Finance
Embedded Finance Platforms Can Create a Win-Win Solution for All in Online Marketplaces… But How? | The Fintech Times
This April, The Fintech Times is focusing on all things embedded finance, the integration of financial services into non-financial products and services. As the space rapidly develops, we look to highlight the latest developments, initiatives and challenges embedded finance has to offer and overcome across the globe.
Embedded finance platforms hold the key to ensuring both buyers and sellers feel empowered within online marketplaces. To understand how this can truly be achieved, we reached out to the industry.
Finance automation must be adopted
Rick Verma, head of digital at Tipalti, the end-to-end payables automation firm, notes the various reasons why people are turning to careers online, but highlights the importance of finance automation.
“The digital economy has no doubt picked up pace in the last 10 years, with it now contributing £149billion to the UK economy each year.
“There are many reasons why people are turning to a career within online marketplaces – flexible working hours, the appeal of being self-employed to name but a few. For buyers, online marketplaces provide more choice and personalisation.
“Yet, the experience for both can be damaged if online marketplaces fail to adopt finance automation. Embedded finance automation offers buyers convenience, personalised experiences and cost savings, while providing sellers with increased and more reliable revenue streams, enhanced customer engagement and valuable data insights.
“Ultimately, this leads to a more seamless and competitive marketplace for both parties – that empowers gig workers with the tools needed to thrive in this flexible economy and make it viable as a full-time career.”
Enhancing economic opportunities
Natasa Kyprianidou, senior director with Alvarez & Marsal, the management consulting term, highlights the costs and times that can be saved through embedded finance providers. She says: “The integration of rent-a-platform models, such as Stripe, Plaid, and Tink, into online marketplaces has empowered both buyers and sellers by streamlining financial transactions.
“These platforms, operating at the API layer, enable rapid and seamless integration of a wide array of financial services into e-commerce platforms. This approach contrasts with traditional, time-consuming, and costly bespoke integrations, offering a swift, cost-effective method to onboard hundreds of merchants.
“For marketplace operators, the adoption of rent-a-platform models significantly cuts down integration costs and time, enhancing the platform’s agility and ability to quickly adapt to market demands. Buyers enjoy a more convenient and secure shopping experience, with instant financing and seamless payment processes integrated directly into their purchasing journey.
“Sellers, especially SMEs, benefit from simplified access to essential financial tools, including efficient payment processing and advanced business analytics, allowing them to focus on scaling their businesses. The democratisation of access to financial services through these platforms, levels the playing field within the marketplace, fostering a competitive and vibrant ecosystem that benefits all stakeholders.
“In essence, rent-a-platform models are catalysing a transformative shift in online marketplaces, enhancing economic opportunities for buyers and sellers paving the way for a new era of e-commerce innovation.”
Filling the gap
James Butland, VP payment network and UK managing director, Mangopay, the paytech explains how the surge in demand for embedded finance arises from the limitations of traditional banking models in delivering integrated financial solutions, particularly in the realm of B2B e-commerce.
“Buyers and sellers within online marketplaces gain access to a suite of financial services, transforming the way transactions are conducted and elevating the overall operational efficiency of businesses.
“To meet the needs of this evolving landscape, a notable shift is taking place towards leveraging flexible payment infrastructure via the use of APIs. This strategic shift prioritises superior customer experiences, scalability, and rapid development. APIs have been democratising financial integration, allowing non-financial entities to seamlessly embed financial solutions that extend beyond transactions to include insurance, investment and financing into their offerings.
“For buyers, this means access to diverse payment options, resulting in a streamlined shopping experience that enhances convenience and trust. Sellers can benefit from comprehensive payment infrastructure and modular solutions, facilitating seamless integration with existing technology stacks. This empowers them to create all-in-one operational ecosystems that not only facilitate transactions but also offer real-time invoicing and enhanced operational efficiency.”
Creating the perfect link
Embedded finance is the solution to removing friction in the e-commerce payments process says Sunil Sachdev, head of embedded finance at Fiserv, the global fintech and payments firm. He explains: “When you think about embedded finance, its ultimate function is to remove friction. It used to be that e-commerce was mostly about sellers presenting what they had and buyers purchasing with the existing funds in their wallet.
“Now, with AI, data can be used to enable more intentional targeted interactions. Sellers can surface relevant products and services at the point of need and are now able to offer financing options at the time of purchase – whether a line of credit, BNPL or a proprietary solution – creating a more seamless commerce journey.
“Alignment between buyers and sellers is simply so much stronger now. From a buyer’s perspective, the greater breadth of payment options is increasing purchasing power. From a seller’s perspective, embedded finance platforms pave the way for higher buyer conversion rates. The buyer’s increased purchasing power translates into lower abandonment rates – one of the biggest issues sellers grapple with at the checkout – and into bigger basket sizes.
“Looking ahead, sellers’ financing options will also become much more tailored than they are today, with options tailored for their credit box, their specific inventory purchase size, and their transaction history. As sellers benefit from these tailored financing offers, they are better positioned to pass on savings or provide similar tailored financing offers to their own buyers.”
Getting to the end solution in a faster, more efficient manner
For Elliot Colquhoun, VP, information security and IT at Airwallex, the global payments firm, speed and accessibility are where embedded solutions platforms can shine in an e-commerce marketplace.
“In an increasingly digital world, marketplaces have become the go-to source for sellers, buyers, and service providers to tap into a global environment. Despite the immense opportunity, there are challenges for both sellers and marketplaces.
“For sellers it can be a complex experience to get up and running; for marketplaces onboarding a new merchant can be challenging – it’s time-consuming and can be complicated with efficient onboarding, as KYC and KYB can pose a serious challenge. This is where having a robust global payments and financial infrastructure in place is essential to a company’s global success.
“With embedded finance, marketplaces can partner with a fintech to create a smooth and efficient payment experience throughout the entire selling and buying journey. Embedded finance can simplify the end-to-end payment process for both buyers and sellers, particularly if that solution enables shoppers to use their preferred or local payment method, in a compliant and secure way.
“Embedded finance can also reduce the time businesses are blocked on money flow as it ensures faster returns on sales meaning businesses can reinvest and accelerate their growth even faster.”
Promoting good security
Paola Santana, CEO at Glass, the govtech explains why an enhanced buying experience with a security focus is of paramount importance within the government e-commerce sector.
“Being in the government e-commerce space, we basically could not exist without embedded finance tools. There are strict guidelines regarding handling of financial information for government customers (as you can imagine). Embedded finance platforms in this particular situation serve as conduits for financial services seamlessly integrated into the government e-commerce ecosystem. It creates efficiency, accessibility, and most importantly – security – for both government buyers and vendors.
“For government buyers, embedded finance platforms offer streamlined payment processes, enabling quick and secure transactions within the government marketplace environment, especially since governments use government credit cards and government accounts for their purchases.
“With easy API integrations, government buyers can enjoy frictionless payment experiences without worrying about how purchases will be processed. It helps them understand their real-time purchasing power, and they can instantly see where taxpayer dollars are going. Plus, all their finance data points are just a few clicks away. Embedded finance really enhances the overall buying experience, especially for a demographic like government where security is extremely sensitive.
“On the vendor side, these platforms unlock opportunities for growth and optimization, especially if vendors are setting up their businesses to sell to government entities. By facilitating seamless payment acceptance and processing, these platforms help vendors manage their cash flow and liquidity, and remain compliant with any government purchasing regulations. Plus, plenty of embedded finance solutions often offer value-added services like automated invoicing, or a real-time broad overview of what sales are being made.
“Simply put: vendors can accept a long list of payment forms and have instant access to data to drive their business decisions.”
Ensuring customer loyalty
Rewards are a very good way of ensuring customer loyalty. They keep customers coming back to a retailer to shop to earn rewards. The customer feels valued as they receive special deals or items for free, and the merchant can ensure a long-term customer. Jay Jaffin, CMO at Blackhawk Network, a prepaid and payment networks services provider builds upon this idea explaining: “Businesses can leverage embedded rewards (part of the embedded finance ecosystem) to nurture customer loyalty and engagement.
“Rewards are incredibly effective emotional drivers for customers and businesses alike. The psychological impact of rewards is simple; when people receive a reward, especially a branded one like a prepaid or gift card with the company’s logo, it can create a halo effect of positive brand affinity for the business issuing the reward.
“Technology exists (e.g., APIs) that can provide rewards experiences that are embedded directly into customer exchanges, no matter where they are, and throughout the purchase process or sales cycle. These capabilities help businesses create quality connections that enhance relationships with target buyers or customers because they quickly meet people where they are and offer frictionless customer experiences before, during and after point-of-sale.
Access anywhere
“Embedded rewards (e.g, digital gift cards) can be accessed from almost anywhere, and by leveraging intelligent apps or APIs that enable your brand to dole out embedded rewards—especially those that are digital wallet-enabled since 88 per cent of shoppers surveyed use a digital wallet of some kind—you can provide real-time reinforcement for behaviours, gather deep customer insights that help tailor future interactions and promotions, and unlock frequent touchpoint opportunities.
“Examples of when embedded rewards can be offered include when people make certain purchases, participate in referral programs, sign up for loyalty programs, engage with brands on social media, participate in promotions, leave reviews, participate in surveys or market research studies, or even when they have negative brand experiences.”
Infrastructure is allowing everyone to benefit
Ricardo Pero, co-founder and CEO at SellersFi, e-commerce funding solutions provider notes how embedded finance infrastructure is allowing retailers to keep pace with consumer demands.
“While much coverage of embedded finance to date has focused on its ability to reach consumers through personalized user experiences, many observers haven’t noticed its increasing importance in helping businesses achieve scale and run their daily operations.
“Nowhere is this more vital than in the world of online marketplaces.
“Most small-to-medium-sized e-commerce sellers are unprepared for the torrent of demand they encounter when they first join a marketplace like Amazon’s. As they scale, many smaller businesses quickly find themselves in need of more robust and sophisticated solutions in logistics, advertisement and finance.
“Amazon and similar platforms enable smaller e-commerce sellers to scale much more quickly than they might have anticipated. The problem – until recently – has been the lack of integrated financial infrastructure to help these businesses keep pace with this demand in real-time.
Expanding boundaries
“Fortunately, emerging embedded finance players are stepping up to fill the gap.
“New embedded finance options on Amazon and other platforms are expanding the boundaries of what was previously possible through marketplace-integrated financial services, providing sizeable term loans, working capital loans and expedited underwriting processes to help sellers scale quickly and keep pace with demand.
“As embedded finance has matured, sellers are adopting and relying on the channel more than ever. By providing sufficient capital for smaller e-commerce companies to not only fund their operations but to actively and aggressively grow, forward-looking embedded finance providers are opening new possibilities for sellers on online marketplaces while creating new buying options for consumers.”
Red squirrel characters have a history in the public information game. Older UK readers may recall Tufty, who taught children about road safety in the 1970s. His chum, Willy Weasel, regularly got knocked down by passing cars but clever Tufty always remembered to look both ways.
Now comes Savvy Squirrel, who, with backing from the chancellor and a multi-year lump of advertising spend from the financial services industry, will try “to drive a step-change in how investing is understood, discussed and adopted”, as the blurb puts it. In translation: don’t squirrel everything away in a boring cash Isa but try taking an investment risk or two if you value your long-term financial health.
As with preventing road traffic accidents, the cause is noble. Every study on long-term financial returns reaches the same conclusion: inflation is the investor’s enemy and there is a cost to holding cash for long periods.
One statistical bible is the Equity Gilt Study published by Barclays, and a few numbers demonstrate the point. From 2004 to 2024, cash generated a return of minus 40.5% in real terms (meaning after inflation and including interest paid). By contrast, a conventional diversified portfolio comprising 60% UK equities and 40% gilts increased by 21.6% in real terms. A missed opportunity of 62.1 percentage points is enormous
Rachel Reeves’s interest in promoting the virtues of investment lies not only in helping savers but in greasing the wheels of the capital markets. Fair enough: a healthy economy needs a healthy stock market, including one that makes it easy for retail investors to participate. It is slightly ridiculous that the colossal sum of £610bn is estimated to be sitting in cash savings in the UK; it can’t all be rainy-day money or cash parked awaiting a house purchase.
Many Americans famously follow the stock markets closely and discuss their 401(k) pensions savings plans but, even by European standards, the UK’s retail investment culture lags. Sweden has popularised investment with tax-breaks and other changes. Even supposedly cautious Germans are less inhibited. So, yes, one can applaud the ambition behind the campaign.
But here’s the doubt: it all feels terribly tame.
One can imagine an alternative launch in which Reeves tried to create a buzz by cutting stamp duty on share purchases. There are good reasons to adopt that policy anyway, as argued here many times, but a cut now would grab attention. True, rules for banks and investment firms on giving “targeted guidance” are being loosened to allow more useful advice alongside the “capital at risk” warnings. Yet the current news flow in Isa-land is about HMRC’s pernickety interpretation of the tax treatment of cash held within stocks and shares account. That just creates bad vibes in the wings.
Meanwhile, the campaign’s goals read as wishy-washy. It’s all about “helping people build confidence over time”, apparently. Well, OK, that’s what the market research suggests, but “creating more opportunities for everyday conversations” is limp when, in the outside world, teenagers are trading crypto on their phones and the world is awash with smart apps. The intended audience can surely handle more directness.
As for the squirrel, it may get lost in the forest of meerkats and other CGI creatures deployed by financial services firms. For a campaign that is supposed to be doing something distinctly different, why go with a character which, on first glance, looks generic?
Back in the pre-smartphone 1970s, there was a certain shock value for the average five-year-old in seeing Willie Weasel lying injured in the road. At least the message about bad consequences was clear and memorable. One wishes the Savvy campaign well, but one fears a conversational squirrel may struggle to be heard.
Last weekend, several thousand people took to the streets in Munich to demonstrate against abortion and assisted suicide. One speaker made an extremely dramatic plea against what he called the “culture of death” that has allegedly taken hold in Germany. One sign of this, the speaker argued, was that the government is planning to abolish a regulation known as “spousal tax splitting.”
Is tax law really relevant to deep philosophical debates on the sanctity of life? It is even a matter of life and death at all? Surely we needn’t go that far? In any case, the intense political uproar surrounding the new debate on whether to abolish spousal tax splitting is notable, even by today’s standards of populist outrage.
An advantage for couples with widely divergent incomes
The row was sparked by Germany’s vice chancellor and finance minister, Lars Klingbeil, of the center-left Social Democratic Party (SPD), who said he wanted to abolish and replace the joint taxation of spouses’ income, a system that has been in place since 1958.
How exactly does spousal tax splitting work? In Germany, married couples (and since 2013, couples in civil partnerships), can choose to have their income assessed jointly by the tax authorities.
It means that the taxable income for both spouses together is halved – as if both partners had each earned an equal half of the income. Their tax liability is then determined by simply doubling the income tax due on one half.
As people who earn more pay higher taxes in Germany, this system benefits couples where one partner (and often this is still the man) earns significantly more than the other (in practice often the woman).
Costs of up to €25 billion per year
If for example one partner earns €60,000 ($70,512) a year and the other partner earns nothing, the couple will be taxed as if they earned €30,000 each. In this example, the couple would save nearly €5,800 in taxes per year compared to the amount they would owe if both partners filed their taxes separately. According to the Finance Ministry, spousal tax splitting costs the government a total of up to €25 billion annually.
Some critics have long viewed splitting as a tool to keep women out of the labor market, because the more a woman earns, the larger her tax burden becomes. Klingbeil seems to agree, arguing on ARD television in late March that the system was “out of step with the times.” The spousal splitting system reflects “a view of women and families that is completely at odds with my own,” he said.
Chancellor Merz said to be in favor of splitting
On Monday of this week, Klingbeil got some surprising support on this from Johannes Winkel, head of the youth wing of the conservative Christian Democratic Union (CDU).
“Given the demographic reality, the government should create incentives to ensure that both partners in a relationship are employed,” Winkel told the Funke Media Group. “In the future, tax relief should primarily be granted to married couples when they are facing hardships related to raising children.”
But the chancellor is a vocal skeptic of the proposal. “I am not convinced by the claim that joint filing for married couples discourages women from working,” Friedrich Merz said at a conference organized by the Frankfurter Allgemeine Zeitung newspaper. “Marriage is a relationship based on shared income and mutual support. And in a marriage, income must be treated as a joint income for tax purposes, not separately.”
Klingbeil’s alternative plan
At around 74%, the labor force participation rate for women in Germany is one of the highest in Europe, but half of them work part-time.
Klingbeil’s idea is to replace the existing system with a more flexible approach: Both partners would be able to distribute tax-free income among themselves in such a way that it minimizes their tax liability. This would allow the couple to continue enjoying a tax advantage, albeit not to the same extent as before. And whether one partner earns more than the other would become less important.
However, it remains to be seen whether Klingbeil will be able to push through his proposal. Aside from Germany, similar regulations offering tax benefits to couples exist in Poland, Luxembourg, Portugal and France.
This article was originally written in German.
The $537,000-a-year office created in 2014 to advise the City Council on financial issues and avoid a repeat of the parking meter fiasco has failed to deliver on that mission, the city’s chief watchdog said Tuesday.
Days before concluding her four-year term, Inspector General Deborah Witzburg said a shortage of both adequate staff and financial information closely held by the mayor’s office prevents the Council’s Office of Financial Analysis from helping the Council be the the “co-equal branch of government” it aspires to be.
In a budget rebellion not seen since “Council Wars” in the 1980s, a majority of alderpersons led by conservative and moderate Democrats rejected Mayor Brandon Johnson’s corporate head tax and approved an alternative budget, including several revenue-generating items the mayor’s office adamantly opposed.
But Witzburg said the renegades would have been in an even better position to challenge Johnson if only their financial analysis office had been “equipped and positioned to do what it’s supposed to do” — provide the Council with “objective, independent financial analysis.”
“We are entering new territory where the City Council is asserting new, independent authority over the budget process. It can’t do that in a meaningful way without its own access to financial analysis,” Witzburg told the Chicago Sun-Times.
Chicago Inspector General Deborah Witzburg’s latest report focuses on the Chicago City Council’s Office of Financial Analysis.
Jim Vondruska/Jim Vondruska/For the Sun-Times
But the Council’s financial analysis office, she added, “has never been equipped or positioned to do what it needs to do. It needs better and more independent access to data, and it needs enough staff to do its job. It has a small number of employees and comparatively limited access to data.”
The inspector general’s farewell audit examined the period from 2015 through 2023. During that time, the financial analysis office budget authorized “either three or four” full-time employees. It now has a staff of five .
Witzburg is recommending a staffing analysis to identify how many people the financial office really needs — and also recommending that the office “get data directly” from other city departments, “ rather than having it go through the mayor’s office.”
The audit further recommends that the office develop “better procedures to meet their reporting requirements” in a timely manner. As it stands now, reports are delivered “sometimes late, sometimes not at all,” the inspector general said.
“We find that those reports have been both not timely and not complete in terms of what they are required to report on and that those reports therefore have provided limited assistance to the City Council in its responsibility to make decisions about the city’s budget,” she said.
The Council Office of Financial Analysis responded to the audit by saying it hopes to add at least three full-time staffers in the short term and has made “some progress” over the last three years in improving their access to data, but not enough.
The office was created in 2014 to provide Council members with expert advice on fiscal issues.
For nearly two years the reform was stuck in the mud over whether former 46th Ward Ald. Helen Shiller had the independence and policy expertise to lead the office.
Shiller ultimately withdrew her name, but the office was a bust nevertheless. In an attempt to breathe new life into it, sponsors pushed through a series of changes.
Instead of allowing the Budget chair alone to request a financial analysis on a proposal impacting the city budget, any alderperson was allowed to make that request.
The office was further required to produce activity reports quarterly, not just annually.
Now former-Budget Chair Pat Dowell (3rd) then chose Kenneth Williams Sr., a former analyst for the office, as director and gave him the “autonomy” the ordinance demanded.
Two years ago, a bizarre standoff developed in the office.
Budget Committee Chair Jason Ervin (28th) was empowered to dump Williams after Williams refused to leave to make way for a director of Ervin’s own choosing.
The standoff began when Williams said he was summoned to Ervin’s office and told the newly appointed Budget chair was “going in a different direction, and I’m putting you on administrative leave” with pay.
“He took all my credentials and access away. I would love to come to work. I wasn’t allowed to come to work,” Williams said then.
Williams collected a paycheck for doing nothing while serving out the final days remainder of a four-year term.
Ervin’s resolution stated the director “may be removed at any time with or without cause by a two-thirds” vote or 34 alderpersons. He chose Janice Oda-Gray, who remains chief administrator.
-
New York1 hour agoMamdani Considers Delaying Pension-Fund Payments to Ease Budget Gap
-
Detroit, MI2 hours agoThings to do in Metro Detroit, April 24 and beyond
-
San Francisco, CA2 hours agoCA to open 3 new state parks and expand others, including in Bay Area: Here’s where
-
Dallas, TX2 hours agoWild vs. Stars Game 3: Key takeaways as Dallas takes series lead on Wyatt Johnston’s 2OT winner
-
Miami, FL2 hours agoMiami-Dade deputies detain elderly father who they say shot and killed his son after a domestic dispute
-
Boston, MA2 hours agoBoston has one of the best public markets in the country, says USA TODAY
-
Denver, CO2 hours agoRed flag fatigue? Colorado sees near-record number of critical fire days
-
Seattle, WA2 hours agoFOLLOWUP: West Seattle pickleball players band together to save court access