Embedded Finance: A Must-Have for SaaS Platforms
Embedded finance is a game-changer for SaaS platforms to be competitive. It integrates financial services in your platform so your users can manage software tasks and financial transactions in one place.
João Paulo NotiniOctober 27, 2023
In the fast-paced landscape of financial technology, a term that has gained significant traction in recent years is “embedded finance.” It’s not just a buzzword; it represents a fundamental shift in how financial services are offered and consumed.
In this blog post, we will explore the concept of embedded finance, its definition, its role in the SaaS (Software as a Service) platforms, and how it differs from banking as a service.
What is Embedded Finance and how it works?
Embedded finance, at its core, is about seamlessly integrating financial services into non-financial products or services. It allows businesses to offer various financial products, such as payments, loans, insurance, and more, within their existing platforms.
The integration occurs in a way that’s almost invisible to the end-user. Think of it as embedding financial capabilities directly into software, applications, or processes, creating a more holistic user experience.
According to a report by McKinsey, the rise of embedded finance drives fundamental shifts in commerce, merchant-consumer interactions, and technology. The digital revolution in commerce has significantly expanded opportunities to integrate financial services into non-financial customer experiences, with up to 33 per cent of global card spending now online.
Enablers and Distributors of Embedded Finance
Embedded finance thrives within specific business domains, including retailers, business software companies, online marketplaces, platforms, telecom firms, and original equipment manufacturers (OEMs). These sectors have experienced a surge in embedded finance innovation in recent years, a trend highlighted in a McKinsey report.
Products Offered by Embedded Finance Distributors
Embedded finance distributors have witnessed a maturation of demand from their end customers for various financial products. These encompass traditional offerings like deposits, payments, issuing, and lending.
The dynamic nature of embedded finance has also led to inventive use cases. For example, distributors now provide prepaid cards for earned-wage access programs, facilitate instant payment settlement for merchants, and offer just-in-time funded debit cards for gig economy workers, which can be used for purchases on delivery service platforms.
Providers Supporting Embedded Finance
- Technology providers (fintechs): they offer platforms platforms for distributors to access, customize, and offer embedded finance products. Some specialize in specific financial product categories, like card issuing, while others provide financial products like deposits, money movement, and lending.
- Balance sheet providers: they are licensed financial institutions responsible for manufacturing embedded-finance products, managing risk and compliance, and offering access to funds for lending and deposit products. They often collaborate with technology providers to create integrated embedded-finance solutions for distributors.
Embedded Financing and Banking as a Service
Embedded finance is sometimes confused with banking as a service (BaaS). While they share similarities, they are distinct concepts.
Embedded Finance seamlessly integrates financial services into various platforms. For instance, a SaaS company can incorporate embedded payment solutions within its software, allowing users to manage software tasks and financial transactions in one place. This integration improves the user experience, an essential aspect of embedded finance.
Banking as a Service, on the other hand, is about providing infrastructure and banking capabilities to non-bank businesses. BaaS allows companies to offer banking products like savings accounts or credit cards under their branding. It’s more like outsourcing the banking functions.
The critical distinction is that embedded finance is centred on user experience and making financial services seamless, while BaaS is about providing the underlying banking infrastructure.
Embedded Payments: A Crucial Component
One of the most prevalent forms of embedded finance is embedded payments. This concept involves integrating payment processing directly into a platform or application. When customers make a payment, they don’t have to leave the platform or go through a third-party payment gateway.
Embedded payments streamline the user experience, reduce friction, and often result in higher conversion rates. Businesses can also benefit from improved data access, which can help them make data-driven decisions and enhance customer relationships.
The Role of Embedded Finance in SaaS Platforms
SaaS platforms have been at the forefront of adopting embedded finance. These platforms offer various software applications through the cloud, many of which serve businesses, which is where B2B embedded finance comes into play.
- Enhanced Customer Value: SaaS providers can offer a complete package to their customers by embedding financial services. For instance, a project management software can offer embedded payments to allow users to invoice and get paid without leaving the platform.
- Revenue Diversification: Embedding finance services like lending or insurance can create new revenue streams for SaaS platforms. This diversification can help them stay competitive and financially resilient.
- Competitive Advantage: SaaS providers that offer embedded finance can gain a significant edge over competitors who don’t. It enhances the stickiness of the platform, as users can access multiple services within one ecosystem.
- Data Insights: Embedded finance provides access to valuable data. SaaS platforms can leverage this data to gain insights into user behaviour, preferences, and financial habits, enabling them to make data-driven decisions and personalize offerings.
B2B Embedded Finance
B2B embedded finance, as the name suggests, is the application of embedded finance in the business-to-business context. Here, SaaS platforms that cater to other businesses can integrate financial services tailored to the needs of those businesses.
For example, an e-commerce SaaS platform can embed business loans for clients to help them with working capital needs. This adds value and strengthens the symbiotic relationship between the SaaS platform and its business customers.
B2B embedded finance is a game-changer, enabling SaaS businesses to stay competitive in the dynamic financial technology landscape.
A Payments Partner’s Vital Role for SaaS Companies
As seen in this article, embedded finance is revolutionizing the financial industry by seamlessly integrating financial services into various platforms, with SaaS providers at the forefront. It’s no longer solely about payments; it’s a comprehensive approach that offers end-to-end financial services within the SaaS ecosystem.
SaaS platforms now understand that embedded finance isn’t merely an optional feature; it’s a necessity in the present competitive landscape. So, as we navigate this financial revolution, the critical question isn’t whether embedded finance is required but how quickly businesses can adopt and adapt to this transformative trend.
Payment partners like EBANX are essential in enabling SaaS companies to stay at the forefront of this revolution by providing the infrastructure and expertise necessary to deliver embedded finance solutions effectively.
With over ten years of experience in cross-border payment solutions and a tailored approach to SaaS businesses growing in emerging markets, EBANX is at the forefront of technology with an all-in-one payments platform.
We can seamlessly process B2B and B2C payments, handle high order value transactions (above USD10k), and enable not only cards but more than 100 payment methods that include instant payments, digital wallets, mobile payments, vouchers, and more.
The future of payments for SaaS companies is happening now. Are you ready?