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October 28, 2022

Embedded Finance: Get The Capital You Need, When You Need It

Jesse Kelber Headshot

Jesse Kelber

Sr. Writer, Flexport

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Embedded Finance: Get The Capital You Need, When You Need It

Jesse Kelber Headshot

Financial technology (fintech) is one of the darlings of the broader tech world right now. Services like Buy Now, Pay Later (BNPL) are actually growing despite volatile economic conditions, so there’s a good chance that you’ve seen a fintech headline or three recently. How about embedded fintech? Or embedded finance? Chances are slim that you’ve seen this one, and that’s a shame. Embedded finance can be a huge boon for the very same ecommerce companies and other shippers struggling to keep up with changes in the market.

At its most basic, embedded finance/fintech applies to any time you see a financial product offered within a non-financial context. This is a new development from what you might have seen before, where products were offered via a platform, but you were linked out to the provider's website or app to actually take advantage of the offer. This led to separate accounts being created and redundant data being uploaded; and since the products were still offered by existing financial institutions, there was no particular improvement in loan terms. By making finance part of the infrastructure, embedded fintech eliminates these redundancies and integrates financing into the platform offering itself.

Embedded Fintech in Action

Descriptions and definitions are great, as far as they go. How about a couple examples of embedded finance from brands you might already know to drive home how powerful it can be when put into action?

Shopify

After being founded as a shopping cart solution for small to medium ecommerce businesses, Shopify started offering working capital loans alongside payment processing services via a relationship with Stripe. While Stripe handles the processing, vendors never have to leave the Shopify platform to take advantage of these additional features.

Doordash

You may know them as the delivery service that helped many of us get through the pandemic– Doordash is now offering capital loans to their restaurant customers. The restaurant industry is a historically high-risk loan category, so this is a revolution that will help these entities weather disruptions while investing in the business.

Uber

The ridesharing and delivery powerhouse now offers its drivers branded bank accounts and debit cards, enabling them to receive instant payouts and spend earnings immediately via their partnership with Green Dot Corp. Again, the drivers don’t have to leave the Uber platform to sign up or use this service.

What Makes Logistics a Perfect Fit for Embedded Finance?

According to a recent Andreessen Horowitz article, embedded fintech works best when the software platform provider owns the transaction data needed for risk underwriting, especially when it operates in a sector that’s not well understood by traditional financial institutions. They go on to specifically call out logistics and supply chain companies as ideal use cases for embedded fintech.

A logistics tech provider who can offer capital from within their platform is exactly what that article discusses. Since the platform would already contain data on shipment volumes, declared values, customs filings, and more—such a platform provider is perfectly positioned to offer attractive loan terms and fast turnaround times, all with a solid understanding of how the global supply chain works.

"Our business has been in hypergrowth for the past few years, but given how expensive freight has become, our supply chain began creating significant cash constraints. Now, we’re using Flexport Capital’s non-dilutive financing products to delay our freight costs, freeing up cash to reinvest in our team and unlock the next phase of growth." Joe Parenteau, Co-Founder & CEO, Fable

Why Does All This Matter Right Now?

The pandemic accelerated growth in e-commerce and DTC companies, but building up inventory in distribution centers to meet rising e-commerce demand requires more capital up front—while uncertain demand conditions mean suppliers increasingly want payment all up front. These challenges are especially true for new or fast growing importers.

Supply chain embedded financing fills the gap between when suppliers want to be paid and when you want/are able to pay. This keeps both sides happy and awash with the capital they need to thrive now, while they expand their respective businesses and build additional supply chain resilience for the future.

How Flexport Capital Fits In

As a logistics technology platform provider, Flexport already has transaction, tracking, and customs data from client shipments. We use that data to create loans with faster decisions, lower rates, and better terms for our customers. One additional benefit is an often overlooked area—inventory in transit. Because traditional lenders don’t have visibility into shipment tracking like Flexport does, they are unlikely to lend against this large chunk of a company's assets. Flexport, on the other hand, uses this supply chain data to further customize trade financing when our clients need it most.

For more information on Flexport Capital, reach out and start the conversation with one of our experts today.

About the Author

Jesse Kelber Headshot

Jesse Kelber

Sr. Writer, Flexport

Jesse is a Senior Writer at Flexport. He loves exploring the narrative where technology and humanity interact. When he’s not at the keyboard, you’ll find him wandering in the foothills of the Cascade Mountains.

Key Takeaways

1.

Embedded fintech is the term used to describe when a financial product is offered within a non-financial context (like a logistics technology platform).

2.

Logistics tech is a great place for embedded finance, as the platform already contains transaction, tracking, and customs data for customer shipments, leading to faster loan decisions, lower rates, and better loan terms.

3.

The timing has never been better for supply chain embedded fintech: The pandemic accelerated growth in e-commerce and DTC companies who must build up inventory in distribution centers to meet rising demand. And that requires even more capital up front.

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