A recent report from Visa and PYMNTS Intelligence delves into the growing trend of embedded lending, highlighting its success in consumer markets and the challenges it faces in the small- to medium-sized business (SMB) sector.
For consumers, embedded lending, where borrowers apply directly within a merchant or provider’s platform, has become increasingly popular. The report reveals that five out of six lenders offer embedded lending products to consumers, indicating a high demand for seamless financial experiences. However, despite the momentum, there is still considerable room for growth, as the number of consumers interested in embedded lending far exceeds those currently utilizing it.
Challenges in consumer-facing applications range from technology integrations to merchant onboarding processes. Nevertheless, more than two-thirds of lenders plan to offer embedded loans in the next two years, indicating a commitment to addressing these issues and further expanding consumer access to credit and loans.
In contrast, the SMB sector presents a significant untapped opportunity for embedded lending. While 80% of lenders offer embedded lending to consumers, only 30% to 50% provide these products to SMBs. This gap underscores the critical need for lenders to engage and retain SMB customers, who represent a sizable market with substantial growth potential.
Access to credit is vital for SMBs’ sustainable growth, yet many struggle to find suitable credit options. Overcoming challenges such as managing balance sheet risks and navigating compliance requirements is essential for lenders looking to unlock the growth potential of embedded SMB credit solutions.
Strategic partnerships can help lenders address these challenges and better serve the SMB market. Improved external integrations, such as eCommerce plugins and face-to-face transaction tools, are also crucial for streamlining the credit process and enhancing the borrower experience.
While some lenders may hesitate to offer new embedded lending products, the report emphasizes the importance of staying proactive. By embracing innovation and leveraging the tools and demand available, lenders can bridge the gap and capitalize on the significant opportunity presented by embedded lending in the SMB sector. Ultimately, creating a seamless, integrated experience that benefits both lenders and SMBs is key to unlocking the full potential of embedded lending in the SMB market.
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