How SaaS platforms can unlock the Embedded Finance opportunity

Since we published our first embedded finance report in 2022, the space has rapidly evolved. As we forecasted in 2022, a trend of success has emerged among software-as-a-service (SaaS) platforms that started embedding finance early on. First-movers now make more than 50% of their revenue from embedded payments rather than from software and are rapidly scaling other embedded financial products.

According to our latest research, embedded finance is now a critical growth lever for SaaS platforms, pivotal to meeting small and medium sized business (SMB) needs and differentiating in an increasingly competitive market. Platforms that do not seize the opportunity now, risk falling behind and losing market share.

Market growth Embedded finance has grown to $185bn, up 25% in two years, driven by a favorable interest rate environment and an overall expansion of banking revenue pools. Growing appetite for embedded finance With newfound understanding of SMBs from embedded payments, SaaS platforms can meet SMBs’ growing appetite for financial products and unmet banking needs. Revenue upside Platforms that adopt embedded finance can grow revenues up to 3-4x their current subscription income. Untapped potential Less than 20% of the market is currently addressed, leaving significant room for platforms to expand. Strategic imperative As SaaS markets mature, embedded finance is the key to staying competitive, driving average recurring revenue (ARR) and investor interest, and sustaining long-term platform growth.

The SaaS landscape is transforming how SMBs receive banking services. Now occupying a central role in SMB workflows, platforms are no longer just tools but business lifelines. By streamlining core processes and tailoring financial services to their needs, platforms address a gap left by traditional banks struggling to serve this sector.

Key shifts over recent years include:

• SaaS market maturation: Across industries, SMBs embrace SaaS platforms to run their business, with up to 80% adoption. This intensifies competitive pressures, compelling platforms to differentiate based on service quality as much as on price. 

• Service expansion: Platforms increasingly seek growth through product and service expansion and an uplift in average revenue per user (ARPU), over solely user acquisition.

• Tougher regulatory landscape: Many banking-as-a-service (BaaS) providers in the United States and Europe have recently been forced to pause onboarding or shut down due to compliance issues. This has disrupted the space, yet SMB demand for embedded finance remains strong. 

Embedded finance is transforming the way platforms monetize and meet SMB banking needs. As the trusted partners to many of the largest global SaaS platforms, Adyen and BCG navigate this journey alongside industry juggernauts. From our vantage point, it's clear that platforms succeeding with embedded finance prioritize two things: tailoring products to their users' workflows and increasing user adoption by implementing strategic product go-to-market (GTM) campaigns.  This playbook offers an inside view on what it takes, in terms of product and GTM strategy, to fully capitalize on the embedded finance opportunity.

SaaS platforms far outweigh traditional banks in their ability to customize solutions for the industries they serve. Platforms can create innovative financial services that deliver what their specific SMB users need, when they need it — differentiating them from traditional providers. 

This section suggests key factors for platforms to consider when embedding each financial product.

Embedded payments has always been a strategic unlock for SaaS platforms, allowing them to create bespoke payment flows, facilitate commerce for their users, and diversify revenue streams by earning on transactions. For competitive SaaS platforms, payments is now the gateway to embedding other financial products. Payments is the most mature product, but there is still room for growth in terms of adoption and how it’s being embedded.

Currently, approximately half of platforms use semi-integrated payment models, which cause operational inefficiencies and missed revenue. Shifting to a fully embedded payment experience,with features like automated reconciliation and centralized support, unlocks a new level of convenience for SMBs. 97% of SMBs experience higher overall satisfaction with fully integrated embedded payments.

Payment needs vary across industries, which creates an opportunity for platforms. Vertical platforms are ideally suited to offer payments tailored to their users’ unique workflows. For example, platforms serving beauty and wellness SMBs often integrate appointment scheduling with payments and increasingly offer recurring membership payments. Platforms serving the food and beverage industry may include robust tipping options, mobile terminals to streamline tableside checkout, or Tap to Pay to help SMBs save on hardware costs. 

Horizontal platforms serving multiple industries, such as accounting or invoicing platforms, offer more scalable solutions and see greater benefit in enhancing payable and receivable processes that cater to all sectors, like payroll or B2B collections. 

One consistent trend across industries is the need to unify online and in-person payment channels, creating seamless, connected experiences for platform users and their customers as shopper expectations continue to rise.

Industry adoption runs at two speeds: front-running industries such as hospitality and beauty and wellness lead with adoption rates between 50-55%; industries typically slower to integrate,due to continued reliance on invoices, checks, or wire transfers, like healthcare and professional services, fall behind with adoption rates at ~40%. However, the gap between groups is closing as less digitally savvy industries begin to jump on the trail blazed by innovators.

You can’t compete if you don’t have the basics right. For SaaS platforms, that means first embedding a superior payments product. Key considerations:

Deliver a consumer-grade experience: Seamlessly embed payments into software to manage everything from onboarding to reconciliation. SMB owners, as consumers themselves, now expect the same smooth, intuitive experience they enjoy with modern consumer technology to extend into their business workflows.

Example: Cafés are onboarded digitally and in real-time to a SaaS platform to start processing transactions as soon as possible, rather than enduring slow, high-friction processes or worse, having to go to a physical branch.

Tailor payments to users: Build a custom payments product for users, similar to how vertical SaaS platforms tailor features to specific industries. Consider which payment channels, methods and value-added features match user needs. 

Example: A tour operator needs portable, durable terminals with extended or replaceable batteries and SIM connectivity, provided by their platform, to suit their payment needs as they deal with high transaction volumes on the go.

Deeply integrate, with features unlocked by payments: Bake payments into existing software to create deep synergies and help your users understand the full value of using embedded payments. Embedded payments unlocks financial insights like what best-selling products are, where most refunds come from, and offers cash flow forecasting through increased visibility into pay-in and pay-out trends.  

Example: A curated luxury brand store uses its platform's built-in feature, 'auto-dispute chargebacks,' to protect its bottom line and avoid manually searching through receipts whenever it needs to initiate its chargeback defense.  

Businesses need capital for growth and stability. For small businesses particularly, access to funding is especially tricky. Their need for loans extends beyond the initial phase of business building — they also need funds for repairs, expansions, inventory, and seasonal coverage for surges or quiet periods. 

Yet, obtaining loans is hard. Traditional providers such as banks require extensive paperwork and lengthy processes, and approval isn’t guaranteed. For example, only 20% of SMB loans are approved by US banks. Many other providers offer quick funding but at high costs. Some SMBs are forced to turn to informal sources – such as short-term loans from friends and family. 

SaaS platforms have the opportunity to meet SMB financing needs by embedding capital directly in workflows. Platforms have a competitive edge with their ability to use existing payments and operations data to automate processes like underwriting and pricing. Most importantly, platforms have established trust with SMBs, which makes it easier to offer them secure and affordable financial solutions. 

Our research reveals that SMB interest in embedded capital solutions extends beyond simple cash advances into demand for loans with greater duration optionality and flexible repayment terms.    

As one of the most pressing SMB needs, capital is one of the largest opportunities for SaaS platforms to grow embedded finance revenue in the short term. Key considerations: 

Pre-approved offers: Leverage payments and operational data to offer pre-approved loans based on past sales, skip traditional applications and rejections, and give SMBs quicker access to capital when it’s needed most.

Example: After a strong sales period, a clothing retailer’s platform automatically notifies them about their eligibility to receive pre-approved funding at a competitive rate, avoiding lengthy approval processes.

Optimize the full experience: Streamline the entire lending process, from application to approval, to eliminate the need for users to switch between systems or input data multiple times.

Example: A successful gym easily secures a loan through its platform to purchase new equipment without needing to interact with external providers or re-enter personal details.

Fit-for-purpose funding: Use predictive analysis of SMB trends and cash flow forecasting to offer capital with flexible repayment options. 

Example: A SaaS platform offers a short-term loan to a deli in the weeks leading up to a typically strong sales period (based on historical sales data), ensuring they can stock up in time.

A business account is a SMB’s financial control room and portal to receive additional services like bill payments and expense management. By offering accounts, SaaS platforms can strengthen user relationships, improve operational efficiency by enabling SMBs to manage all financials in one place, and generate revenue through new features.

Today, SMBs are largely satisfied with their accounts and perceive traditional banks as trustworthy, with only 30% considering switching. To differentiate, platforms must offer features that banks struggle to deliver — like faster access to funds, more sophisticated financial management tools, and streamlined account reconciliations for pay-ins and pay-outs.

Horizontal platforms are best positioned to offer accounts as their services align with account functions like accounting, payables, receivables, and cash management. However, we see a growing demand for accounts in specific B2B verticals, like legal services, where payments are typically managed through bank transfers rather than cards.

Key considerations for embedding a superior accounts product: 

Unify financial management: Create a one-stop shop that offers users a holistic business overview where funds and operations can be centrally managed at unmatched standards of speed and control.

Example: A freelancer using an invoicing platform bills their customers and settles those funds into a business account without delays within the same platform environment.

Bundle accounts with cash management features: To differentiate, platforms must identify their unique value-add. This could include features like expense management, payroll or tax savings, and 'reserve jars' for upcoming obligations.

Example: A property manager responsible for multiple buildings sets up business accounts for each property they manage to differentiate between rent earned and bills paid across buildings.  

SaaS platforms can offer superior financial products thanks to their deep industry knowledge and foundational position in day-to-day SMB operations. However, embedding great products is only half the work. Platforms also need go-to-market strategies that drive product adoption and usage. 

Here are three steps we recommend for successfully launching embedded finance.

50% of SMBs express an interest in using a full suite of embedded finance products in the near future. The quicker a SaaS platform can offer a full product stack, the sooner they can capitalize on this opportunity. By providing a broad product suite ranging from payments to capital, accounts, and cards, platforms meet SMB demand and reinforce revenue growth through a self-sustaining cycle of monetizing the same dollar multiple times.

Although product launch sequences may differ, both vertical and horizontal SaaS platforms typically begin with payments. Vertical platforms often see capital as a natural next step. Using insights from payment flows, they can offer loans with better risk assessment and seamlessly integrate them into users' operations. Horizontal platforms often see business accounts as the logical follow-up to payments due to their compatibility with administrative features like accounting.

Up to 60% of SMB users are unaware of the financial services available to them via their SaaS platforms. Where product awareness is low, adoption bottlenecks are high. To solve this, platforms must take a multi-pronged marketing and sales approach.

On brand level, SaaS platforms must reposition as credible financial service providers. On product level, defining Ideal Customer Profiles (ICPs) helps platforms understand a product’s target users, how it solves their pain points, and how to position the product to them accordingly.

It’s essential to showcase embedded finance availability and benefits to existing and prospective target users. To do this, platforms can leverage data-driven segmentation to deliver personalized offers to eligible SMBs, use high-visibility placements within the platform ecosystem (such as dashboard prompts or in-workflow notifications), and use pop-ups on their website. 

Marketing drives awareness and sales drives adoption. Tailoring commercial strategy to products is key. As capital products are effectively ‘bought’ by SMBs, platforms must design self-sign-up flows that allow fast onboarding. Accounts and cards, as more complex offerings, must be effectively ‘sold’ to SMBs. Ideally, within the platform ecosystem as part of tiered bundles.

The full potential of embedded finance comes from maximizing usage. To achieve this, platforms should use all the resources at their disposal:

• Additional features (e.g., account reconciliation) built into products

• Incentives and rewards for SMBs using multiple products

• Discounts or preferential rates for increased transaction activity

The more services SMBs use, the more value they experience. Platforms can bundle related products like payments with accounts to onboard users for multiple products at once. Consequently, they reduce time spent on Know-Your-Customer (KYC) and Anti-Money Laundering (AML) checks. This boosts the value of a SaaS platform’s offering and solidifies their position as a one-stop shop. Platforms can increase usage for existing users by adding features like account services and card issuance with upgrades. 

There’s a lot at stake in getting embedded finance right. Platforms are not banks, and banking is not easy. Choosing a partner wisely today is critical for future success. We suggest keeping four questions in mind when assessing potential partners:

Embedding financial products supports long-term growth. Partnering with one provider for multiple products is majorly beneficial, notably providing a single source of support and unmatched synergy as products function interoperably.

Embedded finance success depends on strategy and integration depth. Platforms should choose a partner with embedded finance experience and development resources to achieve direct integration.

Fintech faces strict global compliance regulations, especially after the collapse of Silicon Valley Bank. With rising regulatory scrutiny, good isn’t enough; platforms need partners who are compliance experts.

As embedded finance demand grows globally, geographic platform expansion is critical. Partners with global, proprietary acquiring and banking footprints that can navigate local nuance are preferred.

The SMB banking revolution is underway, and the demand for embedded financial products beyond payments is rapidly increasing. Platforms need to act now to unlock this transformative growth opportunity. The future belongs to those who fully embrace the potential of embedded finance.