Generate 2-4x more revenue by expanding from payment acceptance to banking

The opportunity you’re missing

If you’re a platform or marketplace that accepts payments without offering your customers embedded bank accounts, you’re missing a big opportunity.

While you may earn some revenue by marking up these transactions, the lion’s share of the money passes through your platform and is deposited in external bank accounts.

Rather than sending money to customers’ external bank accounts, brands like Lyft and Shopify are keeping those funds “on the platform.”

Meanwhile, banks are helping your customers store, send, and borrow money. In the process, they're generating revenue, gathering usage data, and increasing loyalty—all benefits you could be capturing with embedded finance.

But that’s changing. Rather than sending money to their customers’ external bank accounts, brands like Square and Shopify are keeping those funds “on the platform.” They’re offering embedded banking and lending, and it’s helping them increase revenue by 2-4x.

If you’re a leader at a platform or marketplace that accepts payments, this guide is for you. In it, we’ll explain how to generate more revenue from your existing customers. We’ll answer questions like:

• How do you keep more of your customers’ money on your platform with embedded finance?
• Why have companies like Shopify and Square embraced this strategy?
• How do embedded banking and lending generate revenue, data, and loyalty?
• How do you connect your payment processor with your embedded bank accounts?
• How should you choose a partner?

The problem with what you’re doing today

What’s wrong with sending money to your customers’ external bank accounts?

The problem is that it represents three missed opportunities. Companies like Square and Shopify that offer embedded finance ultimately capture more:

1. Revenue. When you send your customers’ funds to their external bank accounts, you miss out on five robust revenue streams (see table below). When you deliver more value to existing customers, you also generate more revenue.

2. Data. If you’re sending funds to your customers’ external bank accounts, you’ll never know how they spend their money—or how they manage their finances, more generally. As a result, you’ll never be able to help them build a budget or qualify for a loan.

3. Loyalty. When you offer embedded finance, customers are more likely to choose your platform—and stick with it. In fact, Roofstock found that customers who use their financial products have a customer lifetime value 4x higher than other customers. 

Shopify is a prime example of a platform that’s winning with embedded finance. In 2020, they launched “Shopify Balance,” a suite of financial services for their merchants. Today, Shopify earns more than 73% of their revenue from merchant solutions, the vast majority of which are embedded financial products.

How embedded finance works

To show why embedded finance is so valuable, let’s use a real-world example: Square Banking.

Square launched Square Banking in July 2021 as a way to “help small-business owners easily manage their cash flow and get more out of their hard-earned money.” Ever since then, Square merchants have been able to apply for bank accounts (offered through a partnership with Sutton Bank) directly in the Square app. The vast majority are approved in a matter of moments.

Square Checking accounts work like other bank accounts. The main difference is that all account activity takes place on Square’s platform. Square has visibility into it and generates revenue from it.

• For Square’s customers, embedded finance is a game changer. It enables small-business owners to run their ecommerce businesses from inside Square’s platform rather than requiring external bank accounts and software tools. It eliminates many of the banking fees that small-business owners are routinely assessed. Finally, it enables small-business owners to get paid out within moments of completing a sale.

• For Square, embedded finance generates a lot of revenue. In fact, in Q4 2022, Square’s gross profits from its merchant segment were up 22%, to $801M. It has also resulted in increased loyalty: merchants who use 4 or more of Square’s products (including embedded financial products) are retained 8-15x more than those who use a single product (typically payment processing).

How does Square generate revenue from its embedded financial products?

1. They earn revenue from the interest paid on their customers’ deposits.
2. They earn interchange fees whenever customers make card purchases.
3. They earn financing revenues from Square Loans to their merchants.

Connecting your payment processor with your embedded bank accounts

In order to keep your customers’ funds on your platform, you’ll need to connect your payment processor with your banking environment. It may sound complicated, but it’s actually pretty straightforward.

To illustrate, let’s use an example. Say you’re the VP of Product at Etsy, and you’ve recently launched embedded bank accounts under the product name Etsy Balance. Here’s how you connect your banking environment with your payment processor:

1. First, you’ll need to establish which of your customers hold Etsy Balance accounts vs. outside bank accounts (with, for example, Chase or Wells Fargo).

2. For customers who bank with you, instruct your payment processor to send that money to your customers' Etsy Balance accounts. Simply give them the account and routing numbers.

3. For customers who don’t bank with you, continue paying them as you have done in the past.

One advantage of embedded bank accounts is that your customers can access their funds faster than with a payment processor. With early payment access, the money can be made available in their bank accounts within moments, whereas they must wait 2-5 days to get paid out by your payment processor.

Embedded accounts unlock additional financial products

Once you’ve launched embedded bank accounts, you’ll find that it’s relatively easy to offer additional financial products. 

Below we’ve listed a few examples. In each case, they deliver additional value to your customer while helping you generate new revenue.

• Instant payouts. Imagine you're an Etsy merchant—a furniture store—and you sell a credenza for $500. If you wait to get paid out by a payment processor, it will take 2-5 days for the funds to become available in your bank account. By contrast, with an Etsy-branded bank account, you can get paid out and start using those funds within moments. For platforms and marketplaces looking to acquire and retain customers, instant payouts are increasingly table stakes. If you don't offer them, your competitors will.

• Embedded lending and financing. In a study we conducted with The Harris Poll, we learned that 70% of small- and medium-sized businesses can't get the financing they need. Fortunately, this is a problem you’re well equipped to help them solve. You understand their businesses; you can see their cash flow. You know what terms they need and what they can afford to repay. It’s worth noting that embedded financing products (e.g., credit cards, cash advances) also have the potential to be very lucrative for you.

How to choose a partner

In recent months, several payment processors (e.g., Adyen, Stripe) have started offering embedded bank accounts as an add-on to their payment services. 

These options can seem appealing, as they don’t require integrating with a new provider. However, we strongly recommend that you choose a partner who specializes in banking and lending, as they provide the following benefits:

1. A complete product for your customers. Your customers expect a complete set of banking products with a modern, best-in-class UI: things like same-day ACH, check deposits, recurring payments, mobile check deposit, and fee-free ATMs. They also expect to find and link their accounts on services like Plaid, Yodlee, Quickbooks, and PayPal. These features are critical to drive adoption and growth—and most payment processors don’t offer them.

2. A complete product for your team. With a dedicated financial infrastructure platform like Unit, banking and lending products are simple to launch and simple to own. Tools like SDKs and white-label UIs shorten your time-to-market; embedded analytics help you learn how customers are using your product. Through your dashboard, you can track payments, monitor for fraud—even enable faster payouts and multiple product tiers. Be sure to ask a potential provider if they offer these functionalities; many don’t.

Your customers expect a complete set of banking products—and most payment processors don't offer them.

3. Work closely with experienced leadership. To succeed in financial services, you need prompt attention from strategic leaders with relevant experience—something you won’t get from your payment processor. Before signing up with a potential provider, ask them about their leadership team and whether you’ll get 1:1 time with compliance and product leaders on questions and roadmap priorities.  

4. Product velocity. It’s critical to collaborate on a joint roadmap with key partners. Last year, Unit shipped new banking and lending products more than 1000 times—and 80% of our roadmap was built from customer requests. Payment processors love to make claims about their commitment to banking, but the bulk of their roadmap will always center around their core competency: payments.

5. Work with multiple banks. Dedicated financial infrastructure platforms typically maintain relationships with multiple bank partners, whereas payment processors tend to rely on just one or two. Working with multiple bank partners greatly reduces the risk that your platform will be affected by external variables, and it makes it much easier to add products to your roadmap.

Here’s one way to think about it. When you chose your payment processor, you likely chose a best-in-class solution, a provider for whom payments is their focus. Why? Because payments are important, and it’s important to get them right. 

When selecting a financial infrastructure platform, you should adopt the same lens. Offering your customer banking and lending products is important: it’s high-stakes, and you owe it to your customers to get it right. Rather than defaulting to a bundled solution, choose a path that will deliver the best results for both your customers and your company.

How Unit can help

Unit is a leading financial infrastructure platform. We work with nearly 200 leading tech companies to help them offer embedded banking and lending to their customers. 

Our customers use a variety of payment processors, including Stripe, Adyen, and Checkout.com. We work closely with all of them to ensure that our customers have established safe and effective links between their payment processors and their embedded bank accounts. 

With certain payment processors, we may also be able to eliminate KYB/KYC duplication by leveraging shared identity data to remove a step in onboarding.

If you’re thinking about how to earn more revenue by offering financial products (including embedded bank accounts) to your customers, please reach out. We’d love to brainstorm with you.