Embedded finance: How the supply chain in Nigeria can benefit from financial services

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When Angela Strange, General Partner at Andreessen Horowitz, asserted in 2019 that “any company could become a fintech company”, Uber was one of the main examples that she cited. The business may have launched as a disruptor of the traditional mobility market, but the ride-hailing business is now also offering credit cards, a digital wallet and instant-payment service for its drivers.

“For Uber, embedding financial services has two benefits,” Strange said in a conference presentation that has become highly influential in fintech circles. They spend a lot of money acquiring drivers. Then they have to make up that cost through a margin on rides. It is much faster to make up that cost if they also have a margin on banking services. Furthermore, if I’m a driver, I’m more likely to stay with a company that is also providing my financial services.

This trend is also noticeable in virtually every industry including supply chain. Businesses in nearly every industry were forced to reconsider the way they conduct their daily operations when the pandemic hit. Financial institutions, healthcare providers and retailers alike are now looking to digital technologies to innovate their B2B and other internal processes, leading to a keener interest in the potential benefits of embedded finance. 

According to a report, embedded finance is set to be worth $3.5 trillion in the global retail sector. A research from cloud banking platform Mambu forecasts that the retail sector will account for 49% of the embedded finance market within the next ten years. Embedded finance is therefore a hot topic in the FinTech industry and should be of special interest to those who seek to expand their business and monetize their customer base. 

But what is embedded finance? Simply put, it is the incorporation of a financial service/product into a non-financial product or service. In clearest parlance, embedded finance is when non-financial businesses and organizations include financial services — such as payments, credit, insurance, and savings — as part of their services.

In spite of the novelty that characterizes embedded finance in Nigeria, some innovators are championing the concept. One of them is weKurnect who is partnering with OnePipe on their product Growtrade to provide suppliers and merchants with tools and services that help manage operations better, provide credit lines to buyers, and enable them to grow in their trade. Ordinarily, 90% of everyday trade activities like ordering, making payments and managing inventory flow between suppliers and merchants are done manually. This is inefficient and promotes friction and risks across the entire supply chain. weKurnect aims to eliminate these inefficiencies and friction by digitally migrating all ordering, payments, inventory and fulfillment processes to its Growtrade platform. Growtrade makes it seamless for suppliers/wholesalers of FMCG products to pay for orders by crediting designated Growtrade accounts or by paying cash to the delivery driver who in turn deposits (through any touchpoint – bank, agent, POS or ATM) these funds into the designated accounts. The manufacturer can then sweep the funds while attributing the sale to the precise distributor already mapped on the platform. Merchants can also open a Growtrade account in seconds and make all payments for products to suppliers from their Growtrade account. Orders are automatically reconciled with the distributor and products delivered through logistics partners. 

Growtrade has taken a complex technical problem and built a simple, easy-to-use tool to help suppliers and merchants of all sizes thrive. They have been able to achieve a leaner operational process that eliminates friction in trade, consolidate fragmented retail, and enable third party services to reach this community through their open API connectors. Through this, the platform continually expands to provide these businesses with a variety of offerings to help them trade better, grow profits, and enjoy faster order processing as payments are real-time. 

One key offering of Growtrade is the provision of seamless access to credit for merchants on the platform. Growtrade takes the advantage of OnePipe’s banking-as-a-service (BaaS) technology and embedded-finance arrangements to provide credit in real-time to these merchants who already consume credit informally. When they buy on credit from their network of suppliers, the offline process is done through bookkeeping, which is not only stressful, but largely informal. In this, Growtrade provides an edge by:

  1. Offering larger loans on better terms
  2. Offering loans to new retailers based on alternative data underwriting and enabling them to bypass the long process of building trust with various suppliers.
  3. Offering multiple loans for diverse purposes

Credit increases merchants’ purchasing power and allows them to do more business on the platform even with liquidity constraints. Merchants need frequent, small ticket size and short duration credit that banks traditionally aren’t able to underwrite, hence suppliers are leveraging their relationships with retailers to underwrite them using data on their payment history to finance their invoices. Growtrade comes to the rescue by digitising the operations of merchants, starting from enabling online transactions to managing inventory, cataloging products, providing credit facilities and more.

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