Embedding financial services in your product goes beyond just creating better customer experiences and boosting retention rates – it can also generate significant revenue for your business while increasing customer lifetime value (LTV).

Successful tech companies like Shopify, Toast, and Housecall Pro provide financial services tailored to the unique needs of their customer segments by offering embedded banking products, such as: 

• Shopify Balance, an all-in-one financial account for commerce businesses, allowing them to better organize their finances and have faster access to their earnings.
• Toast’s Pay Card and Payout enables restaurants to instantly pay out end-of-shift tips and provide early access to employee wages. 
• Housecall Pro offers business accounts with expense cards that earn their service-industry customers 1% cashback on every purchase and eliminates reimbursements, out-of-pocket payments, and manual reconciliations.  

This guide explores the various revenue streams generated by embedded banking products and helps you calculate the potential earnings from offering these solutions. We’ll walk through an example with a 50,000 customer-base and make several assumptions along the way. Keep in mind that some revenue sources may involve program costs, so be sure to factor those into your pricing strategy for end-users.

Revenue sources from banking and payment products

Marketing incentive for deposits

Sponsor banks will typically offer your business a ‘marketing incentive’ for bringing end-user deposits into the bank that they can subsequently lend out. You will work directly with your potential sponsor bank to determine what this share is. Usually, banks will quote this in terms of “X% of the Effective Fed Funds Rate” or “Effective Fed Funds Rate minus X bps.” The amount offered can differ dramatically based on your projections and revenue model overall.

The marketing incentive is recognized as revenue and can be leveraged to encourage end-users to move funds into your program. This can be achieved by offering some or all of the incentive as an attractive Annual Percentage Yield (APY). Ultimately, incentivizing this behavior can lead to more engaged customers with higher card spend.

The marketing incentive for deposits is a particularly important aspect of revenue if you expect end-users to use your accounts to hold significant funds for an extended period of time. 

Card interchange

Interchange fees, paid by merchants to the issuing bank for each card transaction, are set by card networks and can be a significant driver of revenue for companies that offer card products to their end-users.

Typically, interchange is split among your business, your sponsor bank, and your card-issuing technology provider.

A transaction’s interchange rate is highly variable based on many factors, such as card type, customer type, card payment method, merchant category, and more. Based on Visa and Mastercard’s published interchange rates, below is the average interchange rate across card and customer types:

For companies anticipating a high volume of transactions or large transaction values, interchange can serve as a strong cornerstone of your revenue model. Synctera’s Smart Card, a secured charge card that runs on credit rails, offers the potential to generate nearly double the interchange revenue for a consumer debit card program while also helping end-users build their credit. 

Payments monetization

ACH

ACH, or Automated Clearing House, is the least costly and most utilized payment rail. There are two different types of ACH - standard and same-day. You’ll see most banks and FinTechs covering the cost of ACH for their end-users, though some will charge end-users for same-day ACH.

Wire

Wires are one of the more costly payment rails, but provide end-users with a reliable way to quickly send large amounts of money. There are typically different costs associated with both domestic and international wires. You frequently see banks and FinTechs charging the end-user directly for this service, typically as a flat fee (e.g. $10 per transfer).

Instant Payments

Recently, instant payments have become an increasingly popular payment method. Synctera offers two distinct instant payment options: Instant Account Funding and Instant Push-to-Card.

Instant Account Funding enables end-users to “pull” funds from another payment card to instantly fund their accounts and start using them right away. This can help increase card usage by giving end-users access to spend right away.

On the other hand, Instant Push-to-Card enables end-users to “push” funds from their account to another payment card. This can be incredibly useful for businesses who wish to make on-demand gig economy payouts or other fund disbursements.

It’s common to charge your end-user a percentage of the total transfer amount for instant transfers (e.g. 1 - 3% of the total transfer amount). For example, if you requested an instant transfer of $300 from your Venmo balance to your debit card, you would be charged a fee of $5.25, or 1.75%.

You can learn more about Synctera’s instant payment options here.

Alternative Payments

In the ever-evolving financial services industry, new types of payment providers are a regular occurrence. For example, you might partner with an international remittance provider to help your end-users send funds internationally or a check printing provider to mail paper checks to individuals and businesses. All of these additional services can be monetized and incorporated into your revenue model. According to the World Bank, the average cost of an international remittance is 6.65% of the amount sent.

Subscription or Membership Income

Almost everyone has now purchased services through a subscription or membership-based model. Famously, streaming platforms like Spotify or Netflix popularized this model, but it has also entered financial services. 

Popular investing and banking app, Robinhood, has a membership program called Gold. It costs $5/month and provides access to additional benefits such as increased deposit APY, cash back credit card access, IRA matching, and more. 

Annual and monthly membership fees are common and provide a reliable source of recurring revenue. Here are a few value-added services that we’ve seen justify a membership fee:

• Additional banking features, such as credit building, investing, budgeting, automated savings, etc.
• Higher deposit incentives
• Increased card rewards
• Priority customer support

Revenue Potential at a Glance

Before launching banking and payment products, it’s important to determine the overall ROI of the program. By leveraging revenue sources like marketing incentive on deposits, card interchange, payments, and subscriptions, businesses can not only enhance their customer experiences but also create new revenue streams. 

By leveraging the revenue streams and examples outlined above, here’s the amount of revenue a 50,000 customer-base would generate:

• Marketing Incentive for Deposits: $2.625 million annually.
• Card Interchange (Business Credit): $10.08 million annually.
• Payments Monetization (ACH, Wire, Instant Payments, International Remittance): $1.989 million annually.
• Subscriptions: $300k annually.

Total Annual Revenue: $14,994,000

At Synctera, we empower companies to simplify the complexities of embedding financial services, so you can focus on building innovative products that drive growth and profitability. No matter your approach, choosing the right blend of revenue sources will help you maximize the potential of your embedded banking offerings.

If you’d like to learn more about Synctera or hear first-hand how our customers are generating revenue, reach out to our team!