Financial services are becoming increasingly available through digital platforms where customers already spend their time – what I like to call ‘financial services at your fingertips, anytime, anywhere’. It became clear that banks are no longer the central institutions they once were in our communities.
An increasing number of consumer apps now incorporate banking features, combining banking with everyday services. To exemplify, the Starbucks app allows customers to order and pay for coffee from their phones, speeding up and improving the process. Shopify Capital, for instance, is designed to provide loans directly from the Shopify platform, helping ecommerce businesses scale. Business apps like QuickBooks allow customers to take care of payroll and vendor payments, and even access financing options without leaving the platform. These examples showcase the growing trend of incorporating banking and financial services into everyday digital platforms.
While banking remains essential, traditional banks are no longer the only path to financial services.
The increasing hyper-localisation of finance will enable businesses to select the platform that best fits their type and preferences. They can access all essential financial features from a single platform, including accounts, payments, credit, automation, and many others.
Lightyear Capital estimates that Embedded Finance will reach nearly USD 230 billion in revenue by 2025. Broader industry analysis goes a step further, suggesting that Embedded Finance could be worth USD 7 trillion by 2030, double the aggregate value of today’s top 30 banks worldwide.
The SaaS sector has wholeheartedly adopted Embedded Finance. This trend first emerged in vertical markets – industries like construction or fitness – where specialised SaaS solutions thrive. Unlike generic, horizontal SaaS platforms, vertical solutions cater to specific needs and offer customised financial services that banks often overlook. Because these platforms address niche requirements and build strong client relationships, businesses using vertical SaaS tend to consolidate their needs with a single provider, leading to growth and expansion within that suite of products.
Vertical software markets often favour a winner-take-most dynamic, where the leading vertical SaaS company that best addresses industry needs becomes dominant, offering both software and financial solutions. Early vertical SaaS companies like Mindbody, Toast, and Shopify began initially by reselling financial services such as payments. Today, they have evolved to embed a wider range of financial products, including loans, cards, and insurance, directly into their software platforms. Once a software solution proves its value, customers tend to consolidate their needs with that provider. For example, ServiceTitan initially focused on software for home services but has since integrated financial products like payments and lending.
The SaaS environment has seen a lot of change over the past decade, evolving significantly. In its budding stage, SaaS 1.0 ruled the scene, providing personalised solutions such as appointment scheduling on a subscription basis. The industry has since then progressed to SaaS 2.0, where platforms facilitate transactions, including customer payments. Currently, SaaS 3.0 marks the integration of Banking-as-a-Service (BaaS) solutions, enabling platforms to provide a full range of embedded financial services such as loans, savings accounts, and debit/credit cards. This evolution transforms SaaS platforms from simple service providers into comprehensive business solutions, improving user experience, creating new revenue streams, and expanding their overall value proposition.
For vertical SaaS platforms such as MindBody and Roofstock, Embedded Finance has proven to be a successful expansion strategy. Key benefits include:
Solving pressing customer problems: faster instant payouts, access to credit, and improved business insights.
Generating significant new revenue streams: by incorporating financial services into their offerings.
Improved customer retention: increasing customer loyalty through added value.
Proposition differentiation: distinguishing their services from competitors.
Primarily, SaaS companies are expanding into financial products to tap into new revenue streams. By offering more than just their core software, these providers can unlock additional revenue opportunities.
Integrating fintech into SaaS businesses can significantly enhance their revenue potential; according to a16z, this integration can increase revenue per customer by 2-5 times and unlock new SaaS markets – previously inaccessible due to smaller software markets or inefficient customer acquisition.
Embedded Finance is accessible to businesses of all shapes and sizes. Therein lies the beauty.
For instance, consider Square: when a merchant processes a card payment, the funds are deposited into their Square Checking Account, generating interest revenue. The merchant then uses their Square Checking Debit Card for purchases, which produces interchange revenue. Additionally, if the merchant applies for and receives a business loan through Square, it generates lending revenue.
Similarly, Shopify provides embedded payment solutions that enable businesses to deposit funds into a Shopify Balance Account, which earns interest. Shopify benefits from transaction fees, while offering additional financial services, such as loans, through Shopify Capital. These examples highlight how embedding financial services into SaaS platforms not only diversifies revenue streams but also improves customer engagement and opens new business opportunities.
Nowadays, having strong software is a non-negotiable for any business looking to succeed. However, building and installing on-site software requires resources that most companies and startups don’t have.
Luckily, strong and effective software is now just a click away, thanks to the emergence of cloud tech and the expansion of the internet.
With over 30,800 players serving millions of people globally, the SaaS industry experienced a boom. In 2024, 70% of company software use is delivered via SaaS, and the numbers are projected to rise to 85% by next year. The charts are led by the US, with 17.000 SaaS providers, followed by the UK, Canada, Germany, France, and India.
According to Verified Market Research, the worldwide SaaS market size was valued at USD 237.51 billion in 2023, and it is expected to reach USD 908.24 billion by 2030, growing at a CAGR of 18.7%.
The same research showcases that the SaaS industry is growing due to the increasing demand for cloud-based solutions and the surge in mobile device adoption. Furthermore, cost-effectiveness, easy deployment, and scalability lead to the market’s expansion. The report states that, due to the rise of SMEs and cloud-based tech in the region, the APAC area is forecasted to have the highest growth rate soon. However, North America and Europe should retain their market share leader positions thanks to their numerous and established SaaS providers.
Ascendix forecasts 72,000 SaaS companies by the end of 2024, rising to 175,000 with AI firms included. These companies span diverse sectors like productivity, customer service, marketing, and finance.
The increasing dissatisfaction of SMEs over their financial management is rooted in having to juggle finances across multiple apps and services. This fragmentation leads to delays – such as up to five business days for funds from sales to be reflected in bank accounts – challenges in securing financing, high transaction costs, inefficient invoice management, and limited financial insights. Compliance and security concerns further compound the difficulties businesses without integrated solutions face. Research underscores these frustrations and the inadequacies of traditional financial services.
According to Aperture, traditional banks often fall short in meeting the specific needs of SMEs and freelancers, with only a small percentage of these businesses fully satisfied with their banking relationships. In response, B2B BaaS providers are emerging as a viable alternative, offering integrated financial services within software platforms or marketplaces to address these needs better. A survey of 1,200 SME operators and freelancers across Europe highlights a strong preference for financial services seamlessly embedded in familiar, non-financial platforms.
Complementing this, Airwallex, in collaboration with Edgar, Dunn & Company, surveyed 1,000 SMBs across five countries and interviewed leading software platforms to explore the global demand for embedded financial services. The survey found that, while 83% of SMBs are interested in accessing financial services through their software platforms, only 9% currently use such options. Most retail SMBs (87%) find banks inadequate for their financial needs, and 76% would pay extra for a unified platform offering multiple financial services. This gap presents a significant opportunity for fintech companies to integrate financial solutions and capture a growing market. SMBs are increasingly opting for expense management solutions that streamline workflows with features like global payouts, employee cards, and automated reconciliation, which helps attract and retain customers on a global scale.
Similarly, a report from Unit indicates that 84% of small business owners are open to obtaining financial services from non-traditional providers, such as software or technology companies, due to the lack of a unified platform in traditional banking. Market research from Swan further supports this shift, showing that 85% of SMEs in France, Germany, Spain, and the Netherlands are open to embedded financial services from non-financial companies. This dissatisfaction with traditional financial services and preference for integrated banking products from trusted brands underscores a significant opportunity for vertical SaaS providers and marketplaces to offer these much-needed financial products.
Embedded Finance proves to be a game-changer, offering faster payouts, better credit access, and valuable insights while boosting revenue, retention, and differentiation.
McKinsey shows that small businesses using non-SaaS payment providers are nearly three times more likely to switch to SaaS payment solutions in 2025 compared to those already using SaaS providers who might switch to a different SaaS provider. As more SMBs adopt ISV (Independent Software Vendor) and SaaS solutions for their operations, integrating embedded payments becomes a crucial strategy for retaining customers.
Many vertical SaaS companies wait until their core business is established before monetising payments. For instance, ServiceTitan and Shopify initially focused on their core software solutions and later integrated payment services.
Companies such as Square, Coupa, ServiceTitan, Shopify, and Wix have effectively expanded their offerings by incorporating financial products into their services. By partnering with payment service providers (PSPs) like Stripe or becoming payment facilitators (PayFacs), these companies improve their customer lifetime value (LTV) and extend their service portfolios to include payments, issuing, and lending.
A common approach is to resell or white-label payment services from PSPs. However, this model can be challenging to monetise, as adding mark-up fees often results in higher costs for customers. Success with this strategy typically requires high transaction volumes, enabling companies to negotiate better rates with their PSP, as exemplified by Shopify. Alternatively, some businesses choose to embed payment processing directly and become PayFacs. PayFacs manage the full payment process, including risks and operations, and can capture 0.75-1% of the transaction volume. While this method offers more direct benefits from payment processing, it demands a significant commitment to managing the payment infrastructure.
According to Flagship Advisory Partners, embedded payins in SaaS platforms are now the top method for payments in the US, with Europe following suit. SaaS and ISV solutions handle over 50% of SMB ecommerce transactions and about 25% of in-person payments in the US, the EU, and the UK. This trend is set to grow as businesses shift from traditional banks and PSPs.
Payouts for things like gig-worker compensation are also gaining importance, offering new revenue opportunities, especially for urgent or cross-border needs. Vertical SaaS platforms and business services platforms can improve their offerings by integrating payment functionalities. B2B platforms are increasingly embedding payment processing to streamline transactions and generate additional revenue.
Historically, SaaS companies referred customers to lenders like Kabbage or Lending Club for a referral fee. Now, they are embedding lending programmes directly into their platforms by partnering with banks and managing data integration for loan underwriting and servicing. This shift enables SaaS platforms to leverage insights from customer performance and sales trends to make informed lending decisions and automate repayments. Providing financing helps customers grow, which, in turn, boosts transaction volumes and creates new opportunities for SaaS providers.
Shopify, for instance, has been providing working capital through Shopify Capital since 2016. In Q4 2021, Shopify Capital advanced over USD 324 million, an increase of 43% versus the USD 226.9 million funded in Q4 2020. This strong performance continued into early 2023, with Shopify’s business lending and merchant cash advance division originating a substantial USD 477 million in Q1. Shopify began offering lending products to merchants because they had the data to assist with underwriting and knew that many merchants had to go through the painful process of securing a loan at a traditional bank.
Vertical SaaS companies are increasingly incorporating insurance services into their offerings, tailored to specific industries. For instance, a SaaS platform designed for restaurants might offer embedded insurance solutions like general liability and workers' compensation. This integration leverages data collected by the SaaS platform to enhance insurance underwriting and pricing. For instance, a construction management SaaS can use detailed project data to better assess risks and price insurance more accurately, leading to more customised and potentially lower-cost coverage.
Initially, SaaS companies may earn referral fees from insurance providers. However, as they integrate insurance more deeply into their platforms, they can transition to earning a percentage of the premiums sold. This shift not only generates a new revenue stream but also adds significant value to their core SaaS offering. Examples include Buildertrend, which integrates insurance for construction projects based on detailed data, and Procore, which offers tailored insurance options for construction firms.
Expense cards offer software platforms a chance to boost service offerings and revenue. By letting customers issue these cards to employees, platforms can provide better financial control with customisable spending limits and tracking features.
Platforms benefit financially through interchange revenue, earning a percentage from each card transaction. This does not only create a steady income stream but also integrates well with their core financial services.
Adding expense reporting features directly into the platform increases value, allowing businesses to manage expenses in real time. This integration can also lead to additional fees or premium package options for the provider.
Integrating financial services into SaaS platforms is transforming the industry, enabling providers to offer comprehensive solutions that combine software with banking, payments, and more. This shift simplifies financial management for businesses and opens new revenue streams for SaaS companies. As Embedded Finance continues to evolve, it’s clear that the next wave of SaaS innovation will be defined by how effectively platforms can leverage these financial services to improve their offerings and drive growth. The future of SaaS is not just about delivering software – it's about creating integrated, all-in-one solutions that redefine how businesses manage their finances and scale their operations.
This editorial piece was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2024, which is the latest comprehensive market overview and analysis focusing on the key players and products within the Embedded Finance and BaaS ecosystem.
Oana is a Lead Editor at The Paypers, driving the editorial vision for cutting-edge topics in Open Banking, Open Finance, Embedded Finance, and Banking-as-a-Service. She oversees content creation and coverage, conducts expert interviews, and moderates webinars and panels. Oana also represents The Paypers at key industry events and leads research and content production for major reports and projects.
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