The ROI, or Return on Investment, is a key indicator of a company's success. A high ROI means the company is profiting from any investments carried out. Therefore, companies make investment decisions based on their potential ROI.
One way to increase the ROI is efficient financial management, using the right tools to optimize your financial processes like payment processing or invoicing, and mainly borrowing and investing money with careful cash management. Embedded Finance is the best tool and represents financial services offered by non-financial institutions. Embedded Finance includes payment processing, lending, invoice finance, insurance, and even investing.
Let's begin with financial processes. Financial processes can cost a lot of money if done by the company since you need employees to process the invoices and process payments. The costs mount if you are a merchant selling retail products and have multiple sales a day. By using embedded finance products related to payment processing or invoicing, your company can save time and money as the payment and invoicing are processed directly by the payment processing company offering the service. This is why payment processing services revenue is expected to grow exponentially over the next few years, shown in the chart below with 34.96 billion in 2019 up to 84.11 billion in 2027.
It's not only about saving time and money in administration, but also improving the customer experience, allowing you to increase customer loyalty. A loyal customer will return, generating more revenue and increasing the ROI. If you can offer your customers an efficient and secure online payment process, and combine that with a BNPL service, you will ensure that the payment experience is a pleasant one. A recent survey among people who prefer BNPL rather than credit cards showed that BNPL payment method is easier, more flexible, has lower interest rates, and faster approval.
With embedded finance reducing costs and increasing customer loyalty and confidence in financial processes, how can it help you improve your ROI through borrowing and investing? Almost one-quarter of U.S. adults are either unbanked or underbanked.
Within this demographic, many are small merchants with equally small stores and revenue, so they are unattractive to banks as customers. Only 51% of small businesses in rural regions have loans approved, and in urban regions, that number drops to just 38%.
Embedded finance is the solution. Instead of owning a physical store, a digital store on Amazon or eBay would open doors to cheaper and faster loans through embedded lending. Embedded lending uses revenue data directly from user stats to calculate loans and offer merchants a lower interest rate than banks since banks use a different risk assessment process that involves more detailed information. Accessing cheaper and faster loans can help your business grow faster, improving the ROI.
Finally, through embedded investing, you could boost your extra cash when your inventories are full. Several companies, mostly payment processing companies, allow their customers to invest directly from payments collected. For example, Paypal allows their customers to buy cryptocurrency, making investing faster and cheaper without moving the money to the bank or a broker to invest it. Invested money will generate profits, which could increase ROI.
For these reasons, embedded finance has been growing exponentially in recent years, and is expected to continue. Finding the right tools to improve your ROI and financial efficiency can be challenging, but with technology and embedded finance, you can’t go wrong.