How and Why to Make Financial Services Part of your SaaS
The Software-as-a-Service (SaaS) industry has become a marketplace filled with fierce competition. While the sector is thriving, valued at nearly $200 billion, the landscape has changed significantly. New business models are emerging daily, and customer demands are constantly evolving. As a result, keeping a SaaS business afloat is not always easy.
A Bain & Company report predicts that transactions through embedded finance platforms will reach USD 7 trillion by 2026. With 64% of small and medium-sized businesses (SMBs) interested in embedded financial services, there’s a clear opportunity for SaaS companies to create a new revenue stream and position themselves as the one-stop shop.
In this article, we will cover:
Why Embedded Finance is Important to SaaS
To understand the importance of embedded finance for your business, let’s first identify the problem you’re solving for your clients. Many small and medium-sized businesses (SMBs) are underbanked, and the costs of creating tailored banking services often outweigh the benefits. As a result, 41% of SMBs express interest in banking services from a digital service provider, while 44% prefer these services in partnership with a traditional bank. Moreover, they are willing to pay more for these services.
This is where embedded finance providers come into play. Embedded finance integrates financial services like payments, lending, and insurance into non-financial platforms, allowing businesses to offer these services directly within their apps or websites. This creates a seamless user experience without the need for external tools or banking infrastructure. We explored this in detail here.
So, how does your SaaS company benefit? Research by a16z indicates that when SaaS companies embed financial services into their platform—either by upselling or providing a more comprehensive service—they can increase revenue by 2 to 5 times, lower customer acquisition costs, and enhance customer lifetime value.
Let’s break the benefits down in detail:
People search for various services, and having a broader range of offerings increases the chances they'll find your page. For instance, if a client needs your invoicing solution and lands on your site, they may discover the option to add embedded finance. They’ll recognize the opportunity for a new revenue stream, a more complete service, and a solution to their initial problem. While they might still check your competitors, many businesses don’t yet offer embedded finance, ensuring your platform remains top of mind and making it easier for them to choose you sooner or later.
Loyalty programs and discounts are great for initial hooks, but once the discount expires, another provider will offer the same. However, embedded finance provides a more effective solution. Not only does it enhance convenience, but it also generates valuable data on customer behavior, allowing businesses to personalize offerings and anticipate client needs. The result is deeper relationships, increased satisfaction, and a cycle of retention and growth for SaaS providers.
Embedded finance does more than boost customer satisfaction—it unlocks new revenue streams for SaaS providers through transaction fees, interchange revenue, and premium financial services. In March 2023, Shopify reported $1.1 billion in embedded finance revenue, three times higher than its software-only revenue. This shows the potential for substantial growth. Additionally, embedded finance drives industry innovation by enabling providers to offer unique value propositions, like tiered subscriptions or usage-based pricing, benefiting both businesses.
Embedded Finance Use Cases for SaaS
Accounts serve as a foundation for other key features. The most popular way is for customers to apply for accounts directly from your website, keeping them on your platform to complete transactions and conduct business. A key opportunity for incremental revenue is accruing interest on accounts, which will only increase as rates go up.
Embedded payments help customers send and receive electronic payments right on your platform. Once you have bank accounts set up, customers will be able to access a number of payment rails, including transfers, wire transfers, bill pay, and book transfers. You can charge fees for these services, applying markup costs on the payments—either a flat fee, a percentage of the transaction, or both.
Offer custom virtual and physical debit cards with advanced features like card controls, limits, and issuing digital wallet tokens. Boost customer engagement by rewarding card usage, whether for your own services or external purchases. A significant revenue stream comes from interchange fees, which are charged to merchants when customers use cards.
Embedded financial tools integrate services like invoicing and billing directly into platforms, streamlining financial management. Embedded invoicing, for example, uses payment links to speed up collections, improving cash flow and adding value to the platform by transforming invoicing into a financial service.
Lend money, charge interest, and generate revenue. Access to customer banking data can quickly help you assess creditworthiness. Interest rates on loans can vary significantly depending on the type of loan.
Enterprise SaaS applications are expensive, creating a Catch-22 for startups and SMBs that need flexibility in payments.
What Embedded Finance Could Look Like on Your Platform
Let’s say you own a white-label mobility application, allowing businesses to white-label your app for their own car rentals. They can customize it to extend and simplify, shortening time to market. Here is what we could do:
How to Launch Embedded Finance
In the past, tech companies had to build embedded finance products in-house, which involved significant risks, high upfront costs, and a time investment of at least two years and $2 million. However, recent years have seen the emergence of embedded finance platforms that provide the necessary technology, allowing SaaS companies to launch financial features in just days.
One such provider is Space Invoices, a B2B SaaS that helps other SaaS platforms like yours integrate embedded payment links into invoices and upsell clients with payment processing. With us, you’ll receive:
While the integration process may seem lengthy, Space Invoices guarantees that with our support, you can start upselling to clients within a week. If you’re considering integrating embedded finance to become a one-stop shop or to start a new revenue stream, please reach out. We’re here to help you find the best solution for your SaaS!
Additional reading:
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