In recent years, more and more companies that aren't typically associated with “FinTech” have been jumping into the financial services game.
With Walmart and Apple already seeing success with their banking products, and Twitter (now X) poised to be next, it’s no wonder that companies of all kinds are starting to think about how embedded banking could fit into their business model.
However, there is one business model in particular that should be looking closely at how embedded banking can enhance their value proposition.
Vertical SaaS companies that provide business management software already serve as the "operating system" for their unique set of business customers. But, in the vast majority of cases, this operating system is missing a critical piece: banking.
Combining vertically-tailored business management software with banking and money movement products allows SaaS providers to offer their customers a true end-to-end business management solution. This results in a stickier product, increased revenue, and a way for the SaaS provider to differentiate from the competition.
Some of these businesses have already been at the forefront of the embedded banking movement, with companies like Toast, Shopify, and Service Titan seeing explosive growth by adding banking solutions. For context, in Q1 2023 financial services products made up 82% of Toast’s total revenue and 73% of Shopify’s.
Adding banking products directly embedded into their current suite of solutions allows SaaS providers to start solving new problems their customers face day-to-day.
Do your customers need a better way to manage vendors? Would they benefit from faster payouts? Embedded banking products can make all this possible, and more. It provides a world of opportunities for vertical software providers to make their customers more effective at running their business.
But how exactly?
While all of the above may sound wonderful, when it comes to the reality of embedding banking, it’s essential to understand the specifics of how it can be leveraged. Without that understanding, “embedded banking” is nothing more than the latest hot catchphrase.
Below we’ve highlighted some example use cases of how vertical SaaS providers can build embedded banking solutions that benefit their customers while driving business growth and success.
A True End-to-End Business Management Solution
No matter what vertical they operate in, every business needs banking. However, in the vast majority of cases, a business’ bank account is completely separated from the system where they manage their inventory, scheduling, and customer experience.
Offering business checking account and card products that are integrated with the system where these businesses manage their operations creates a holistic customer experience and unlocks new efficiencies. It also allows the software provider to offer a true end-to-end business management solution, differentiating themselves from the competition.
One example of this in the market today is Shopify Balance. With their proposition to “manage your money where you make it,” Shopify merges banking data and workflows with their already robust eCommerce platform, giving vendors a more comprehensive view of their business.
Embedded banking products also allow for creativity when it comes to rewards based on card spend or new functionality leveraging the customer’s banking data. Examples of this banking-powered functionality could include:
- Triggers or alerts based on cash balances
- Automated accounts payable actions
- Helpful notifications based on company spend data
For many businesses, employees and/or contractors are not paid by a flat salary, but rather on a project basis or through commission. Think hair salons, travel agencies, or even home repair businesses.
For businesses who pay out this way, it can mean days, if not weeks, for them to calculate how much of their revenue needs to go to the employee or contractor and then allocate that money to their bank account. This causes headaches and frustration not just for business owners, but for their employees and contractors as well.
One way to solve this problem would be with an innovative embedded banking and money movement solution. By allowing companies and their employees or contractors to open bank accounts through your platform, you can give your business customers the ability to pay out their contractors and employees instantly — no tedious calculations, manual transfers, or waiting periods necessary.
Businesses can set custom rules for these payouts, automating the entire process which saves the business owners valuable time and money while creating happier contractors and employees.
As an example, let’s say a business offers a 25% commission to its employees. So when revenue from a $1,000 job comes in, that money can be automatically divided, with $250 transferred instantly to the contractor’s bank account. This all happens seamlessly in the background, thanks to the embedded banking solution powered by the vertical SaaS platform.
Simplified Vendor Management
New corporate card solutions that aim to provide more control for businesses and reduce accounting headaches have seen explosive growth in recent years. Companies like Brex and Ramp provide solutions to a wide range of small to medium sized businesses. On top of that, vertical-specific providers have also emerged, such as a corporate card for truckers or one for dentists.
With an embedded banking and card product, you can now offer the same solution for your specific vertical. Depending on the unique needs of your customers you can allow them to issue cards that are vendor or employee-specific and even set spend controls on a per-card basis.
And by having this solution integrated with the same platform they conduct the rest of their business you can help simplify vendor management and give them greater visibility into their overall business spending habits.
On-Demand Working Capital
For many small businesses, working capital is a necessity for growth. And for vertical software providers who service small businesses, the opportunity to offer such services could be exactly what they need to secure more customers, and keep them.
By providing a line of credit through your platform, you can be the solution that helps your customers hire a new employee, invest in upgraded equipment, or open a second location. Not only does your customer benefit from the new capital, you benefit from new revenue opportunities and deepened customer relationships.
Also, you have more insights into your customer than a traditional lender ever would, such as how they interact with their customers, what their growth trajectory has been, etc. These insights give you the ability to more effectively underwrite the loan and make smart lending decisions, helping your customers acquire capital they may have otherwise not had access to.
Creating a Better Customer Experience With Embedded Banking
While we’ve outlined several use cases for embedded banking, this is by no means an exhaustive list of all the possibilities available to vertical SaaS companies. Depending on the specific needs of your customers, there are likely other innovative ways for you to improve how they manage their finances.
No matter the specific product capabilities, embedded banking can be a valuable way to differentiate your product from your competition, increase customer stickiness, and add new revenue streams for your business. For software providers that service a specific vertical, they are in an ideal position to offer tailored financial products that will help their customers operate more efficiently and grow quickly.
Find out more about how embedded banking services with Synctera can benefit your B2B vertical SaaS solution by contacting our team of experts.