Embedded credit is an underrated growth catalyst for SMEs

Embedded finance refers to the integration of financial services into non-financial apps and platforms. For example, an e-commerce business can embed digital payments into its website and offer customers multiple payment options such as card, bank account, USSD, and QR code.  

Embedded finance is reshaping the way merchants and businesses access credit and the way customers access digital products and payment services. Although the sector is still experiencing growth in different regions - Europe, LATAM, North America, and Africa - embedded finance will be influential in the financial sector in the next 10 years.

Embedded finance matters because it enables businesses to provide a range of financial services to their ecosystem—whether for customers, suppliers, partners, or workers—without the need to develop their own financial infrastructure.

According to Research and Market, the World's largest market research store,  the global embedded finance industry is projected to grow rapidly in Nigeria, with revenue expected to rise from US $1.11 billion in 2024 to US$3.48 billion by 2029, reflecting a compound annual growth rate (CAGR) of 25.5%. This growth is driven by the increasing integration of financial services into non-financial platforms, impacting sectors like retail, transportation, and healthcare.

Embedded credit as a growth catalyst for SMEs 

For early-stage startups and SMEs, access to credit is one of the biggest challenges they face in their growth phase.

Embedded credit, which integrates lending solutions directly into platforms that SMEs and startups already use, makes capital more accessible, flexible, and tailored to their needs. Furthermore, embedded credit makes it possible for digital marketplaces, payment processors, and SaaS platforms to provide working capital to their merchants based on their transaction history, thereby reducing dependency on formal credit checks and collateral requirements.

Another financial challenge that SMEs face is securing loans due to a lack of robust credit histories.

Embedded credit providers use alternative data sources, such as sales volume, cash flow, and customer reviews, to assess creditworthiness.

Embedded credit features like revenue-based financing (where repayments are linked to a business’s earnings) make it easier for SMEs to manage cash flow without being burdened by rigid repayment schedules.

These features improve cash flow and enough flexibility to help businesses remain resilient during seasonal downturns or unexpected market shifts.

Additionally, embedded lending, a subset of embedded credit, provides an alternative financing path, allowing startups to secure capital without giving up ownership and control or taking on high-interest debt from traditional lenders. Embedded lending is particularly beneficial for tech startups and e-commerce businesses looking to scale efficiently.

Finally, digital platforms and financial companies that offer embedded credit (such as fintechs and e-commerce marketplaces) create stronger relationships with SMEs by addressing their financing requirements directly. This method deepens customer loyalty and improves retention, as businesses are more likely to stay with platforms that provide both operational tools and financial support.

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