Small businesses have every right to expect lending to be instant and transparent – just like every other service that has been disrupted by the digitalisation. Unfortunately, traditional lending products are failing to meet their expectations – and legacy providers only have themselves to blame. Their reluctance to respond to the demand for frictionless lending is no longer acceptable in today’s internet-enabled world.  

Traditional lending: embedded finance to the rescue

According to our 2022 survey commissioned with YouGov, 59% of SMEs would consider using their main bank when seeking funding. What they don’t realise is these legacy lenders provide clunky services that rely on outdated infrastructure and laborious manual processes. Amid a blizzard of paperwork, disjointed systems and frustrating phone calls, the lending application and assessment processes remain infuriatingly ponderous. Even if a loan is eventually authorised, it might be too late for an SME that has a time-critical need for finance. 

The tide isn’t just turning in the lending space; it’s being flooded by a new breed of alternative lending platforms that are riding the embedded finance wave – and challenging traditional lending models in the process. There’s virtually no part of the modern finance ecosystem that hasn’t been enriched by this seamless integration of financial services into non-financial ecosystems and environments. 

Embedded finance

Embedded finance – a subset of this new distributed approach to delivering financial services – has gained traction amid an avalanche of demand for a frictionless, digital-first borrowing experience. What began as helpful assistance for partners when managing the technology element of the lending process has evolved into a lucrative market: revenue generated by the embedded lending market totalled $4.7 billion in 2021 and is expected to reach $32.5 billion by 2032.  

Its ability to add value to the customer journey by providing seamless access to finance isn’t a linear attribute. It possesses the agility to create bespoke lending experiences for different customer groups that match their unique requirements. Take companies like Sezzle and Klarna, for example, who have partnered with Liberis to embed our platform into their offering as a value-added service for their business customers – enhancing loyalty and increasing revenue.  

Augmenting embedded finance with AI

This ability to mould the lending experience around the merchant’s business model is being elevated by artificial intelligence (AI). Embedded lending providers are leveraging AI to conduct real-time analysis of broad and diverse customer data sets and present their findings transparently and expeditiously. Empowered by the results, they can personalise the lending journey by learning from previous experiences. 

AI’s innate ability to foster a detailed understanding of the customer’s needs and preferences has changed the way we think about user experiences. Algorithms process data rapidly before applying changes to optimise the findings. By continually learning and adjusting, they improve the user experience to offer a more engaging, customised experience that matches current trends and behaviours. 

AI also has the power to facilitate instant and transparent decision-making processes, enhancing the user experience by addressing the applicant’s fear of rejection early in the process or right at the start in the case of pre-approval – according to our survey, 15% of SMEs say rejection is one of their biggest funding concerns. This peace of mind allows SMEs – for which restricted cash flow can be an existential threat – to start planning immediately. 

The 4-click journey

Embedded lending – augmented by AI – creates a symbiotic relationship between the innovative lenders who deliver it and the brands that embrace it: innovative lenders are ‘inserted’ into the moment the customer identifies a funding requirement or even before they identify their requirement, and brands benefit from a competitive advantage by elevating their offering. 

For this to play out, SMEs must be provided with a seamless lending experience that unlocks access to funds quickly and cost-effectively. Aware of our impatience online, through its machine learning capabilities, AI can expedite the lending process by enabling a 4-click journey that has convenience, transparency, and personalisation at its core. 

This frictionless process stimulates the point of need access to capital that SMEs demand, improving their cashflow management; while the partners that embed lending into their ecosystem improve brand loyalty and increase revenue through an improved user experience. 

The future of AI in the user experience

No longer shrouded in mystery AI is now part of our everyday lives, even if we don’t realise it – but we’ve only scratched the surface of its potential to improve the lending journey by expediting decisions and addressing rejection anxiety. The dynamic nature of AI – which is constantly learning and adjusting – instils it with the adaptability needed to create user experiences that are increasingly intuitive, natural, and engaging.