B2B marketplace that is just a discovery channel would no longer do. The real value lies in locking customers in an ecosystem by catering to their every need.

Embedded finance is one way to create the lock-in value for B2B clients. It is a moat for B2B marketplaces - just like a fourth platform. That’s saying, from being a good-to-have functionality today, it will progress into a must-have during the course of this decade. Like the internet, cloud and mobile did. Only much faster.

Here’s what the first-mover advantage on embedded finance promises B2B marketplaces: a substantial market share, customer lock-in and everything that comes with an ecosystem play.

We highlight five ways in which embedded finance can smoothen B2B buyer journeys, leading to higher conversions and pave the way for B2B marketplaces to be super apps.

Five-Pronged Approach to Market Consolidation with Embedded Finance 

Embedded finance has an untapped market potential of $138 billion, or what could be a whopping 215% leg up. 

Here’s how embedded payments, insurance, and credit can play into growth trajectories: 

Simplified workflows

Embedded finance, or in-context finance options, makes it easier for businesses to transact. Offered right at the point of need, these options, such as embedded trade credit, payments or insurance, shorten the time to transact, while also disintermediating intermediaries that otherwise would have prolonged the process. For example, a business sourcing inventory through a B2B online platform gets access to in-context credit, without ever interfacing with a bank. 

FinBox BNPL infrastructure, which powers in-app credit, offers flexible bullet or installment repayment options. With instant approval and real-time disbursal of credit. By addressing the gaps in traditional underwriting, FinBox utilizes alternative data scores and cash-flow insights to underwrite borrowers.  (Read: New-age lending calls for a new approach to underwriting)

Embedded functionalities

Once ease of transaction is established, the marketplace moves closer to the client. It can then onboard other functionalities to ensure recurring orders, such as embedded procurement, in-platform accounting and inventory management to further build a lock-in. These functions are complementary. For instance, a marketplace offering trade credit can draw insights from its accounting data on a particular merchant for alternative underwriting. Credit for procurement can also be underwritten with historic data on inventory offload.

When these functionalities attain substantial scale of use, the marketplace becomes a data warehouse for banks and other financial institutions, positioning itself as a financial intermediary between suppliers of capital and the beneficiaries. (Read: How trade credit can help spot supply chain disruptions before they happen)

Higher synergies

The B2B buyer would generally avoid single-point dependencies. A marketplace with a limited number of suppliers is less likely to meet the diverse business needs of its clients. The economies of scale have to be established simultaneously supply- and demand-side. With embedded finance, and its subsequent lock-in value, the marketplace attains critical mass and doubles up its network effects. This leads to a build up in aggregate demand and supply, fostering synergies that go beyond the marketplace.

For instance, Shopify started as an online storefront for small businesses. It diversified its portfolio with Shopify Pay - a payment gateway that saves customer financial data and makes checkouts easier. However, Shopify Pay is now available to merchants that do not operate natively on Shopify - it has become a commodity that Shopify markets as a payment gateway. This leads to higher traction on the platform and drives meaningful conversions for both the platform and the merchant.  Shopify Pay further builds its value proposition with local pickups and delivery options, embedding value deeply into the value chain. No wonder, despite the pandemic, Shopify netted 57% growth in its total revenue in the second quarter of 2021.

Ecosystem lock-in

Which brings us to the ecosystem play, the only way to simplify B2B buyer journeys. The significant unbundling that we see across financial services is an opportunity for marketplaces to bolster similar capabilities and play them into their strengths. Embedded finance can trigger exponential value-adds for both the marketplace and its customers, creating a symbiotic relationship where each draws benefits from being a part of the whole, rather than a singular entity.

Take for instance AirBnB. As a marketplaces for home rooms on rent, the platform was already verticalized. In 2022, it plans to launch embedded travel insurance options for guests booking through its app. This comes in at a time when COVID variant spikes become a regular occurrence, and disintermediates third-party insurers that operate outside its network.

Prior to this, AirBnB also rolled out a host protection plan of $1 million in damage protection and $1m in liability coverage. It also includes income loss protection, pet damage protection, and deep cleaning protection. No wonder, AirBnB today is worth more than Marriott, Hilton and Intercontinental, combined.

Integrated market intelligence

This is where the game changes. By fostering these data-rich relationships with clients and channeling them to create tangible value, marketplaces can actually move to a zero customer acquisition cost model. By amping up repeat purchases and creating both demand- and supply-side economies of scale, marketplaces get richer opportunities to cross-sell with smarter prequalification and massive risk reduction. 

(Read: Nudges, cross-promotions & rewards: A triad for better conversions in digital lending)

This intelligence, gained through data mining, can help marketplaces identify existing gaps and tap into opportunities for industry-agnostic tie-ups. This will only multiply the network effects and bolster their ecosystem play.

Every company will be an online marketplace

We have heard that every company will be a fintech, but much before that, every company will become an online marketplace. The caveat: it is so easy for value to get commoditized, it will require constant innovation and a fair bit of crystal ball gazing for marketplaces to maintain a beachhead.

Embedded finance, and its myriad opportunities, offers one. In fact, by fully realizing the embedded finance potential, marketplaces can shift their positioning to super apps - becoming the one-stop shops for their clients.

Invariably, it’s about grabbing the largest share of the pie. But with embedded finance, marketplaces can keep it too.