Embedded finance is transforming the financial landscape, seamlessly integrating banking, payments, and other financial services into non-financial companies. Beyond only payments, Fintech providers are giving software companies the ability to offer a broader range of financial products to their subscriber base. Software companies are working through opportunities to expand their product and service offerings while having the expertise of a FinTech provider to help every step of the way.
So how can embedded finance change your software company’s future? Let’s dive into what it is and the categories currently being offered.
What is embedded finance?
Simply put, embedded finance encompasses different customer facing features or services that relate to traditional finance services.
Software companies have begun expanding into other financial services such as banking, lending, insurance, payroll, card issuing, and accounts receivable/payables as part of their software offerings. Instead of requiring customers to go to separate providers for these services, embedded finance brings them directly within the ecosystem of the software.
SaaS companies are rapidly evolving to keep up with expectations for their subscribers. The shift from subscription-based revenue has expanded as software companies seek new opportunities for additional revenue streams while also bringing more functionality into the platform.
Which financial products are being prioritized for other software companies?
As a market that’s expected to grow 17x from $22.5 billion in revenue in 2020 to $384.8 billion by 2029, there are significant opportunities for software companies to expand product offerings and grow revenue through embedded finance. There are currently seven embedded finance categories, but as technology interfaces continue to merge, new products are likely to open up in the years to come.
Embedded payments allow software companies to accept user’s payments within their platform. This means they don’t need to be redirected to a third-party website, providing a seamless experience, increased conversation rates and stronger customer loyalty. The features available through embedded payments depend on the provider, but they generally offer functionality to manage billing, invoicing, and revenue recognition.
Embedded accounts receivable and accounts payable
With embedded accounts receivable (AR) and accounts payable (AP), software companies can reduce manual data entry by integrating data across the business. Typically based on a single data source, such as payments, this is pushed through to the business’s AR and AP systems. As a result, businesses enjoy stronger cash flow management and increased efficiency.
Integrated lending services within software platforms enable companies to offer their customers finance without needing to visit an external lender. By providing financing options in the platform, software companies enjoy revenue growth and stronger customer retention. Further, small and medium enterprises (SMEs) that may have difficulty accessing traditional bank loans can boost their cash flow through embedded lending products, as the assessment criteria are often more flexible and address the nuances of running an SME.
Embedded banking allows software companies to integrate banking services into their platform. These services include virtual bank accounts and payment processing to provide a more seamless user experience. Adding banking services to a software platform also increases customer retention and drives revenue growth.
By embedding payroll into a software platform, businesses can manage all payroll tasks in one place. Key tasks that can be integrated include calculating and distributing salaries, taxes and other deductions. Embedding these tasks streamlines the payroll process and reduces the need for manual data entry, driving greater accuracy and efficiency.
Software companies can offer insurance products that help mitigate the risks associated with using SaaS products, such as data breaches, system downtime, and any other issues that can cause business disruptions.
Embedded card issuing enables software companies to integrate card issuance capabilities into their platform. By issuing virtual or physical cards, software companies can offer other financial services, such as payment processing, expense management, and cash-back rewards.
Master your Fintech game with Payrix
Expanding your product offering through embedded finance capabilities will give your platform new ways to grow revenue while increasing customer engagement and acquisition. Download the 2023 Embedded Finance Survey Report to understand the current and future state of the SaaS landscape and learn how embedded finance is already shaping the future of SaaS.