With embedded lending, we’ll go from fragments of change to a flow of innovation

A 2023 Prediction by Martin McCann, Founder and CEO, Trade Ledger

Technology is eating our industry’s business models. 

Every contributor you will meet in our Working Capital Predictions 2023 report has a slightly different take on change. But there’s one prediction we can all comfortably make: when it comes to the way we provide working capital, we’re approaching an inflection point.

Fast-forward three years, and the way the working capital market has operated for 30 years will be redundant. By that time, the target market for existing products will be less than half of what it is today. The other half, and the unaddressed market, will be serviced by brand new digital products that didn’t exist at the start of last year.

What worked yesterday won’t work tomorrow

Established players have been relying on their expertise, reputation and customer relationships to keep up. But it’s not enough anymore. Digitisation in the next few years will require all participants to learn new skills. They’ll have to develop new operating models and go-to-market strategies.

Compare a once-a-year update to an always-on, real-time connection with your customers. It’s the difference between flashing a torch and switching on the house lights. With that kind of view, the entire lending value chain must change. And it will.

Business lenders are starting to realise that once you take away the constraints of how you’ve thought about the acquisition, quality, frequency and interpretation of data, your eyes open to its new capabilities.

But there’s a catch

A little bit of knowledge, as they say, is dangerous. As is investing in technology for technology’s sake. Five years ago, I kept hearing that optical character recognition (OCR) and blockchain were the answer to all working capital problems. Neither turned out to be (even if one’s still got potential).

Now, everyone’s talking about APIs and open banking. These are the right technologies to meet the moment, but too many people don’t understand their true impact. Not all APIs are equal. 

Anyone can claim to be an API provider. But not all APIs will have the same capabilities. Not all will help you reinvent your business model. Or take advantage of things like embedded lending, which lets financial institutions reach customers at the moment finance is needed.

Technology is just one dimension of deep change

There are going to be major shifts in market share in our industry. Future winners are drawing their roadmaps today. They’re asking: What business model do I want to get to? Why am I convinced that the market is going to change that way? Where are the gaps between where I am today and the capabilities to drive the future ecosystem?

There’s another catch

2023 is shaping up to be the most brutal business year that most of us will have ever experienced. We’re going to see a return to business fundamentals and a re-emergence of a cash is king mentality. Organisational designs will flip, supply chain management will tighten, and many people will overreact.

But the most difficult part will be driving innovation while purse strings are pulled. Leaders who juggle short-term business environment challenges, and layer in long-term changes (involving data, technology and new operating models) will emerge from this cycle as the most competitive and aggressive industry movers.

There’s one more catch

Nine out of 10 organisational change initiatives fail. Large lenders have commitments and constraints to service existing markets. The bigger your company is, the less likely it is that you can transform in time to be a winner in next generation working capital.

Business as usual kills innovation. The solution is to give innovation the space it needs. To free up resources to try something unencumbered, on a blank canvas. Down the road, you might fold this innovation into your existing business. Or not. But how you think about and approach change will determine your level of success.

If you’re still using long, rigid request for proposal forms to find a technology partner, you’re guaranteed to fail. If you’re looking at change though a one-dimensional lens (say process re- engineering, or technology), your efforts are doomed.

It’s like Ben Horowitz wrote in The Hard Thing About Hard Things: 

In the face of great adversity, we must stay calm, keep the business engines running and find ways to innovate. That message feels more relevant than ever as we head into a hard year.

But if we can get capital flowing to the right places, if we can fuel the businesses that innovate, there’s no challenge we can’t solve.

We’re bursting with ideas for 2023. Here’s what you can expect…

Innovation happens where capital flows. And the world needs innovation right now.

We’re trying to solve colossal, systematic challenges like planetary destruction and geopolitical instability. Through innovation, businesses unlock the solutions we’re after. They have a responsibility to be a force for good. Just like lenders have a responsibility to support them.

At Trade Ledger, our purpose is to help make sure that businesses have the financial fuel they need. There’s no problem of principles here. Lenders want to provide capital to growth businesses. They just don’t have all the capabilities.

Our platform has already helped many working capital lenders cut their time-to-cash from months to days. This year, we’re going to speed up the distribution of working capital into the market.

The way we see it, embedded lending is how we get there.

We’re launching a set of open APIs that let companies we work with become lending-as-a-service providers, overnight. A Trade Ledger lender will be able to embed complex working capital credit solutions into the Amazon, Etsy and SAPs of the world. And here’s the best part, they’ll be able to do that in two weeks, not two years.

Working with partners like HSBC, NORD/LB, ScotPac and Virgin Money we are sending ripples of change around the globe. We can help all businesses get working capital solutions that, in the past, would have been locked behind doors of complexity.

We’re meeting innovative and like-minded people.

Passionate people who care about the things we care about. In 2023, we’re going to turn more of these friendships into strategic partnerships.

We’re teaming up with open finance, CRM and core banking experts to make it faster and easier for lenders to launch modern digital working capital products. We’re delving deeper into speed, data flow and the inner workings of a connected ecosystem.

Right now, capital isn’t flowing into the places where innovation needs to happen. We’re going to change that.

Next steps:

1. Download our Working Capital Predictions 2023 report, where you’ll hear from industry experts at KPMG and EY, to Microsoft, Thought Machine and Valadis as well as Virgin Money, Tide and more.
2. Get in touch and chat to us about the work we’ve delivered for a number of global multinational banks and specialised alternative lenders to transform their working capital offerings.

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