La Financière de l’Échiquier (LFDE) has finalised its merger with Tocqueville Finance, the equity management subsidiary of La Banque Postale AM (LBP AM).

The deal, which follows the acquisition of LFDE by LBP AM in July 2023, marks ‘the emergence of a European leader in conviction management’, according to a group spokesperson.

With €27bn in assets under management and a management team of 55 managers and analysts, LFDE wants to focus on conviction management, particularly in European equities.

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.”

Local government financing vehicles (LGFVs) and consumer companies could trigger a new round of debt failures because of their bigger maturity walls and greater refinancing needs, the rating company said in a report on Tuesday. The most recent distress cases are just entering full restructuring and more will come this year, it added.

“Policies aimed at reining in excessive leverage have driven two default waves so far,” Charles Chang, S&P’s Greater China country lead for corporate ratings, said in the report. “More policies with similar aims, scale and effects may lead to the next wave of defaults.”

Companies in the industrial and commodities sectors led the first wave between 2015 and 2016, when the country experienced 80 defaults triggered by excess capacity and asset management, said Chang, who co-authored the report with China country specialist Chang Li. Beijing’s “three red lines” policy has led to the second wave from 2021, with real estate developers accounting for most of the 108 default cases since, he added.

China Evergrande Group, which was ordered to liquidate in January amid an accounting scandal, first fell into distress in June 2021 after China squashed weak developers to contain systemic risks in the financial system. The cash crunch at Country Garden Holdings, once China’s largest home builder, showed the crisis has yet to run its course, S&P said in the report.

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“Market access for privately owned firms has been negative for most months since 2021,” Chang said in the report. “For LGFVs, only higher rated firms were able to issue bonds but in lower volumes. Tightened regulation has restricted the market access of weaker LGFVs.”

Still, this year may mark a trough as the repayment amount drops, S&P said. Chinese entities have US$92 billion in offshore corporate bonds coming due, compared with US$111 billion that matured in 2023 and US$104 billion that will be payable in 2025, Chang said. As a result, China’s offshore default rate has fallen to 0.3 per cent in the first quarter, from 1.3 per cent in 2023 and 6.7 per cent in 2022.

Country Garden to raise funds for US$13 million bond coupon within grace period

China’s 5.3 per cent growth last quarter should not be viewed as a “significant slowdown”, said Kenny Ng, a strategist at Everbright Securities in Hong Kong. The country’s monetary policy is still quite accommodative and financing costs are still going down overall.

While there has been no default among onshore borrowers in the first three months of 2024, S&P said debt maturities are peaking this year at 8 trillion yuan (US$1.1 trillion). LGFVs face 3.5 trillion yuan of repayments, while the capital goods and power sectors each have 757 billion yuan and 738 billion yuan of obligations, respectively.

“Corporate debt is a rigid burden that is largely dependent on a company’s operations,” said Shen Meng, director at Beijing-based investment firm Chanson & Co. “The tightening of financing will further compress the flexibility of a company’s operations and shake the foundation of its financial stability.”