Revolutionizing B2B Marketplaces: The Potential Role of Embedded Finance

Could you give us a brief introduction to the concept of embedded finance?

Marcus Nasarek: The conversion rate of a service heavily depends on how smoothly payments are processed from the customer’s perspective. Every additional click, query, wait time, selection, or confirmation can significantly reduce revenue. This is not only true for e-commerce but increasingly applies to business transactions, intra-corporate billing, and global trade as digitalization advances.

The challenges become even more pronounced when dealing with more complex financial products than simple payment processing, such as installment payments, credit transactions, or securitizations. It is difficult for financial service providers to offer universally adaptable products, and for companies, it’s challenging to integrate standard products into optimized customer experiences. Embedded finance solves this issue by integrating financial products seamlessly into the customer’s domain, creating a smooth experience.

What does embedded finance mean specifically for banks?

Nasarek: For banks, the question often arises whether they risk losing customers by relinquishing the direct customer interface. However, the more pertinent question is whether a bank can effectively serve all use cases with just a few standardized products. The answer is clear: there are too few customers for standard products. Financial services are becoming increasingly integrated into business processes, raising the demand for specialized solutions.

Another example is that companies often apply for their own payment service licenses because the standard products offered by their banks are insufficient. So, it’s less about competing with the house bank and more about optimizing the customer experience. Traditional financial institutions should view embedded finance as an opportunity rather than a threat.

What role does embedded finance play in automating corporate services?

Nasarek: Embedded finance is key to automating financial services between companies. When services and products are digitized, we need infrastructure for fully automated interactions. A marketplace for corporate services such as FAME would be an ideal solution here. On such a marketplace, companies can connect, ensure compliance with technical and regulatory standards, and process payments seamlessly.

Additionally, such a marketplace enables the automation of price negotiations, compliance, and the trade of digital services like AI applications or data pools. Traditional companies can also benefit, for instance, by reducing capital procurement costs through the exchange of authentic data.

How does embedded finance impact the digital ecosystem?

Nasarek: Embedding financial services makes it easier for companies to meet their unique requirements. A shared marketplace like FAME can also significantly reduce investment for all participants. For banks, this enables specialization in certain sectors while making customer acquisition through the marketplace more efficient.

For example, integrated payment systems reduce the burden on online retailers. Similarly, a marketplace that integrates financial products across industries would lower barriers for participating companies and better serve a wide range of small and medium-sized businesses.

What prerequisites must be met for embedded finance to succeed?

Nasarek: First, the technical and organizational hurdles for target groups must be low. Many embedded finance providers optimize their products for internal use, inadvertently creating unnecessarily high entry barriers. Here, a shared understanding within the industry is essential to clearly communicate the benefits of these developments.

Core technologies like distributed ledger technologies and regulatory iniatives such as eIDAS and MiCAR also play an important role. New regulatory initiatives like FiDA require standards, governance structures, and pan-European infrastructure. These developments are critical to advancing embedded finance and facilitating its adoption.

Learn more at: https://www.fame-horizon.eu/

Marcus Nasarek has been working in the payment and banking sector for more than 20 years. He has developed payment schemes and has been involved in the regulation of payment services from the draft to the implementation in various roles. He is a co-author of the Beck-Verlag’s commentary on the German Payment Services Supervision Act (ZAG) and is currently contributing to the EU Digital Identity Wallet. He has helped build numerous start-ups, primarily in the areas of payment, crypto, and blockchain, and is co-founder of etonec (a boutique consultancy), Hakata (digital attestations) and sideos (Web3 identity).