Embedded finance can help small businesses manage their money end-to-end, but not all companies are equipped to offer it properly. Green Dot’s head of enterprise business development, Simran Singh, said several factors must first be carefully weighed.
Three important trends shaping embedded finance and SMBs
Singh said several important trends are shaping today’s SMB climate. The first is that more people are willing to start their own business, whether a side hustle or a full-time venture. That movement is influenced by factors including the pandemic and inflation. Being their own boss appeals to more folks.
However, the lack of available cash flow is a significant impediment. Singh said 70% of applicants for business lending get rejected because they don’t have a business bank account. Simply providing a seamless way for entrepreneurs to access one could unleash waves of capital.
Many are finally realizing how critical cash flow is for SMBs. Two or three days is essential to meeting payroll or seizing a discount opportunity. Cash flow optimization tools are necessary for serving SMBs.
The best way to promote embedded finance
SMB owners are very busy, so how can they be quickly sold on the merits of such opportunities? Singh returns to the technology for the answer. In the past, business needs were addressed individually, whether it be access to capital or cash flow optimization.
Now, embedded finance enables them to be offered together. Green Dot has partnered with QuickBooks on one such solution. Access to a business’ banking data allows many possibilities.
“All of this is being done under one umbrella rather than multiple solutions,” Singh said. “This movement away from what I used to call point solutions to this platform approach is going to redefine how we think about the SMB, how to make their life easier.”
Embedded finance has four major components, beginning with depository functions like account openings, payroll and treasury accounts. Then comes lending and gaining access to capital and growth equity. Third are process solutions such as invoicing, billing and tax filing. Rewards, HR systems and other elements comprise the final piece.
The more one offers together, the more responsive that solution is to the customer’s needs. Singh doesn’t see a solution that meets all four, though Green Dot’s effort with QuickBooks comes close. The key is to deliver so much value that the customer believes it is hard to compete without it.
The key to successful integrations
Singh cautioned that the integrations don’t simply happen. The first step is excellent technology. In 2023, Green Dot overhauled its core processing systems so that when a solution was created for one partner, it could be more easily deployed for additional customers.
Everything is built on a singular platform, so it can be seamlessly offered when Green Dot sees something that adds value to multiple partners. The functionality might not be much different from what it was in 2018, but the modern technology core lowers both cost and time to market. New features can be added as a business matures.
Who should embrace embedded finance
Should every company embrace embedded finance? Singh said not necessarily. Green Dot has worked in the space for a decade, beginning with helping gig drivers before adding Apple, Amazon, Walmart and others. Singh said Green Dot turns down 98% of potential partners.
“The only way it makes sense is if they are already part of a customer’s financial life,” he said.
Singh cited the example of payroll firm Dayforce and earned wage access. They know payroll, and Green Dot knows embedded finance. Employees can add money to a Dayforce card built by Green Dot. Some day, those funds will be available in real time.
Partnering with a payroll provider with user access addresses some regulatory concerns and lessens the steps needed to provide a seamless user experience.
That’s a clear value case. Others, like turning a car into a banking instrument, are more dubious.
“That is hard for us to build a justification around, even though they’re willing to throw money at us to do those types of partnerships,” Singh admitted. “We just don’t feel like those partnerships will in the long term be successful, or scale up to a level where it makes sense.”
Fintech is maturing
Artificial intelligence is an easy term to toss around today. Green Dot is taking a systematic approach by carefully looking at use cases. Some ideas center on the customer experience and delivering solutions faster. Other areas like financial health and treasury management are further down the road.
Singh sees the end of low interest rates as forcing some companies to mature. Now that they no longer have unlimited capital access, they must consider next steps more carefully.
Fintech is maturing in other ways, too. A half-decade ago, Andreessen Horowitz’s Angela Strange suggested that every company could become a fintech. Singh said people are beginning to realize that’s not the case. Offering something does not equate with providing value. He returned to the dictum that delivering value to a customer is easier if you’re already part of their life.
Singh also sees the industry moving from a compliance-optional mindset to a compliance-first one.
“Unless you have good guardrails put in place, you will never be successful in the business,” he concluded.
Green Dot, Dayforce unite for EWA solution
On Feb. 21, Green Dot announced a new partnership with Dayforce. Green Dot will serve as the U.S. banking provider for Dayforce Wallet, an on-demand pay solution. Dayforce Wallet is leveraging Green Dot’s BaaS platform to provide employers and employees with services, including earned wage access on demand via mobile app, linked prepaid cards for making purchases, and cash withdrawals at a growing network of fee-free ATMs.
“Today’s workers want flexible, seamless access to their earned wages along with tools that can help understand and manage cash flow,” said Singh. “We’re thrilled to partner with Dayforce to better support employers and their employees in making on-demand pay, embedded banking and finance solutions available to the huge population of Americans that need and want that flexibility.”
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