The future of SME Finance is embedded

When considering the convenience of financing for SMEs, Embedded Finance products stand out as a game-changer. Why? Because the financial services are integrated directly into a business’s products and services – read, an ecosystem of the customer (like an ERP system or e-commerce platform), where SME is buying products and services for their businesses. Embedded SME process doesn’t require from SME customer to leave that ecosystem and open a banking application/website (another ecosystem) to apply for a loan, and sometimes to sign the loan agreement and get financed SME should login into a third ecosystem (e.g. online banking app or event (still!) go to the branch). It’s a hassle. Even if such a process exists now it will not exist soon. To offer an SME loan at the right time (when a customer buys equipment online or issues the invoice) SME finance offer should be embedded into the customer’s ecosystem because only in that case certain events in the customer’s business trigger the offer, and very customized one with 2-3 clicks.

So, the future of SME Lending is embedded and embedded on different levels from a customer journey perspective.

Which examples of embedded SME finance do we have in the CEE market right now? Very bright ones!

Lemonero from Czechia offers embedded finance for PSPs and marketplaces in Czechia, Slovakia, Netherlands, Belgium and very soon in Spain.

Lemonero offers two products:

• For payment platforms, marketplaces, and eCommerce platforms – A white-label full-service lending solution that seamlessly integrates with marketplaces, paymwent and eCommerce platforms helping them to provide instant capital to their SME merchants.
• For banks and other financial institutions – Lending-as-a-service technology platform, empowering them to orchestrate, digitalize, and automate their SME lending processes. The platform offers an easy way to enhance risk assessments with AI-driven behavioral scoring and new data inputs, enabling automated real-time decision-making.

PragmaGO offers two EF products to B2B clients through fully automated technical integration with partners: 

1. PragmaPay – a BNPL method for B2B that offers the convenience and speed of consumer standards:

* Automated financing decisions in up to 3 minutes, 

* The ability to defer payment for 14, 30, 60 days or spread payment into installments,

* Financing limits for business purchases up to PLN 50,000. 

PragmaGO pays for purchases immediately and the merchant proceeds to fulfill the order. For merchants, it’s a proven way to increase shopping cart value and customer satisfaction – up to 81% of customers return after using deferred payment.

In the first half of 2024, PragmaGO reached PLN 112 million (+44% y/y) in terms of deferred payments for businesses. 

2. Merchant Cash Advance – a loan for companies with a limit and daily installments adjusted to the dynamics of the company’s turnover, taking into account its seasonality. 

* The loan is automatically repaid as a percentage of the merchant’s daily turnover. 

* The financing decision is also made in up to 3 minutes, with a fully automated process of evaluation, decision, and contract signing.

* We offer a renewable limit of up to PLN 200,000 for business expenses.

In 1H 2024, PragmaGO’s MCA provided PLN 113 million in loans (+132% y/y). 

In 1H 2024, 12,567 entrepreneurs used our EF services (+17% y/y).

And PastPay from Hungary, offering BNPL for B2B for digital merchants or direct sales.

All of them will share their experience in building embedded SME finance at the upcoming CEE24 SME Banking Conference on November 15. If you’re interested in that topic register here for in-person or online participation to learn more.

What will Embedded SME finance look like in 5 years? Open Banking and e-invoicing regulations will unlock new opportunities. And this is the topic for the next article.