Embedded finance is primed for disruption – at least the version you might hear described today.
The concept of embedding financial products within a non-financial end-user experience (like the software used to run a music store or law firm) has been limited to primarily one solution: payments.
If the industry continues to emphasize payments as the shining example of what embedded finance can do, its growth is bound to be anemic. For embedded finance to fulfill its promise of simplifying the movement of money, the vision needs to expand—now.
Small- and medium-sized businesses (SMBs) today feel a pressing need for more comprehensive embedded finance solutions. Typically undercapitalized (the median small business has about $12,000 in the bank), for SMBs cash really is king.[1] For SMBs to make payroll, purchase inventory, and pay rent, they need real-time visibility of their cash. They need to know where it is (and that it’s safe), where it’s going, and how to get it there without delay.
Stacking the traditional payments facilities associated with today’s embedded financial solutions with other important banking products opens a new world of possibilities. With this next evolution of embedded finance, independent software vendors (ISVs) can easily graft a comprehensive ecosystem of financial solutions into their business-facing apps. Within their brand and in a clean, understandable user experience, ISVs will:
- Create visibility. Allow merchants to see their entire money movement chain, so they’ll always know how much is coming in, when it’ll get there and where it’s being spent.
- Diversify banking. With the recent news about bank failures, merchants are understandably wary about parking too much money in one institution. Embedded business checking solutions make it easy for SMBs to set up multiple accounts, manage balances across them, and stay within the FDIC insurance limit.
- Grow access. Enable their clients to access additional financial solutions at the moment of need to take their business to the next level.
- Increase speed. Give customers peace of mind that their money will be there when they need it with transactions that clear in hours instead of the multiple days common to traditional merchant banking.
- Increase financial security. Working with the right partners offering the highest level of security ensures that merchants can keep their money safe from cyberthieves.
At Maast, we’re pioneering the technologies to provide a powerful, diversified, and verticalized array of embedded financial solutions. We’ve already combined payment and business checking solutions so that SMBs have unrivalled visibility to their money. That’s just the tip of the iceberg.
Thanks to the historical business information automatically gathered, Maast will be able to pre-approve a loan, allow business owners to accept loan terms electronically, and fund the loan automatically through the banking app, branded as the ISV, all without running a credit history report. And that loan can be funded through the portal in a matter of minutes, not days or weeks.
It’s clear that this new embedded finance concept is compelling for SMBs, but it’s a win for software providers as well. Not only will built-in enhanced banking services strengthen the relationship between the ISV and their customer, but ISVs will also share in the revenue generated through these new features.
Up to $9.25 billion a year will pass through your platform and others like it by 2025.[2] Someone is making money on that cash flow. You’re probably getting subscription fees direct from your customer, but what if you could capture additional revenue every time they make a sale, bank their earnings at the end of the day, pay a supplier, and finance additional growth?
More than 20% of Apple’s revenues come from value-added services like Apple Pay and purchases on the app store. Their profit margin on those revenues is 70%. That’s nearly twice the margin they make on their iPhones.
Importantly, you need an experienced partner to help integrate your new financial solutions. Just as you don’t want to choose a surgeon if that person has rarely done the procedure you need, so should you not select someone who’s just beginning to dip their toes into the embedded finance waters.
How should software providers decide what embedded finance solution is right for them? They might prioritize considerations including the backing financial institution, proven performance of the technology, customer service when things inevitably go wrong, and the level of partnership and cooperation provided. Just like you don’t want your customers flipping their software every few years, you want a financial partner you’ll be satisfied working with for the long term.
Banking has always projected the image of a staid, stolid (and solid) industry. When you’re ready to offer embedded finance products, choose a financial partner that embodies those traits but is also plugged in and an expert in the newest trends that are on the cusp of redefining embedded finance.
Embedded finance has evolved beyond accepting payments on your platform. Today’s cutting-edge solutions also offer business banking services like checking and savings accounts, card services, loans, and more natively from your platform. The technology will continue to push the edge of what’s possible to help software providers like you unlock new revenue streams while providing powerful new solutions to your customers.
Learn more about Maast, our current solutions, and our vision for the future of embedded finance here. If you’d like to talk to me about how embedded finance can fit into your value-added service strategy, schedule a time that works for you.
[1] Source: JPMorgan Chase & Co. Institute, 2016.
[2] Source: Boston Consulting Group, 2022.
