Whether through bank transfers or payment cards, all Software-as-a-Service (SaaS) companies and enterprises bill their customers either on a recurring basis for software or for one-time products/services sold. To enhance customer acquisition and retention, these companies are focusing on optimising their pricing and billing operations. This marks the beginning of a new way of approaching payment monetisation for these businesses. For example, companies like Toast and Shopify have integrated financial services, including payment cards, loans, and insurance, into their offerings.
To offer these new services, these companies can collaborate with fintechs specialised in financial infrastructure, which can help them significantly increase their per-customer revenue by a factor of 2 to 5. By integrating financial services, particularly payment services, into their core product, these companies can boost revenue, cross-sell, and reduce churn rates.
Some companies have chosen to integrate payments by becoming payment actors themselves, allowing them to play an active role in payment processing and benefit from sharing transaction volumes in exchange for managing payment-related risks and operations. Ultimately, the Embedded Finance opportunity is still underutilised and offers many opportunities for businesses to diversify their revenues by offering integrated financial services with their products.
Bigtech companies have already integrated financial services, such as bank accounts, payment cards, and loans, into their product ecosystems to enhance customer loyalty, increase touchpoints, and boost revenue. This strategy is also extending to non-tech businesses, including established brands like Tesla, Starbucks, IKEA, Walmart, Carrefour, and La Française des Jeux, which have decided to become financial institutions. Becoming a regulated payment institution, for example, offers numerous advantages, including increased independence, agility for product development, enhanced credibility with customers, and improved profitability through interchange fees.
Obtaining financial licenses to offer extended financial services can be a complex process. While these licenses allow companies to offer broader services, they also impose rigor and controls that can conflict with the agility and speed often characteristic of these businesses. In Europe, applications for payment institution licenses are submitted to the competent national authorities of the European Union. Obtaining a license means integrating into a new regulatory ecosystem, which involves supervision by a regulator, along with its regulatory obligations and opportunities.
The process of obtaining a payment license unfolds in four steps. First, a complete application must be drafted and submitted to the competent authority. Next, necessary partners for payment activity must be sought, and the technical aspect of the application must be enriched. The drafting of legal and contractual documents, essential for obtaining approval, should be entrusted to a law firm. Finally, the iteration involves responding to the regulator’s questions and updating the application to meet regulatory standards and expectations. All of these steps require professionalism, transparency, clarity, and intellectual honesty.
The Core Banking Platform is essential for companies holding payment or credit licenses, as it provides cutting-edge technology for transactions and daily payment account updates. These platforms use a modular architecture that allows for high customisation, providing increased flexibility and configurability for banking services such as current accounts, payments, and loans. Currently, the Core Banking Platform operates as a set of services, facilitating rapid integration with business partners, and allowing companies to create their own ecosystems while maintaining consistency.
By using the Core Banking Platform, companies can meet regulatory requirements, such as regulatory reporting, data protection, and compliance with AML and KYC standards, while achieving savings by simplifying processes and reducing unnecessary complexities. This approach enables companies to optimise their revenue streams and increase customer lifetime value.
Companies have several strategies to generate revenue through payments:
Option 1: Margin on transactions
The first strategy involves integrating payment processing into their system, allowing them to recover a margin on each transaction. This method is particularly lucrative when many transactions are processed.
Option 2: Unique monetisation via payments
The second strategy is to offer products or services for free while monetising payments over time. This can increase customer lifetime value, reduce acquisition costs, and create new payment-centric offering opportunities.
Option 3: Payment facilitator
A third strategy involves becoming a payment facilitator, a specialised aggregator that manages transactions, resolves disputes, and processes payments. This allows for cost reduction while controlling the customer experience.
Finally, it’s important to note that the payment landscape is constantly evolving, with emerging opportunities such as the entry of new players and increasing payment flow complexity. Companies must stay vigilant of trends to fully leverage these opportunities.
Nicolas is Head of Marketing at Skaleet. A marketing expert with proven international success, Nicolas leads the brand, content, and growth marketing strategies at Skaleet. He worked for several years in the consulting industry and holds an MBA in International Marketing.
Skaleet Core Banking Platform empowers financial institutions for perpetual evolution. The platform provides the technological capabilities to launch new innovative financial services to delight and exceed the client’s expectations. Skaleet manages the technology while financial institutions focus on what matters: building cutting-edge offers and crafting proximity with clients.
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