Getty
getty
Over the past couple of years, talk about embedded finance has grown stronger and more exciting. For those unfamiliar with the term, think of embedded finance as integrating financial services into user experiences. For example, most of us are familiar with the opportunity to purchase flight insurance while buying a plane ticket, or consumer financing available when buying a dishwasher. By “embedding” tools like point-of-service insurance or payment processing, companies are able to offer financial services without having to build financial infrastructure themselves.
In doing so, customers are offered a richer and stickier experience.
Embedded finance applications are growing rapidly as a consequence of technology advances like AI. A 2021 article in Forbes estimated the market value of embedded finance at $138 billion by 2026. A more recent estimate, including advances in generative AI, suggests over $600 billion by 2032. Global banks like Barclay have recently promoted embedded finance as a critical element of fintech futures, saying embedded finance “allows businesses to focus on their specialties while trusting their financial services to a reliable third-party vendor.”
McKinsey gives a helpful overview of where the embedded finance market is going:
“What makes the next generation of embedded finance so powerful is the integration of financial products into digital interfaces that users interact with daily. Possibilities are varied: customer loyalty apps, digital wallets, accounting software, and shopping-cart platforms, among others. For consumers and businesses using these interfaces, acquiring financial services becomes a natural extension of a nonfinancial experience such as shopping online, scheduling employees to work shifts, or managing inventory. This more deeply embedded form of embedded finance is what has grown so significantly in the US in recent years.”
One of the growth engines of embedded finance is “embedded credit”. For consumers, embedded credit enables individuals to acquire and repay loans within a platform, for example, borrowing the cost to buy a chair within an e-commerce site like eBay, Shopify, or 1st Dibs. “Lending as a feature” allows these digital platforms to provide customers with credit services within the interface, rather than being forced to leave the platform to transact.
Embedded credit has the potential to play a significant role on the global financial stage by offering small businesses and solopreneurs the credit services they are often denied because of their small size and the difficulty of easily assessing their creditworthiness. With half the world’s population underbanked or having inadequate access to banking services, there is huge and growing interest. For example, in India, the Economic Times reported that “Non-banking finance companies-microfinance institutions (NBFC-MFIs) have consolidated their position in the market with more-than-average 43% year-on-year growth helping them to raise their share of portfolio to 41.28% of the country’s total microfinance pie, from around 35% a year ago.”
But, to continue to expand, tech must provide a more rigorous and scalable way to broaden and simplify credit access through the application of data science, AI expertise, and process automation. Readers will be pleased to hear that an innovative startup headquartered in Singapore, led by a crack team of former bankers, economists, data science, and software developers, is showing the way forward, and is receiving outsized interest by investors and ecommerce platforms.
Meet CrediLinq.ai, a tech forward fintech started by Deep Singh, a former Bank of America and hedge fund executive, and Vikram Kotibhaskar, a veteran of GE and former small business lending product head for Standard Chartered Bank.
CrediLinq describes its mission as providing platform-based small businesses and solopreneurs with equitable and hassle-free access to the capital they need to grow. Founders Singh and Kotibhaskar built their business around a commitment to increase financial inclusion and offer a better credit underwriting experience.
Singh, Kotibhaskar, and their team see the potential for significant contribution and profitability by focusing on platform based businesses – for example, the thousands of merchants on a platform like Etsy, or the freelancers on a marketplace like Fiverr. Small business owners need to fund their growth, and credit plays a meaningful role. But for SMEs (small and micro enterprises) on these platforms, credit is often difficult to obtain, overly expensive, excessively time consuming to arrange, or offered at a rate that understates the creditworthiness of the business. These typically underserved businesses usually lack the traditional income documents needed by banks to assess creditworthiness. However, they do have a large digital footprint on these platform over time and this alternative data and behavior can be expertly used to assess creditworthiness at a deeper and more accurate level.
CrediLinq solves the problem of scaling creditworthiness by starting at the platform level. To start, the CrediLinq team built their platform based on a unique custom tech stack, including a micro-service environment that is easily portable across geographies. When working with a new ecommerce or freelance marketplace, the CrediLinq data team builds a comprehensive credit model based on all of the data the platform collects through the API – sales, refunds, late payments, etc. This data model is important because it uses alternative data unique to underserved businesses, of which banks currently don’t consider.
Utilizing proprietary AI algorithms, the firm then creates a platform specific comprehensive risk operating model for the platform that first establishes whether the platform has the characteristics that fit CrediLinq parameters. If the platform meets the test, the CrediLinq growth team is able to offer more specific terms to qualifying merchants or freelancers based on their own CrediLinq scores. Once credit limits are established, they can be drawn down as agreed without bureaucratic interruption. Over time, credit limits are curated through additional data and improved risk models. The process and relationship is organic.
Therein lies the “superpower” of CrediLinq: its expertise in credit modeling based on accessing or “scraping” a wide variety of data sources, and therefore providing lenders and borrowers with a more realistic and data-based assessment of creditworthiness at the platform and merchant or solopreneur level. As Deep Singh put it in a recent conversation, “It’s a real problem how little data is typically used in making credit decisions about small businesses, and how badly mistaken the data often is in drawing conclusions. We’ve been able to fix that problem at scale, and it opens up a very significant market for which we are very well situated.”
As Singh points out, the potential for CrediLinq is large and growing. According to recent estimates, e-commerce platforms will grow substantially over the next several years, reaching a $6 trillion dollar handle by end of 2027 (see below). A second and related market is the freelance marketplace industry with a likely value of several trillion dollars as well on a global basis. Both fit CrediLinq’s growth thesis.
https://flyersonline.com/
https://flyersonline.com/
What’s challenging CrediLinq as it climbs this market? What must it do to enable embedded credit to achieve its potential? There are three key priorities on CrediLinq’s strategic agenda for 2024:
First, speed. While ahead of the pack currently, CrediLinq competition will grow quickly and significantly. CrediLinq has established a strong reputation in Asia, but more developed markets and experienced fintech competitors of Europe and North America will quickly winnow their lead. Speed must be part of the CrediLinq DNA for it to continue to set the pace.
A second and related priority is resourcing. On the tech side, CrediLinq has built a uniquely capable data engine. To support growth, the team must continue to advance and continuously improve their proprietary tech stack which, as described earlier, is easily portable across geographies and enables faster go-to-market for their platform partners.
On the talent side of resourcing, the CrediLinq growth team is establishing key sales beachheads in the US and EU. Growth potential is significant. Shopify, for example, estimates 21% of total retail sales is already happening online. Forbes estimates total sales online will achieve 23% by 2025, growing at over 10%. MBOPartners recently forecasted that the size of the freelance workforce operating on marketplace platforms, will exceed 70 million in the US alone. Clearly, CrediLinq has significant opportunity.
A third priority for CrediLinq is partnership. The internal culture of CrediLinq is described by Dinesh Singh, CTO, as strongly team and partnership oriented. This is of major assistance. But to fully meet its moment, CrediLinq must do more than lend. In fact, it has taken up the challenge of creating resilient, growth-oriented, value-based relationships with merchants and solopreneurs and the platforms that host them. The CrediLinq team knows they must earn the right to lend. Singh and Kotibhaskar and their team are determined to create a relationship with customers reminiscent of “Intel Inside” by continuously improving their offering for both seller and platform: Kotibhaskar put it this way:
“We know small business owners are the backbone of the global economy. There’s a huge demand for access to growth capital. We want to help. The data is there. The banks can’t do it. We can. We have a highly secure, modular, infrastructure that enables real flexibility to deliver complex financial products quickly. By being micro-service driven and cloud-first, we can deploy and scale their infrastructure across geographies swiftly, offering a fast go-to-market for their platform partners. We are operating now in India, SE Asia, and Indonesia, but see exceptional potential in Europe, US and Latam and eager to enter those markets. We hope that as we continue to expand around the world, the first question a new merchant might someday ask their platform is ‘Do we have access to CrediLinq?’ I think we’ll get there.”
Viva la revolution!
Follow me on LinkedIn.
