Rising Demand for Embedded Finance Among SMBs

A new global survey conducted by Airwallex, a global payments and financial platform, in collaboration with consultancy Edgar, Dunn & Company, reveals a soaring demand for cloud-based financial services among small and medium enterprises (SMBs). More than 80% of these businesses are contemplating a switch from traditional banking for their payment needs.

The study delves into the financial pain points of SMBs that can potentially hamper their global operations and growth. A significant 82% of SMBs worldwide feel overlooked by banks and would consider changing their current banking provider if their existing software or marketplace offered a similar alternative. The services they’d be interested in include cross-border payments collection and payouts, business bank accounts, foreign exchange, and treasury.

This trend indicates a clear opportunity for software platforms or marketplaces such as eCommerce, customer relationship management (CRM), or expense management platforms to better cater to SMB customers by providing embedded financial services.

Cross-Border Payment Challenges Stifle Growth

Inefficiencies in receiving international payments are a significant issue for SMBs. These include long processing and settlement times (45%), a problem acutely felt in Singapore and Australia (52%). Another challenge is forced currency conversion leading to high transaction fees (41%), a concern particularly for UK-based SMBs (45%).

SMBs also face hurdles when disbursing funds to vendors, suppliers, and employees. These include delays in processing and disbursing payments (48%) and complexity in managing multiple payout methods and currencies, a global problem that rises to 57% in Singapore.

Faith in Software Platforms for Streamlined Financial Services

Although 81% of global SMBs depend on traditional banks for financial services, these institutions often fail to address the specific needs of SMBs, offering unsuitable, standardized products. Such inefficiencies can cause cash flow problems, particularly harmful to SMBs. This has led to 77% of global SMBs pondering or considering a shift to a new payment solution provider.

Traditional banks are seen as the least likely to meet SMBs’ financial needs (44%). In contrast, 64% of respondents believe software platforms or marketplaces offering embedded financial services can serve them better. This sentiment is consistent across all regions, with the highest demand in Australia (76%).

A Premium for One-Stop-Shop Provider

SMBs in China (93%) and the US (88%) have the highest willingness to access financial services through their existing software providers. In contrast, Australian SMBs showed a lower appetite (66%), likely because 19% of them already use their software providers for these services.

The majority of SMBs (76%) would be willing to pay more for a provider that can support their financial and other needs as they expand their international business. Chinese SMBs are the most willing, with 91% stating they would do so.

Shannon Scott, SVP, Global Head of Product, Airwallex, emphasized that seamless cross-border payments are essential for digital-first SMBs. He added that software platforms and marketplaces, given their closer relationships with customers and understanding of their industries’ nuances, are well-positioned to fill this gap.