Embedded Finance and Trade Performance of Marketplace SMEs Evidence from Indonesia’s Digital Commerce Ecosystem

Abstract

The development of embedded finance in the digital marketplace ecosystem has transformed the way Micro, Small, and Medium Enterprises (MSMEs) access financing and conduct trade activities. This study aims to analyze the influence of embedded finance on the trade performance of MSME marketplaces in Indonesia and its implications for substituting traditional bank financing. The study employed a quantitative approach with an explanatory design and survey data from 268 MSMEs actively operating on marketplace platforms. The analysis was conducted using Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine the relationship between Embedded Finance Accessibility, Access to Working Capital, Trade Performance, and the Banking Substitution Effect. The results show that embedded finance has a positive and significant effect on MSMEs' access to working capital and trade performance, both directly and through the partial mediation of working capital. Integrated liquidity within the platform has been shown to increase transaction frequency and sales volume, but the resulting effect reflects more on amplification of trade activity than on fundamental business productivity. The findings also suggest a partial substitution of bank credit, where increased use of embedded finance reduces MSMEs' dependence on bank financing for short-term working capital needs. Furthermore, the increased use of embedded finance weakens the influence of bank credit on trade performance. This research contributes to the financial intermediation and accounting literature by demonstrating a shift from financial statement-based credit allocation to transaction data-based liquidity allocation in the platform economy. These findings have implications for regulators, banks, and platform managers in understanding the new dynamics of MSME financing in the digital trade era.