In today’s uncertain business landscape, small to mid-sized businesses (SMBs) are increasingly in need of accessible financing to cover potential gaps in cash flow. Embedded lending — credit integrated directly into purchase platforms for which borrowers can apply when paying for products — is proving to be an especially helpful, fast and convenient solution for these businesses.
One important distinction of embedded lending is that it requires users to provide their financial data in real time as part of the credit review process — something that may be a sticking point for some borrowers. Small businesses frequently feel uncomfortable sharing this data, fearing how lenders might use it. However, as PYMNTS Intelligence research reveals, businesses that are willing to share financial data in real time — as in the case of embedded lending — not only achieve greater satisfaction with their credit options but also borrow more money.
Data Sharing Is Nonnegotiable for Lenders
For lenders, having real-time access to data is crucial to offer embedded lending options. This is because it helps lenders understand a company’s needs and assess and mitigate risks, if necessary. Access to business data in real time allows lenders to evaluate a company’s cash flow stability — a critical factor in determining both credit needs and risks. This business data also helps lenders create more suitable and flexible lending products and identify potential growth areas to tailor their offerings accordingly.
As shown in Figure 1, PYMNTS intelligence research finds that for 100% of lenders in the United States, the United Kingdom and Australia, having access to real-time financial data is very or extremely important when offering embedded lending products to SMBs. Luckily for these lenders, and for the businesses looking for credit, they are able, in most cases, to access this data and review it. Figure 2 shows that 93% of U.S. lenders have access to this data most or all of the time, and just 6.7% have access only some of the time or rarely. Similarly, 92% of U.K. lenders and 100% of Australian lenders obtain access to potential SMB borrowers’ real-time data most or all of the time.
SMBs Do Not Feel Comfortable Sharing Data
Business lenders need access to data from potential borrowers to assess their needs and risks, and they obtain it on many occasions. However, that does not mean the loan applicants feel comfortable providing it. As shown in Figure 3, PYMNTS Intelligence data indicates that in India, 71% of small businesses feel very comfortable sharing financial data in real time for embedded lending options. In sharp contrast, only 37% of these businesses in Australia and 13% in Japan do. The question lenders must ask themselves is why companies are so resistant to sharing data and how they can overcome this resistance.
Companies’ hesitation to share data with lenders may arise from a lack of information about the benefits of doing so or from mistrust about how lenders will use that data. Supporting this conjecture, Figure 3 shows that having previous experience accessing lending is a critical variable influencing a company’s willingness to share data. For example, 73% of microbusinesses and small businesses that have used embedded lending in the last year would be highly comfortable sharing data again, as would 47% of those that used other forms of lending. However, only 37% of companies that did not use any type of credit would feel highly comfortable sharing data. This finding presents a potential opportunity for lenders to serve more of these businesses by increasing new users’ familiarity and comfort with different lending options.
In fact, the companies least aware of these products may be the ones that could use them the most. As further illustrated in Figure 3, small businesses (55%) are more comfortable than microbusinesses (40%) with sharing data. However, other data from the same PYMNTS Intelligence study confirms that only 44% of microbusinesses are very satisfied with the credit tools currently available to them, compared to 63% of small businesses. Microbusinesses, therefore, may be more reluctant to share data, in part due to a lack of information, but they are also the businesses more dissatisfied with their current lending options.
Does More Data Sharing Equal More Borrowing?
Moreover, businesses using lending solutions that require real-time access to data — such as embedded lending — are also more satisfied with their current credit options than other companies. Figure 4 shows that 72% of microbusinesses and small businesses that used embedded lending are very or extremely satisfied with their currently available credit tools. This compares to only 57% of those businesses having used other types of credit. These findings suggest that when lenders have access to SMBs’ real-time data, they are probably more willing to offer optimized loan amounts and tailored solutions, resulting in higher borrower satisfaction.
PYMNTS Intelligence data also shows that businesses using embedded lending borrow $235,000 on average — 48% more than firms using other types of lending. In fact, 69% of microbusinesses and small businesses are very or extremely likely to switch to a provider with embedded lending options. For companies that used other types of lending, the share likely to switch for embedded options fell to 38%. Finally, for companies that did not use any credit, the share willing to switch for embedded lending dropped even further, to 29%.
Based on our data, we may readily conclude that businesses having experience with embedded lending are willing to seek out providers that offer it. However, lenders must be sure to communicate to businesses how they are going to use their data. Overcoming companies’ reluctance to share financial data in real time is possible if lenders offer the reassurances companies need.
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