Sonovate: why is corporate finance lagging behind integrated finance?

Embedded finance is already significantly disrupting the consumer market. So why is corporate finance lagging behind?

Richard Prime

This is the narrative explored here by Sonovateco-founder and co-CEO of , Richard Primewhich looks at the success of integrated finance and what the industry can learn from this journey to improve the finance journey for businesses.

Sonovate itself is a technology-driven financing platform for businesses to access and manage their financing needs through its app or through its API. Created to make it easier for businesses and individuals to manage and manage their working lives, the platform has funded over £2.5bn to date in over 40 countries.

The pandemic has changed consumers’ needs and expectations when it comes to accessing finance, and even how they do it. Over the past two years, integrated finance has flooded the consumer market, with services such as After-payment and Klarna – which now has more than 150 million customers worldwide and operates in 45 markets – changing the way millions of consumers experience payments and credit and delivering a seamless, faster and easier shopping experience.

The advent of open banking and consumers finding financial services exactly where and when they need them have raised the bar for business. Integrated financing can help businesses simplify their finances and dramatically improve the efficiency of the entire payment process. This is another reason why integrated finance and banking as a service are among the most exciting new trends transforming this space.

While this is happening at high speed on the consumer side, innovation is lagging when it comes to corporate finance. In 2016, the Competition and Markets AuthorityThe retail banking market investigation identified a number of competition concerns with banking services aimed at small and medium-sized businesses. Although regulation has resolved some issues, there is still a disconnect between the mechanics of current corporate finance solutions and what companies require from their funding in order to grow.

A recent global Accenture A survey of 2,500 small and medium-sized businesses in 10 markets confirmed growing interest in integrated finance solutions, with more than 40% willing to pay for integrated finance solutions from digital platforms. In the same survey, around 85% said they use digital services in their day-to-day operations.

So, with a clear appetite for integrated enterprise financial solutions, why isn’t this audience being served as it should be? What, if anything, can we learn from the consumer space?

Because integrated finance is consumer-oriented, businesses are still not seen as a separate group with distinct needs, even though these businesses are just as willing as consumers to use third-party solutions.

Even the smallest business has more complex needs than a consumer and there is a strong desire to automate this administration. In particular, businesses employing freelance and contract workers are demanding access to simple and flexible on-demand financing to grow and pay their workers on time. The growing market for influencers and content creators is also a major opportunity for companies to use in-app finance to meet the needs and expectations of young consumers who expect to get paid immediately.

Currently, the loan market is still highly fragmented, making it difficult for businesses to navigate the complexity of available financing solutions. Historically, loans to the small business sector have been perceived as higher risk, due to inability to pay and creditworthiness can be difficult to assess due to information asymmetry and perceived lack of data.

Traditionally, it was also difficult for businesses to walk away from their banks because they found it too difficult to switch financial service providers, but open banking – and ultimately open finance – is changing all that by liberating the system, making it more transparent. and give customers more flexibility and choice.

By relying on networks rather than centralization, open banking can help financial services customers securely share their financial data with other financial institutions to facilitate more transactions. Invoice financing was also perceived by businesses as difficult to implement and expensive. But if done correctly, the cost of finance is an investment that will pay off.

What can commercial lenders learn from the consumer space? Platforms like Klarna know that the key is to start with the user, putting their needs at the heart of the solution. Continuous investment and improvement are also essential.

Commercial lenders must provide accessible financing when it is needed, not before or after, when it is too late. Adding financial capabilities such as full cash flow management will also increase overall efficiency and add value for the customer.

Just as consumers expect a frictionless experience when using their favorite apps, businesses want access to financing to scale and easily pay their employees. They need faster loan decisions and technology-driven solutions to improve processes. That’s where fintechs come in: providing technology-focused financing to help companies unlock working capital and ensure their employees get paid on time. Simply put, the fintech ecosystem offers less friction and superior user experiences than traditional players.

The acceleration of digitization strategies in many sectors means that options and opportunities for business financing have and will continue to grow. Lenders must now mobilize. Those who act first can build partnerships and unlock significant growth opportunities in service to the business community.

Business performance is a critical factor for post-pandemic economic recovery, with access to finance being a necessary tool for growth. We must act now to bridge the gap between B2B and B2C and make it easier, faster and more transparent for businesses, by providing next-generation solutions to access finance.

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