Growth of embedded finance in supply chain management

Supply chain management has evolved significantly in recent years, driven by the need to adapt to globalised markets and complex workflows. Among the technological advancements reshaping the industry, embedded finance stands out as a game-changer. By integrating financial services directly into supply chain platforms, embedded finance addresses long-standing challenges such as limited access to credit, cash flow bottlenecks, and risk management, enabling smoother and more efficient operations.

According to Deloitte, the value of the embedded finance market is projected to reach $7.2 trillion by 2030, which shows this trend has major staying power. Embedded finance allows supply chain software to directly support financial services, from payment processing and lending to insurance and risk management. By removing the need for third-party institutions, these platforms create more efficient financial transactions and provide real-time access to financing options, all within the supply chain platform itself.

Why banks don’t lend when businesses need it most

One of the core issues for small and mid-sized suppliers is the difficulty in accessing traditional financing. Banks often categorise these businesses as high-risk, making it harder for them to secure loans. This reluctance is driven by outdated risk-assessment models, which rely on static credit scores and fail to account for real-time operational performance.

Embedded finance provides an innovative solution through flow-based lending. By linking smaller suppliers directly to larger, verified supply chains, these platforms allow lenders to assess risk based on real-time cash flows and transaction data. This method not only reduces perceived risk for banks but also ensures that businesses receive timely access to financing when they need it most.

Why is embedded finance booming in supply chains?

Supply chains today are becoming more complex and time-sensitive, especially as companies increasingly operate in globalised markets, sourcing materials from multiple countries and transporting goods over thousands of miles.

According to a PwC report, nearly 60% of CFOs have cited cash flow management and access to working capital as top challenges in recent years. Embedded finance addresses these issues by seamlessly integrating financial services into supply chain platforms, creating solutions that help companies operate more fluidly and efficiently across various industries.

Embedded finance offers substantial benefits for supply chains, starting with improved cash flow. Cash flow is vital to a healthy supply chain, yet businesses often face high upfront costs and extended payment cycles. With embedded finance, companies can access on-demand financial options, such as instant loans or pay-as-you-go financing, which helps reduce cash flow bottlenecks. At the same time the point of reduced risk to financial institutions needs to be added at relevant places.

According to a McKinsey report, embedded finance could improve cash flow speed by up to 15%—a significant gain in high-volume industries. This enables companies to keep their operations moving smoothly without waiting for invoices to be cleared.

Moreover, embedded finance provides flexibility, allowing companies to adjust financing options according to their real-time needs. During high-demand seasons, for example, businesses can increase credit limits, while they may reduce them when business slows. This flexibility helps prevent overspending on credit or struggling with limited funds. In addition, embedded finance solutions streamline payment processing within the supply chain, simplifying complex transactions involving international suppliers and currency exchanges. By removing the need for external processors, companies can save up to 20% on transaction fees and experience faster payments.

Real-world applications of embedded finance in supply chains

Real-world applications of embedded finance illustrate its potential across various supply chain processes. Trade credit, for instance, is a challenge for many small and mid-sized suppliers, who often struggle to secure financing through traditional banks. Platforms focussed on digitising supply chain address this by providing embedded lending options within procurement or invoicing platforms, allowing suppliers to receive payments once an order is approved. Similarly, cross-border payments, which are often complex and costly, are simplified with embedded finance platforms like Stripe Treasury and PayPal. These platforms handle currency exchange and minimize fees, enabling faster international payments and smoother operations.

Embedded finance is also reshaping inventory management. For instance, platforms like Shopify offer embedded credit options that let businesses purchase inventory upfront and repay later, ensuring they have sufficient stock without straining working capital.

Addressing the high-risk lending challenge

The hesitancy of traditional banks to lend to high-risk categories, such as small suppliers, often leads to gaps in supply chain financing. Embedded finance fills this void by embedding suppliers into larger, trusted ecosystems, where risk is distributed across the network. This approach creates confidence among lenders, allowing them to extend credit based on transactional data rather than relying solely on outdated credit ratings.

Moreover, the integration of real-time financial data ensures that suppliers can access funds precisely when needed, reducing downtime, and ensuring seamless supply chain operations.

Carving the pathway for transformed supply chains

The future of embedded finance in supply chain management looks promising. As digital transformation accelerates, embedded finance is likely to become a standard feature within supply chain platforms, accessible even to smaller businesses. We can expect more tailored financial products, including industry-specific lending options, insurance offerings, and even blockchain-based payment solutions for added transparency and fraud prevention.

Ultimately, embedded finance is revolutionising supply chain management by equipping companies with financial tools that are faster and more flexible, enabling them to stay agile in a rapidly evolving global market. With benefits like improved cash flow, streamlined payments, and reduced financial risks, embedded finance has the potential to become a foundational element in modern supply chains. As more companies adopt these solutions, supply chains will become more efficient and resilient, ushering in a new era of operational excellence.

(Sriram Kanuri is the CEO and Founder of Arteria Technologies)