Thanks to the rise of the infrastructural fintech, Modulr has had front row seats to see how Software as a Service companies – and many of our customers - are adding financial services to their core offering.
Switched-on SaaS companies are now embedding financial products built on payments infrastructure – from loans to cards to complex supplier and payroll flows – directly into their vertical software and taking advantage of the new market opportunities that this brings.
This presents vertical SaaS companies with an opportunity to grow the revenue per customer by making their product stickier – that’s to say, making it so indispensable that it would mean a considerable investment to switch. And that's even if they'd want to switch considering how easy it would be to have all their business tools in one place.
Layering on financial products by offering native integrations of financial services is a very effective lever – increasing the lifetime value of a customer, without increasing the cost of acquisition.
But the secret lies in embedding the fintech, rather than just reselling it, as this improves margins and helps you to deliver a suite of products that really resonates with your vertical. Plus, it makes for a more seamless customer experience, through a familiar, trusted and branded interface, rather than redirecting customers to a strange third-party site.
And, thanks to the fintech infrastructure players, it’s never been easier for vertical SaaS businesses to embed a variety of financial services into their offering.
While payment processing is often the logical first step on the embedded services ladder, companies can now layer a range of financial products and services – such as lending, cards, payroll– into their offering, based on the needs of their vertical market.
But let’s start at the beginning, and take a closer look at payments
Reselling or white labelling payments from payment service providers (PSPs) is one way to incorporate payment functionality but this can be difficult to monetise without passing the additional costs associated with wholesale fees on to the customer.
Other businesses, however, have embedded payments to become payment facilitators themselves.
And it’s the infrastructure FinTechs who are making this possible, and with increasing complexity. This might look like managing payment flows across different stakeholders, for example, such as hundreds of contractors on a construction site, or rental property software collecting rent from tenants, splitting fees and paying out to landlords.
But, payments aren’t just the forerunners in the embedded finance space, they’re also the gateway to other financial service offerings, such as lending.
Monetising the lending experience
So, if you’re a software company that owns the transaction data needed for underwriting risk, then an embedded solution will work best for you, particularly if your vertical is one not well understood by a traditional bank.
Next up, cards
Where payments start, account infrastructure (often) follows
Nowadays, E-money accounts provide an alternative to bank accounts, offering digital API access to faster, real time payments infrastructure, and much more.
And there are a wealth of other services with embedded potential - less mature perhaps than those we’ve discussed, but the landscape is constantly shifting as more infrastructure providers emerge.
One example of this is payroll - given the complexity and manual nature of traditional payroll systems, there is a compelling case for offering an embedded, API-driven alternative.
Luckily, a new generation of FinTechs is emerging in this space, powered by direct access to critical payments infrastructure such as Faster Payments, that are able to provide more agile and reliable methods of making and reconciling payments - delivering benefits that can be passed on to a number of vertical markets.
Enhance eCommerce with embedded payments
ECommerce marketplaces challenged with attracting merchants and retailers away from the competition can now harness the power of fintech to provide a full suite of market leading financial solutions, including payment accounts, cards, Faster Payments, Direct Debits, Payment Initiation via Open Banking, Confirmation of Payee, 24/7 access and instant notifications. Pass on this functionality to merchants as a new service or use it internally to improve control of funds and manage treasury and reconciliation. eCommerce marketplaces can even use FinTechs like Modulr to manage end to end physical and virtual card issuing programmes.
Enhancing an offering with embedded financial services allows eCommerce platforms to leverage new monetisation opportunities by providing instant access to earnings or generating interchange on merchant card purchases.
Modernising and monetising Marketplaces
Understanding and meeting the ever-changing needs of the gig economy can be challenging for many on-demand delivery platforms. Launching new financial services for this dynamic workforce affords an important differentiation.
Powered by API and direct access to the critical payments infrastructure, payments as a service platforms like Modulr have been designed to seamlessly integrate and embed financial services into the propositions of marketplaces and on-demand platforms; helping to improve user experiences, open-up new addressable markets and leverage new revenue possibilities.
Enhancing a marketplace with value-added services makes it ‘stickier’ and builds long-lasting relationships with users while gaining valuable insights into their behaviour.
So, what’s the secret to making embedded payments work for your sector?
The embedded finance trend is here to stay and, what’s more, this is just the beginning.
Switched-on SaaS companies are now embedding financial products built on payments infrastructure – from loans to cards to banking experience alternatives – directly into their vertical software and taking advantage of the new market opportunities that this brings.