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The European F&B industry is poised for significant growth. However, companies must focus on strengthening their business ecosystems and distribution chains to capitalise on this expansion. Michael Galvin, CCO and co-founder of fintech platform Toqio, highlights how embedded finance can play a pivotal role in achieving this.

The European foodservice industry is expected to reach €731 billion in revenue by 2026, according to recent research statistics published by ReportLinker. Online sales of food and drink products are also projected to grow, from €50 billion to €133 billion by 2027. This predicted growth provides new opportunities for businesses to succeed.

The caveat is that it’s going to be absolutely crucial for food and beverage companies to ensure the health of their business ecosystems and distribution chains first to take advantage of this growth. For instance, does your company use the right payment solutions to optimise cash flow for your merchants, thereby strengthening your supply chain? Can you access revenue data in real time? Are you automating invoices to reduce administrative and bank fee charges?

If the Covid-19 pandemic taught us anything about unprecedented disruptions to global supply chains, it was the fact that resilience, digitalisation and diversification are critical paths in contemporary business. Globally, the manufacturing and delivery of goods today is so incredibly complex, multi-faceted and not invulnerable as Covid revealed.

As supply chains are the lifeblood of many companies’ brands and profitability, ensuring minimal disruption from manufacturing to point of sale is key. Also, as SMEs account for over 90% of the world’s businesses and anywhere from 50% to 70% of national GDP – depending on the country in question – and play a significant role in distribution, keeping merchants happy means more success for your business.

One of the fundamental challenges facing merchants today is the lack of access to a comprehensive and integrated suite of financial services. Despite multiple banking-as-a-service and verticalised embedded finance solutions, B2B2B financing (meaning large corporations to SMEs) is still a fragmented and underserved market. Businesses need to consider developing embedded finance solutions to improve their business ecosystems if they want to ensure their brands reach their destination.

Embedded finance provides a means to integrate financial services into your existing business operations and supply chain management to offer mutually beneficial approaches in terms of working capital and liquidity management. Here’s how.

Expanded access to financial products and services

According to a recent EY case study, approximately 40% of SMEs lack comprehensive access to financial services, and roughly 33% rely on more than four financial providers, which can be an administrative burden.

Embedded finance platforms can facilitate automated payment and invoicing processes for suppliers, ensuring timely payments and predictable cash flow. By integrating financial services into their procurement systems, large brewing companies, for instance, can reduce manual intervention, eliminate delays in payment processing, and enhance operational efficiency when dealing with their bar distribution networks. Suppliers, in turn, benefit from prompt and transparent transactions, enabling them to optimise their cash flow and allocate resources more effectively.

More control – Configuration over customisation

Businesses are taking a more holistic view and approach to their merchant offerings as network resiliency is a priority, as is growth. Shoring up distributor payment processing while being able to offer lending services to suppliers and supply chain financing, combined with a host of other implementations, is paramount to avoid service and channel disruption and churn, which could impact their brand reaching end consumers. The use cases are infinite yet they all seek to accomplish the same basic goals, namely to streamline B2B processes, minimise risk and improve business relationships.

Fintechs who are evolving to take a more modular and configurable approach to providing financial services and solutions to corporates will play an instrumental role in helping businesses deliver better and more relevant products to their merchant network. By empowering them with the ability to ‘orchestrate’ the experiences they need, corporates can save on time, cost and development resourcing.

Taking a configuration approach also helps to creatively unlock new revenue mechanisms, such as reward or shared revenue schemes. By integrating financial services into their procurement systems, large companies like retail chains can reduce manual intervention, eliminate delays in payment processing and enhance operational efficiency. Suppliers, in turn, benefit from prompt and transparent transactions, enabling them to optimise their cash flow and allocate resources more effectively.

More financing options to unlock new revenue streams

Amazon’s recent announcement to stop offering business loans to its sellers, a $140 billion marketplace business for them, has put many merchants across the UK and the US at risk in terms of accessing working capital financing. Corporates partnering with embedded finance platform providers have a chance to offer merchant financing options to their networks with new built-in revenue streams across lenders.

Having a host of new merchant solutions will contribute directly to the bottom lines of businesses, helping to ensure financial viability and helping to create a business-critical reliance requiring the merchant to continue to sell their products. By facilitating access to affordable financing options, companies can empower their merchants to overcome cash flow gaps and invest in their growth. This strategy not only strengthens the distributor’s financial position but also fosters loyalty to the corporate partner.

Case in point, one major European beverage company, with an annual turnover of €1.5 billion, sought ways to retain clients and discover new ways to strengthen its relationships with small business owners. One strategy it chose to explore was to introduce a branded business banking platform that allows it to offer establishments a card reader where acquiring profits are passed on to partners immediately, giving them over 1% of revenue back.

Clearer data visualisation

Embedded finance can empower food and beverage companies by providing real-time access to valuable client data, including purchase volumes, payment histories and growth trajectories. This data serves as a crucial asset in de-risking lending processes and strengthening client relationships. By owning and leveraging this client data, food and beverage corporations can provide hyper-personalised financial solutions that meet the unique needs of their merchants without relying on third-party intermediaries.

Businesses can look to leverage ERP data to offer financing to their SMEs, helping those small businesses cover cash outflow for supplies without having to wait for payments, which ensures that a lack of liquidity never slows down orders or inventory. Additionally, the sponsoring corporation obtains real-time data on transactions and can offer credit that is priced accordingly at the point of purchase, enabling SMEs to borrow at more flexible rates. This approach simplifies borrowing and can potentially reshape how SMEs access short-term finance, providing them with more options and flexibility. Overall, embedded finance presents an opportunity for SMEs to access a wider range of financial products and services, ultimately contributing to the growth and success of their businesses.

This sort of relationship offers stability and security, ensuring that SMEs can rely on the services provided. To keep merchants engaged and satisfied, corporates must offer improved financial services and accessible digital solutions tailored to their needs. This creates an appealing and supportive business environment. However, it’s important to maintain a balance between exclusivity and flexibility to safeguard merchant investments and sustain their interest.

Food and beverage companies will need to provide value and a great experience consistently to maintain merchant enthusiasm, rather than relying solely on contractual obligations that lock them in. An approach focused on offering value, security and flexibility will encourage merchants to remain in what they experience as a safe and prosperous business ecosystem. In short, the service must be excellent, or it will inevitably fail.

The future of finance is embedded

Embedded finance is going to play a pivotal role in the future of the food and beverage industry, from helping corporates develop loan origination journeys for their SMEs to orchestrating proposition development like tiered network strategies and rewards. The possibilities are endless, cost-effective, quicker and less resource-intensive than building a solution in-house.

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