Embedded Banking Helps SMBs, Platform Providers

Embedded financial services will be key for small businesses in a challenging economic environment, Brian O’Connor of JPMorgan Chase writes in the new PYMNTS eBook, “What’s Your Plan? Payments Strategies for a Strong 2022 Finish.”

The big focus for us is partnering with our platform provider clients to deliver embedded financial services to their clients, small and medium-sized businesses (SMBs). Our goal is to deliver banking capabilities when and where an SMB needs them. Increasingly the “where” for an SMB is on eCommerce or SaaS platforms. If they can access an integrated and frictionless set of banking services within the platform, the SMB can focus on growing their business and platform providers can focus on delivering more value-add services to their clients.

While most corporates focused heavily on digitization over the past two years, today’s recessionary concerns, inflationary pressures and interest rate hikes are again forcing businesses large and small to re-evaluate their business practices.

Firstly, companies whose business models were fueled by investment dollars when interest rates were low, and whose primary valuation metrics were driven by user growth, are seeing immense valuation pressure and investor expectations for profitable revenue growth in a different economic climate.

Secondly, in an environment of high inflation, both SMBs and platform providers are under pressure to access their sales proceeds and redeploy funds efficiently.

Thirdly, all businesses are scrutinizing their costs and while SMBs are looking for efficiencies around how and when they pay their obligations, many platform providers see the significant cost of compliance as they consider the move into providing regulated financial services. We can help both platform provider clients and SMBs address these challenges.

Our embedded banking business models enable platform providers to share in the revenues we collect from providing banking services on their platforms to SMBs. We also help them reduce the regulatory cost of providing these services. So instead of being in the flow of funds and accountable for the associated compliance burdens, a platform provider can utilize J.P. Morgan Embedded Banking and transfer that cost and responsibility to us. In this way, if an online marketplace wanted to offer banking services to its sellers, such as an online bank account for example, we take care of the SMB banking onboarding, risk management, provisioning and managing the online bank account, payments and debit/credit card processes, and necessary regulatory and compliance reporting while they still own the user experience. The online marketplace would then be able to share in the transactional revenues created while avoiding much of the compliance cost as the seller makes payments or moves its money. So in today’s more challenging economic climate, embedded banking offers to both platforms and its clients the opportunity to save money, add incremental revenue streams and reduce risk. 

For SMBs that need quick, affordable access to their cash, we provide a range of choices: Same-day access to funds when they use our merchant services in conjunction with our embedded banking account; or for SMBs paying other participants on the platform provider’s ecosystem who also have embedded banking with J.P. Morgan via a closed-loop network on the online marketplace, the value transfer could happen instantaneously, allowing for fast access to liquidity. So, platforms can provide a much better experience for sellers with faster access to funds if they bank where they conduct commerce.  

Finally, the embedded banking experience serves as the foundation to deliver other financial services such as merchant working capital that acts as a vehicle for short-term financing for small businesses and others who use the platform. Because of the embedded nature of the flow, we envisage marketplace clients will be able to combine data from embedded banking along with the transactional data they already have, to build a more complete profile of the sellers and a more comprehensive understanding of risk than is achieved with traditional underwriting.

The ultimate aim is to provide banking services for the sellers that help their businesses to thrive and grow, increasing engagement, and also giving the marketplaces the opportunity to generate new revenue streams. It’s a win-win situation in the current environment.

For more information, visit J.P. Morgan Embedded Banking.