Ed O’Donnell, CEO of Versatile Credit, said that embedded finance can — and already is — transforming smaller businesses’ competitive dynamics.
“Technology’s been the great equalizer,” he said, “for small- and medium-sized businesses (SMBs) and also the enterprise clients that we deal with.”
Generally speaking, O’Donnell said, technology has allowed companies to do more with less — reducing operating costs, fine-tuning efficiencies along the way and forging a consistent consumer experience across channels.
Technology has made it easier than ever to set up online storefronts and create online experiences that make those firms seem more professional, and perhaps even bigger, than they might otherwise seem, he said. But once the customers find their way to the company online, it’s incumbent on the smaller enterprise to deliver the payment options — the lending options — that will turn a browser into a buyer.
He said technology should be embedded into the process so that it’s akin to what O’Donnell termed a “self-guided tour for the consumer, and the salesperson does not have to know a lot about the financing.”
But, as he noted, there’s a broad range of technology providers out there — and O’Donnell cautioned that SMBs need to link up with partners that will help them scale the opportunities that are available not just today but will be recognizable and attractive in the years ahead. Offering embedded payment options that are in the mix before, during and even at the point of checkout has boosted returns on investment for forward-thinking companies.
The platform model — through firms like Versatile Credit, which matches lenders and companies that, in turn, extend offers to end users — has helped shift the mindset of client firms, even family-owned firms, who may have traditionally “never thought they could offer these products to their customers, because they felt they were not big enough.”
The platform model, said O’Donnell, makes it possible to serve smaller clients with proverbial out-of-the-box solutions that make lenders available to cover the full credit FICO spectrum.
“If it’s smaller purchases, they can get revolving credit products,” he said, “and if there are longer-term, higher-ticket needs, they can have installment loan products … We know that there are different business models out there.”
Versatile Credit has seen firsthand how embedded finance changes the dynamics of entire verticals — among them, most visibly, the home improvement sector.
The steady rise of mortgage rates has kept would-be homebuyers at home, opting to stay in place and spruce up their apartments and homes rather than sell their real estate and take on mortgage payments double the ones tied to the old residences.
The traditional way of financing home improvement projects may have been a matter of tapping into home equity lines of credit or wielding credit cards. But individuals and households have been wary of carrying the high rates associated with those channels and have become enamored with installment financing, which can render projects costing thousands of dollars more palatable.
“A $50,000 home improvement,” project, O’Donnell said, “doesn’t have to feel like a gigantic car payment of $1,000 or $1,500 a month…it can be spread out over time.”
In the meantime, he said, the consumer’s more likely to return to the merchant offering embedded finance:
“You’ve established a relationship not only from a buying/selling perspective, but you’ve got a credit relationship, as well, that can be tapped into when [consumers] need something else,” O’Donnell said.
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