980. Insights: Can embedded finance be a fix-all for SMBs?

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1:14Hello and welcome to Fintech Insider Insights, this week in partnership with Marketa. I'm David Barton-Grimley at 11FS, and today we are diving into something you all might be familiar with, payments. Our friends at Marketa are about to release their annual State of Payments report, a survey of 500 small and medium-sized businesses in the UK, in addition to 3 ,000 consumers in the US and UK, and 500 SMBs in the US. So today we're going to dive into some of the problems facing small and medium-sized businesses across the globe that Marketa's report has identified, and how the next generation payment solutions can help them win.

1:50So to help us do so, I am joined by a great panel of guests. And first up, we have Martin Glagowski, Senior Vice President and Managing Director for Europe and UK, CEO of Marketa. Welcome to the show, Martin. You've certainly been very busy over at Marketa. Can you tell us a bit more about what you've been up to? Absolutely. And thank you for the opportunity to be with our customers and, broadly speaking, sharing the perspective with the industry. So I'm heading European business of Marketa. the market is a global platform towards card issuing, processing of issued cards, and managed services that allow basically those programs based on cards issued actually work, operate effectively, and deliver towards the business objectives of it.

2:37And I think from our side, we've seen a lot of growth and interest of what we bring to the market in Europe and looking very much towards the future We're very much excited with everything that we are able to build together with, again, a great market and a great customers. Awesome. It's great to have you on board. And next, we have a warm return to the podcast for Stéphane Dehays, CEO of Spendesk. Welcome back to the show, Stéphane. For our listeners who don't know, please tell them a little bit about yourself and Spendesk. Thank you, David. So about me first. So I'm currently building and leading the Spendesk financial services platform.

3:18We are in a payment institution and we build with Marketa a new platform, card issuing and payment processing for the EA countries in Europe. Spendesk today is a leading spend management and procurement platform for SMB and mid-market in Europe. We are managing more than 3 ,000 logos in Europe, 200 ,000 users for customers, and we are building the payment of the platform B2B for customers with a strong focus on spend management and procurement solution. Awesome. It's great to have you back, Stefan. And last but no means least, we have Hannah Sommer, Director of GTM and Strategic Partnerships at Liberus.

4:03It's great to have you join us, Hannah. Please tell our listeners a little bit about your role at Liberus. Thank you so much for having me. I'm very, very pleased to be here today to talk about my favorite topic, embedded finance. Yeah, as you said, I'm a director of go-to-market and strategic partnerships at Liberis. We're a global embedded finance platform and focus on helping small businesses access fast, flexible funding. And we do so through our partner. My role specifically is all about building strategic alliances and scaling our go-to-market efforts across regions. And I'm super proud to say that we are actually live and able to fund small businesses in 15 countries so far.

4:41and yeah so I'm also as if this is not enough the managing director of our business in the Dutch region. Amazing all right and that's our panel let's get on with the show so as I mentioned at the beginning the very first part of this podcast we're going to talk about some of the pain points that SMEs face and I'd love to go to each of you and get a bit of an understanding of you know what you believe are the kind of the headline worries and pains that SMEs are looking for solutions for. Martin, I want to come to you first, just to talk about the report that you guys are making. What are some of the headlines from there?

5:16What are the big things that are leaping out to you? Now, I think, first of all, it should not be surprising that the SMBs are very much concerned with basically the financial situation of the world those days and potential impacts of basically the tariff discussion between the US and a number of other countries. I think it adds simply to number of the challenges they are facing anyway. SMBs are very sensitive to any form of instability. And the reason for that is, first of all, they don't have very deep pocket. Put it very simple. They manage their cash flow. They need to be very careful managing their cash flow.

5:59Primarily from the perspective, their access to funding is very, very different compared to the large-scale enterprises that have the history, that have stability of the revenues, that towards basically predictability by being allowed and available to the traditional banking sector and banks. So I think that is really the area number one that SMBs today, first of all, are overlooked from classical financial services sector and they are struggling with the cash flow equation every single day. The other element is as much as the realities of SMB from the resource perspective, from number of people, what the people are doing, are also very different from large companies.

6:46They don't have functions. They don't have teams supporting everything that needs to happen internally to be able to make business. They have a fraction of the FTE, fraction of a person doing a particular type of the job. So they really need to get scalable, efficient solutions that even to support their daily operation, not necessarily being 100 % or their core business focus, but things that need to happen. That towards basically reconciliation of their spend and finding also solutions that allow them to have all those things happening or happened in the background while they can focus on making their business.

7:33But today, they still basically, in many cases, lack those types of solutions. Yeah, that's super interesting. Hannah, I'd like to come to your next section and just pick up on one of the first things that Martin was talking about, which was funding. I mean, I guess you're seeing the same kind of thing. What do you see are the major funding and cash flow issues that you see from SMEs? Yeah, it's like I literally couldn't agree more. What we see is there's a massive struggle for SMBs to get funding. Often they're just denied, like bang out, because retail banks wouldn't understand their business models or don't understand seasonality and so on.

8:13So from what we are seeing and hearing back from merchants is about 80 % of SMBs are just fundamentally denied funding by retail banks. or the other option is that their needs just go unmet as in like, you know, they get an offer but it's nowhere near the number that they would need in order to, for example, you know, cover payroll or cover, you know, any seasonal dips. And I think what's like super important nowadays is like that access to capital is fast enough and that the underwriting models aren't as rigid because there are so many different businesses in the world and it's just not taken into account in the normal sort of retail funding.

8:58Yeah, it's a real shame. 80 % is huge. That is such a huge statistic. I know, yeah. That you've seen there. And actually, just quickly, just to backtrack, that is another 80%, which Martin comes from your report in Marquette, to your point about the US economy. I think the stat from your report is that 80 % of SMBs are concerned about the US economy and the impact of their businesses at the point that you mentioned, which is just crazy huge. Stéphane, I'd like to come to you on your views as well. Yes, I think from my experience, working with more than 3 ,000 SMB across Europe, I think there are two key elements.

9:33First one, Marcin shared about his report. I think economic uncertainty is disproportionately hard. Why? Because first, they have smaller cash buffers. If we compare with mid-market and corporate, of course. And as Anna said, I think the way they have been served by banks and particularly business banking these last years has been not aligned with the specificity of this business. And I think also they have less structural resilience during all these market volatilities, all these macroeconomic headwinds who impact their supply chain and also their capacity to invest. So I think that's the first one.

10:17The second one and what you can see also is the impact on their payment system. I think all these SMBs have first fragmented payment system. They are often juggled between different systems. We have to do different reconciliations in their system, so it's not efficient. I think they have also this lack of real time visibility and they have to wait end of the month to have reconciliation with a lot of data, different system to have a view and to make the right decision for their company. So they operate, they are blind until the end of the month. And I think, as Anna said, there is some resource constraint.

10:52They don't have full-time dedicated teams to manage their enterprise, their cash on a day-to-day, their spend management. And when you add complexity in your process, it can be about your account payable, account receivable procurement process. This lack of, this resource constraint is also an issue for the assembly. So that's what we can see today on the market. So interesting. I'm super glad you mentioned technology there. Actually, Martin, I'd love to come to you. That has got to be a huge challenge, right? You've got real-time data, real-time systems, all sorts of different technologies you have to use.

11:25You're a tiny business. How do you know what to do? Well, and I think that's on, let's say from two sides, it's both the challenge and the opportunity. This is challenge for the SMB. Absolutely. And let's face it, SMB customer cannot utilize because also, I mean, they struggle to solve even more basic questions. But this is the opportunity for providers of the service that is meeting SMB requirements, but being able to deliver that in a very efficient, optimal way so that SMB uses the service, but operating this service and this offer or system doesn't cost them a lot of resources. 100%. Hannah, I'd love to come to you because I guess some of those same operational issues also translate into funding, right?

12:19Because I suppose it's not just about applying for funding, it's about knowing maybe where to go, the documentation you have to prepare. It's got to also be very complicated, right? Yeah, exactly. And I think that's one of the things that we're trying to solve to just provide very simple and flexible funding and also very fast funding without the need for loads of documentation and bureaucracy. And I think what I always find super interesting is actually deep dive into what's even the use of funds for SMBs because I think that's quite a good indicator to understand SMB pain points. And as I mentioned before, we're live in 15 countries, right?

12:59And it's not the same everywhere. Martin just mentioned tariffs in the US. So in the US, we see completely different use of funds than in the UK or in the Nordics. And if you basically look into it and deep dive, you see in the US, we have merchants very, very likely to use their funds for growth initiatives like marketing or equipment updates. Or in the Nordics, there's traditionally very, very long cash flow gaps because of long invoice cycles. So that's like a primary use of fund in the Nordics or in UK and Ireland. A lot of the time, by the way, it's like they're using the funding to cover costs, cover inventory, that type of stuff.

13:45But it's like this staff cost thing, that is like super, super crucial because small businesses don't have like plenty of cash sitting in the bank. It's like razor sharp margins and such that we're seeing. Yeah, and it's super interesting. So to plug into those spending types require plugging into platforms and places where the SMEs are generating that data, right? And so I suppose when you talk about an embedded finance play, it's all about trying to do those plugins. I mean, what are some of the major data sources that you see or that you're interested in, Hannah? Like for us to come up with a quote.

14:30So for us, it's literally we are interested in transaction data, which is why we're working with partners who do see the transaction data. And it can literally be anything from a marketplace to a digital acquirer. And I think that's also to my point around simplicity. So what we want to do is we want to offer finance in the platform or in the ecosystem the small merchants are every single day because we don't want them to leave their platform that they know and then apply for funding in a different platform. We want the funding sort of embedded in their known ecosystem and ideally white-labeled because that's sort of the trusted relationship they've already built.

15:14That's super interesting. I'd love to talk a little bit about one of those sources of data or data types anyway, I guess, which is expense management. And Stefan, what are some of the major issues that you see there, I just want to flag up a stat that comes from the Marketa report, which said that 79 % of SMBs said they want increased visibility into expense categories. And overall,£742 is lost monthly on average on expense management. That is a lot of money for a small business. It's a huge amount of money. Yes, and it's a very good point. So when we talk to our customers, they consistently tell us that they want one platform for three things.

15:53First thing is about the control. Control-Y, because it means automated spend limit and approval workflow. As we said, they have resource constraints and they cannot afford manual oversight, additional control and manual oversight. So control is key. Visibility, and that's why we are talking about real-time tracking and reporting. No more spreadsheet archaeology to track and to make the reconciliation on a monthly basis. So this real time data on expenses is very important. And simplicity, because at the end, one platform is today. SMB have different platform, different spreadsheets, different tools to do the same thing end to end.

16:34So the simplification, one platform instead of five, six different vendors we have to manage, that's a cost. So that's the basic on the spend management. So that's a free priority. If we look on data today in this environment, uncertainty, market volatility, We still see a lot of optimization for expense first on license. So software does the first one, of course, about marketing advertising. So we can see depending of the region and particular digital investment. And the first one, there is a lot of also of expense and control on GNA and marketplace, who is for and particularly for digital company, cross-border company, very important to control.

17:14So that's the data we can see, and our customers are currently optimizing in their spend management platform. That's super interesting. Martin, anything to add? Well, I think just double-clicking on what Stefan was saying, and really to think how many elements it takes really to be able to deliver this to this need that is really the core of SMB in the related areas. it takes the right infrastructure. And this is what we bring into this equation, which is dynamic card controls that are allowing very high level, but very high level of customization of the controls. Just-in-time funding of the card, which in the end of the day, that the balance on the card is available at the moment of the spend, but before that, it remains as an overall working capital pool for the company, right?

18:05So it takes a lot those days and number of actors in this equation are very much needed to be able to satisfy this existing need. Stefan, do you want to come in? No, I think it's a good point. I think this platform infrastructure is about everything. This real-time, this capability to configure your spend rules, you can manage your MCC filters, geo-restriction, velocity control for all your platforms is critical. And that's why spend management brings solutions for treasury and to optimize your cash flow just to highlight this point. that Martin just mentioned. Yeah, no, it's so important. And are you all seeing, each of you individually, a variance in the sectors that have these issues, particularly from a technology standpoint?

18:51And the answer could be that it's everybody, that it's ubiquitous. And I'm sure it's going to vary a lot by the market in the region, Hannah, as you were identifying earlier with funding needs. But what are you seeing? I mean, Martin, let's start with you very quickly. that kind of report level overview? I mean, are you seeing any difference in sectors? Well, I think from the report level, which is in the end of the day, a kind of quantitative reflection of average of the market, we see definitely less than we see working with with our customers. And even from expense management perspective, and Stefan, I think you are absolutely able to double click on that.

19:34Expense management, that vis-a-vis the type of the business of the company calls for very specific solutions and being very, very mindful what those companies really struggle, what are the types of expenses, what are the problems they are trying to solve with expense management. But this is also broader, I think. Anna, from your end, definitely there is a dependency of basically the type of the business, products or services that translate to the very specific needs and hence also what you need to offer to be successful given the diversity of SMB world. Yeah, I honestly, yeah, absolutely agree.

20:16I think it's the type of the business as in the segment, but then it's also the size of the business. And then again, you know, it's like David, as you said, it depends on the geography. So, for example, like for us, it's like very clear, like small businesses because they have so little money on the side. It's absolutely most important that they have like access to funds super fast. And obviously, that's how we need to also position our product to them. But then also, you know, it's like deliver on our promise that we can actually deliver that funding like within in some countries, even within a few minutes.

20:53Whereas with mid-sized SMBs, they care much more, for example, around customer service, around different features, that type of thing. And also the user fund is completely different. For our product specifically, I would say it works super well for seasonal businesses or for businesses that need to purchase a lot of stock, if you're thinking of e-commerce and all that type of stuff. but it's like sort of typical merchants where this product works super well is like retail or restaurant sector. And that is literally the same across the board in all countries we're live in. That's super interesting.

21:32And there's a rich stream of data with e-commerce restaurant business as well. Stefan? Yes, absolutely supportive of Anna and Marcin's comments. If we look on our target at Spendesk, we have an audience span between 50 to 1 ,000 FT. And I think we can split between SMB, smaller SMB who have key priorities about simplicity, efficiency, and automation. Because they have to do business and they have to be fast. I think that's the first one. So, they need solutions that work out of the box and to be able to adapt very quickly. If we look larger, mean market companies, more complexity, so more sophisticated features like multi-entity management.

22:12They are cross-border. They have different entities, legal entities. So that's very important to be able to bring on spend management, expand procurement, all this capability for growth with also more complex approval workflow because that's the level of spend is more important. So you need to secure also this process. I think both share the same core need, spending and to change from a risk perspective to transform to a strategic advantage. I think that's what we try to bring also to better monitor, not to manage risk, but to turn as a strategic advantage with better technology, real-time control, and to make the right decision that the CFO will have at the end of the day.

22:51It's so interesting to see how these needs vary so much. Anyone else for a final word ahead, Martin? Maybe more, let's say, philosophical or historical view to that as well. I mean, there is a fundamental reason why the beginning of fintech industry started from consumer. This was way simpler to solve and where it's easier basically to bring scalable solutions, right? And as much as basically this is the space that becomes very much crowded, I think really the next wave of growth, the great success stories as even basically presented by Hannah and Stefan. This is the space which takes courage.

23:31This is the space that takes different approach. So on one hand, being able to offer scalable solution, but being mindful of all the colors, face that are related to sub-segments and specific cases and whatever, let's say, number of cuts you can provide towards the SMB. But there is definitely a price of basically opening this market and driving basically and building this space, right? That again, Hannah and Stefan and their companies are approving. And it's such a huge market as well, right? Wherever we go around the world. All right. So before we find out more about how businesses serving the sector can address these findings, we're just going to take a quick break.

24:14So don't go anywhere.

24:37a community cycling group. The thing about Facebook, you might find more than what you're looking for. From a browse to a bike ride, this summer, find more on Facebook.

24:50Now at Lowe's, faster quotes start at the Lowe's Pro Desk. Got a material list handwritten on a sticky note or saved as a photo? Perfect. Bring it to us and get a quote in minutes. And if you don't see what you need on the shelf, we'll help you get it. You can access thousands of products beyond what's available in store or on lowes.com, right from the Lowe's ProDesk. Build quotes faster and source the materials you need to keep your jobs moving. Just like that at Lowe's.

25:21Welcome back to FinTech Insider Insights. So before the break, we examined some of the problems SMBs are facing when it comes to payments. And now we're going to look ahead to some of the latest solutions solving these problems and how we might go about addressing them. So, Martin, I'm going to come to you first. We highlighted in part one the main parts of the ecosystem that are being let down, right? We talk about expense management. We talked about technology. We talked about funding as a big issue as well. But where would you see is the biggest room for improvement as you look at it today?

25:55Well, I think on top of what we have already discussed and covered, there is one area that as basic as it may seem those days, is still a very basic and fundamental challenge for the SMBs. And this is offering their customers the same choice and flexibility of payments that the customers are used to in a more enterprise setup. And what I mean by that is, recent years has been a great growth of buy-in-up-pay-later solutions. And this was really meeting the customer requirements and need basically to address also their financial and cash flow equation. But I think SMBs today are actually struggling with bringing the same type of the payment and even acceptance infrastructure that the large enterprises do.