With no end in sight for the uncertainty in Europe’s tech ecosystem, SaaS startups are looking at new ways to increase revenue and profitability. Embedded finance is one option, but how does it work and what is it?
By definition, embedded finance is the integration of financial services or tools — traditionally obtained via a bank — within the products or services of a non-financial business. The experience should be seamless. Uber is a good example of this: you order a car, you’re driven and you get out. You don’t have to worry about the payment, it just happens.
Embedded finance companies — including those joining the trend — could reach a market cap of $7.2tn globally by 2030. But how can it benefit SaaS startups?
Here’s your guide, from the experts.
It helps you focus on profitability
Nicolas Benady is CEO at Swan, a French banking-as-a-service platform for European companies who’d like to offer accounts, cards and payments to their customers. He says a key benefit of embedded finance is better user experiences (UX) for customers, which makes a better value proposition for the end user and encourages them to spend more money.
“For me, embedded finance is all about user experience,” he tells Sifted. “How to make banking features and the banking experience invisible so you don't notice them.”
Benady adds that because of the revenue possibilities and end user satisfaction, embedded finance is a good bet even for cost-conscious SaaS startups — especially in an uncertain market that’s focusing increasingly on profitability instead of growth.
Embedded finance is all about user experience
“If you were talking to clients in 2020 or 2021, their main focus was probably growth and not profitability,” he says. “This is where embedded finance is more than promising growth, because we can promise to significantly increase revenue per customer.”
Patrick de Castro Neuhaus is cofounder and CTO at Airbank, a financial management software for SMEs built with Swan’s platform. He says that embedded finance offers his startup an important additional revenue stream that can even help turn a profit.
“Through payments and cards, we will be able to drive further adoption of our platform — more specifically, its paid plans — and also monetise through interchange fees and payment initiation charges,” he tells Sifted. “Embedded finance is thus not just a very important element of our value proposition for the user, but also key to our long-term monetisation strategy.”
It lets you focus on your core product
Embedded finance expands opportunities for SaaS startups that have finance as a supporting functionality, opening up new business models and profitability hooks.
It enables startups to launch financial products and services without having to build complex infrastructure or undergo long and costly licensing processes — a common key hurdle when it comes to exploring a new potential revenue stream.
What embedded finance brings to the market is not something that didn’t exist before, but it is instead the kind of format that makes it much cheaper and more efficient to put in place
“A key benefit of embedding finance is speed,” Louis Chatriot, CEO and cofounder of instalment-based payments provider Alma, tells Sifted, adding it’s all about build vs. buy. Meaning when it comes to financial features, you can either build them internally or buy them.
“What embedded finance brings to the market is not something that didn’t exist before, but it is instead the kind of format that makes it much cheaper and more efficient to put in place,” Chatriot continues. “That is really important because when you start a company, it's very frustrating to spend your time and budget on stuff that is not core business for you.”
It’s not just for fintechs
And it’s not just for fintechs — every experience related to banking features can involve embedded finance.
“One example is its ability to completely streamline the payroll process,” says Benady.
At his previous startup where he was cofounder, Benady was in charge of HR and payments. He had to validate the payroll at the end of every month and then go to the bank to make every salary payment. If an employee asked to be paid in advance, Benady had to use HR software and then switch screens and log into a separate banking website to make it happen.
Embedded finance capabilities, such as Swan’s, streamline this process and help avoid the extra steps that can be frustrating and time consuming.
All sectors can use it
Another case for embedded finance is that it leaves the door open for startups from all sectors to experiment and add features that work for them and their customers.
“Embedded finance for us is focused on empowering our customers, allowing them to control what payments can happen, how, when and by whom,” Karim Jouini, CEO at B2B expenses management solution Expensya, tells Sifted. “It allows them to streamline cash advances, simplify travel booking and expenses, do faster procurements and manage team spending.
“It also helps them simplify and optimise their cash flow, with many clients being interested in buy now, pay later (BNPL) capabilities and forecasting,” he adds. “Embedded finance can even limit fraud risks by connecting what you spend with how you pay.”
Embedded finance for us is focused on empowering our customers, allowing them to control what payments can happen, how, when and by whom
Embedded finance previously represented a heavy financial investment, but innovations and new infrastructure providers have made it more accessible. Benady adds there is safety surrounding Swan’s pricing model as it’s related to the number of transactions — there are no long-term commitment or setup fees, so if a company achieves low sales, they have lower Swan fees to reflect that.
“When startups work with embedded finance, it's really an investment in the future,” says Benady. “They have clear goals: to build a better user experience and increase customer loyalty. Embedded finance is a way to get there.”
Embedding finance can feel like a big deal and it is a big deal — because it can have a huge impact. Find out which revenue streams you could add to your product and get some real numbers to make your business case. Check out Swan’s resources.