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eCommerce Platforms Make the Leap Into One-Stop-Shop Embedded Trade Finance 

SMB, small businesses, working capital

For the merchants doing business online, serving consumers and even buying goods and services from one another, working capital is a lifeline. Working capital provides the ready cash needed to buy inventory, pay staff and take advantage of growth opportunities.

A number of eCommerce platforms have made the leap into providing capital to those businesses — a form of embedded finance — along with, in some cases, virtual cards.

As we noted here this past week, Home Depot said it was piloting trade credit options, and management said that HD Supply (which Home Depot acquired in 2020) already offers that function. Commentary on the earnings call noted that the piloted options are part of “enhanced digital capabilities,” which we’d contend is a nod to the fact that online/platform channels are becoming key ways to reach those smaller businesses.

Elsewhere, in its latest 10-K filing with the Securities and Exchange Commission, PayPal detailed that it offers access to merchant finance products for smaller businesses, including PayPal Business Loans. The latest holdings on the balance sheet stood at $1.2 billion in receivables.

Launching Credit Options

Shopify said last summer that it had launched Shopify Credit, a pay-in-full card for Shopify merchants, with the ability to earn cash back and issue cards to enterprises’ staff members (along with spend limit features). The latest corporate filings reveal that, overall, Shopify’s loans and merchant cash advances, on a net basis, were $816 million at the end of 2023, up from $580 million.

We’ll know more about the state of merchant financing when Block reports earnings tonight (Feb. 22). As we noted in our coverage of the latest stats, in Block’s earnings results, the company noted in its investor materials that Square Loans facilitated approximately 120,000 loans totaling $1.17 billion in originations, up 4% year over year.  

The platform models offer these smaller firms — already establishing storefronts and a digital presence online as they seek to broaden their reach — a range of embedded finance options.

And as PYMNTS Intelligence data has found, a significant percentage of Main Street SMBs have been moving online at the end of last year, even if they have brick-and-mortar locations. 

The companies that are online are sanguine about their prospects: 57% for those who sell mostly online (and conceivably on platforms) say their revenues will grow this year, and that tally rises to 61% that have an even split between eCommerce and physical locations. 

Elsewhere, we noted that only 47% of SMBs with annual revenues of $10 million or less had access to business or personal financing. That leaves roughly half without access, and 8% of SMBs have access to only personal financing. Almost half of Main Street SMBs say they plan to increase the use of credit products headed into 2024 — setting the stage for the platforms to see some gains in their embedded finance businesses.