How embedded finance is transforming Vertical SaaS

Generate powerful new revenue streams with embedded finance

For leading Vertical SaaS platforms like Flexport, ServiceTitan, MindBody, and Roofstock, embedded finance is an expansion strategy that’s paying off. 

With it, they can solve pressing problems for their customers (e.g., instant payouts, access to credit) while generating game-changing new revenue streams.

Mindbody is a case in point; they’re a business-management platform for gyms and spas. In recent years, they’ve partnered with a bank to launch financial features like embedded payments and merchant cash advances, making it easy for their customers to access working capital.

Today, more than half of Mindbody's revenue is derived from these embedded financial products. They’re addressing a critical pain point—and unlocking new revenue in the process.

If you’re a leader at a Vertical SaaS platform who’s thinking about how to become a one-stop shop for your customers while driving new revenue and product stickiness, this guide is for you. In it, we’ll explain: 

• The value of embedded finance
• How it works for vertical SaaS platforms
• What it could look like on your platform
• How to get started

Why customers choose embedded financial products

Small businesses are unhappy with how they manage their money today.

Their finances are often spread across 6-8 different apps and services. After making a sale, it can take them five business days to see the money in their bank account. Finally, many of them can’t get the financing they need to grow.

Fortunately, you’re in a great position to help. You likely already streamline day-to-day financial tasks like billing, accepting payments, procurement, and tax prep. You understand your customer’s unique business models, and you have visibility into their cash flow and revenue. That enables you to offer financial services that are tailored to your vertical.

By partnering with a bank to embed financial products into your platform, you can offer:

• Faster payouts. Your customers receive payments from a variety of sources. Each payment method comes with its own timeline: card payments can take five days to settle in bank accounts, while invoices take anywhere from 30–90 days. Because you have visibility into your customers’ transactions, you can enable them to get paid faster—even on demand. 

• Better lending and financing. It can be difficult for your customers to get financing from traditional sources; many small businesses don’t have a lengthy credit history, and most legacy financial institutions don’t understand how to underwrite them. Based on proprietary data (including cash flow), you can understand their ability to repay and offer faster, more flexible financing with better terms.

• Business insights. Many small-business owners struggle to understand how their company is performing financially and what they need to do next. With embedded finance, you can share valuable insights into their revenue, expenses, and profitability. 

• A one-stop shop. Your customers are unhappy with the way they manage their money. They’re typically using multiple tools to manage their finances—and it’s a fragmented experience. When you offer embedded financial products, you become “mission control”—the single software tool they use to manage every aspect of their company, from card sales and invoicing to payroll and tax prep.

How embedded finance drives new revenue

With embedded finance, Vertical SaaS businesses can increase revenue per user by 2-5x, according to a16z.

How, exactly? Rather than sending money to their customers’ external bank accounts, brands like Square are using embedded finance to keep those funds “on the platform.” 

When a Square merchant receives a card payment, they deposit those funds to their Square Checking account, which generates revenue from interest. 

From there, they start making purchases using their Square Checking debit card, which generates interchange revenue. Then they apply and get approved for a business loan, which generates lending revenue.

In fact, when you offer embedded financial products, you can start generating five robust revenue streams. You also amplify the following:

• Acquisition. By solving more problems for your customers, you set yourself apart from competitors and make it easier to acquire new users. For example, after Baselane launched embedded finance, they saw their customer acquisition cost decrease by 50%.

• Engagement. When you offer financial services, your customers engage more with your platform, spending more time and money in your app. As an example, after Nav launched embedded finance, they noticed that customers who use their embedded bank accounts are 2.5x more likely to do things like get a loan. 

• Retention. With embedded finance, customers are more likely to choose your platform—and stick with it. In fact, Roofstock found that customers who use Stessa Cash Management accounts are retained at a rate 3.5x higher than other users. 

What embedded finance could look like on your platform

To illustrate how embedded finance could look on your platform, let’s use an example. 

Say you’re the Director of Product Partnerships at Slate, a point-of-sale (POS) and business management platform that helps restaurants simplify operations, increase sales, and streamline the customer experience.

Here’s what embedded finance could look like. (To get a closer look at Slate, check out our live demo.)

Keep more funds on your platform

Without embedded finance, money passes through your platform. When your customers receive card payments, you send that money to their external bank accounts—and you miss out on significant revenue streams.

When you offer embedded finance, those funds stay on your platform, generating engagement, retention, and revenue. 

Offer your customers a tailored payment experience

With branded payment cards, you can become the Brex or Ramp for your vertical. 

Cards can be virtual or physical; they’re also highly programmable, helping your customers gain valuable insights and manage corporate spend. As a bonus, embedded cards generate interchange revenue. 

Instant payouts

When your customers receive card payments, it can take five days for those funds to show up in their bank accounts. They hate waiting to get paid—and they'll switch platforms if they find someone who can pay them faster. 

With embedded finance, your customers can get their money within moments of completing a transaction. 

What does it take to launch embedded finance?

It’s a great question; the answer varies widely based on your approach. 

In the past, tech companies like Uber had to launch embedded financial products without the help of a platform. The process usually took at least two years and $2 million—which is why so few tech companies took the plunge.

Fortunately, the last few years have seen the emergence of modern embedded finance platforms. They provide all the necessary technology while helping tech companies partner directly with banks. As a result, it’s possible to launch financial features in a matter of weeks.

Unit is an embedded finance platform that helps Vertical SaaS platforms like yours partner with banks to launch embedded banking and lending products. To date, nearly 200 leading platforms and marketplaces have trusted us to help them launch and scale their embedded finance programs. 

• Technology. We provide all of the infrastructure you need to go live with fully functional banking and lending products. With our White-Label App, you can launch with a single line of code. (See it in action with our live demo.)

• Bank partner. We’ll connect you with the right bank(s) and help you partner directly.

• Compliance. Our compliance program is led by compliance and risk veterans with decades of industry experience. They’ll guide you through processes like KYC and manual account reviews—so you can stay focused on scaling your business.

• Underwriting. Underwriting is deciding whether and how much to lend to your customers. It’s hard to get right, and most companies don’t have the necessary expertise. Fortunately, Unit facilitates this part of the process, so you don’t have to worry about it. 

• Capital. Unit provides access to capital to support your lending program, so there’s no need to use funds from your company’s balance sheet.

If you’re thinking about how embedded finance can help you keep more funds on your platform and become a one-stop shop, please reach out. We’d love to brainstorm with you.