Why embedded finance is your platform’s next big win

Welcome everyone to this 10-minute take. I'm Ian Hillis and I'm the Head of Growth and General Manager for embedded finance for Worldpay for Platforms. I spent the better part of my career focused on the software-led payments in finance market and I'm truly passionate about powering the possible for software platforms at the intersection of financial services and solutions.

So, I'm thrilled to chat about today's topic: embedded finance, and equally if not more excited to be able to do so alongside Whitney. Whitney, do you want to do a quick introduction as well?

Yeah, thanks, Ian for having me on. My name is Whitney Ganibegovic. I'm a value-added services sales specialist here at Worldpay. My background is actually in commercial banking treasury management, and working with fintech’s for working capital. So, when the opportunity came to bring both of those kind of embedded finance tools into the payment sector, I was really excited for the new challenge. And it's been a fun year learning how to apply that within the payment sector.

Excellent. This is going to be a good one.

So, let's jump in. Ian, I think if you could start by setting the stage, tell us a little bit about what embedded finance is and why so many people are talking about it right now?

Great starting point. I think embedded finance means a lot of things to a lot of different people. Yes, 10 people are going to get 15 definitions. The way I think about it is you are embedding financial experiences inside of some sort of real estate front end and that's typically a software platform that doesn't necessarily specialize in financial offering.

So, an example here, are we putting a banking bank account inside a restaurant software platform that could be used by the underlying SMB customer of that restaurant software platform?

Great example there. How did we get to this being such a prevalent topic of conversation these past few years? I think that there's three major trends that I'll share that have driven and fueled us across.

The first is the growth of SaaS and the verticalization of SaaS. The second is SMB adoption of these SaaS solutions and the importance of that relationship. And then third is the digitalization of financial services. We'll quickly go through those three.

The first is SaaS growth and verticalization. So, when we moved into the cloud 15 years ago, 10 years ago at more scale, what that did was allow more and more software companies to specialize in increasingly niche or specific verticals. So, you went from restaurant on retail to quick service within restaurant or you went to professional services that varied between lawn care versus roofing versus property management.

So, you could really start to adapt to the specific needs of that particular vertical. As a result of that. From the SMB perspective, we've seen massive increases in adoption of these vertical specific solutions to run their business.

They're speaking their language. They understand their custom workflows that need to happen across all of that. In 2018, we did a study and found that 34% of SMBs in the US were using vertical specific software to run their business. By 2022, that was more like 48%, and last year in 2024, that was measured at 64%.

So massive growth is happening from the adoption of these SMBs for these vertical specific software solutions. And then you, intersect that with the digitalization of financial services. So, if you think about the role between the SMB and that vertical specific software at the high trust relationship, there's a lot of data that that platform sitting on: employee data, customer data, workflow data.

And as a result, that SMB trusts that platform, it's a well-known name in their life. And at the same time, many of the employees are using that real estate to run their business day-to-day. So, it's a high traffic area as well.

As these SMBs start to have these high trust relationships, they're exploring more and more potential avenues for a relationship. Many of those happen to fall within the financial service realms. And so software platforms are looking to embed that financial service inside that environment where the SMB is already spent quite a bit of their time already.

So that's where we've seen these multiple trends intersecting. I think why a lot of people are excited about embedded finance and the promise that it holds.

Yeah, I like that you highlight that. I think I stay focused a lot on the benefits for the software as a service company, but really seeing how these SMBs are benefiting from the verticalization and different options within the software is huge.

So, Whitney, for the software platform audience out there, let's bring this to life for them. What are the types of products that typically fall into this bucket and how does this drive growth for the software platforms themselves?

Yeah, I think there's a core, a core piece of products which include capital accounts, charge cards. That's something that we can see fitting across multiple different verticals. You can always dive in and get more specific, kind of depending on where you're living, with things like accounting, APAR, different tools that we use.

But the, the core three that we're seeing really take, take hold in the market, are capital accounts and card issuance, why that's exciting for software as a service companies because it's going to fuel so much growth for them, right?

There are three levers I think we can call out that we're seeing across the board when these products are embedded. The first one, the most important I think, is going to be around loyalty and retention. So, when these merchants are getting the seamless inflow financial experience, it's going to create daily sticky habits that raise the switching costs for those merchants.

In turn, they're getting kind of a swiss army knife to run their business on, which is of course they're looking for simplicity in their day-to-day. And that platform is becoming an everything platform and very, very meaningful to the day in, day out, activities of that business.

Another piece when everyone's excited about is the revenue side. And so, we do know embedded finance multiplies monetization: 2-5x per customer, which opens up a ton of different opportunities for us to kind of expand are different ways to, to attract revenue as a software, as a service company.

One big example of that would be in the capital or the lending side. So, an interesting thing we've seen is when we're offering capital, you know, through, through our platform and a merchant takes that up, they're using it to fuel their business. So, whether that's increasing marketing, different sales events, business growth, expansion, that in turn is going to fuel payments growth.

And so, users of working capital are seeing a payments increase of about 20% within the first six-to-nine months of taking that capital offer. And so, it's not just about the revenue necessarily we can realize from the product itself. There's these soft benefits of these layers that continue to add on top of each other that add additional benefits, for both the consumer or the merchant and the partner.

Last big one I think would be speed. And this market is growing, right. We've seen this grow 25% over the last two years. Expect that up to 2034. The growth in getting ahead of this embedded finance revolution is huge. How can we do that when our daily habits haven't necessarily been around embedded finance before?

And so, if we can have these pre-built components that shorten our time to value and accelerate all the different learning we're going to need within our space, we're able to stay relevant as a partner in this ever-changing market. We can have competition within different offerings. And like you spoke about, even work towards all this verticalization within the products itself.

Actually, one example that that comes to mind, we just heard about it that was really cool to me, is we have a bar and restaurant software provider that issues working capital through their payment processing. And they had a merchant recently take up a working capital offer to purchase a food truck.

So imagine one, the loyalty received from qualifying for this life-changing capital to expand your business to get a food truck just because of your software provider when likely they've tried other avenues in the past. From that they were able to increase their payment revenue because they opened up a secondary location.

They're able to travel, attend events, do better marketing, and the timing from application or actually implementation of the capital product to opening the food truck was less than three months. And so that’s one I think a great example where we see the loyalty, the speed, and the revenue, kind of all in one.

I love that anecdote. And I think sometimes what can get lost in conversations about embedded finances is exactly that, that it is providing real value. It's not just another product that we're hoping to make money on across all of it. Because you think about these financial services are things that SMBs are often times engaging with outside of the software platform. So, if we take capital as example, they may be using a local, regional bank across all of that.

But the added benefit here is that data, so in this case, payments data that fuels whether or not they would qualify for a loan and get a better rate, is exactly what the bank's looking for. But that software platform has even better data than what the bank could see. And you're not going to go through dozens of pages of paperwork. You're not going to have to wait for months on end, put on personal liability. It's there.

The platform knows you and can leverage that data to intersect. That's true value. That underlying SMB has a more enhanced relationship with the software platform. So great points across speed, loyalty, and revenue. I love that.

Yeah, it's a big opportunity. I think talk a little bit though about what you know these platforms need to consider if they're exploring leveraging embedded finance?

Yeah, great question. I probably think about four main categories that I'm going to talk through here. The first one's simply: operational bandwidth. A software platform has a core mission of how do I go and become the best player with a my specific vertical and ensure I am capturing my greatest share of the market and delivering exceptional experiences for my underlying SMB customers.

When you start going into additional products within the financial services realm, who's going to go explore that? Is there an expert that's really going to understand capital and then embedded banking flows and all those pieces?

Are my sales people going to have to go sell that?

Are my support people going to have to support that?

Like there's a lot that goes into all of these additional products that are complex and have regulatory elements as well, which goes into my next point around regulatory risk and considerations. Is that a risk that platforms are willing to take on? If you embed a bank account and there's a bad actor, are you liable? Well, it depends on the relationship and how you decide to bring embedded finance to life within that.

Do you have appropriate messaging that's going out to your SMBs? Is that messaging regulated by an underlying sponsor bank who wants to know what you're saying and how you're saying and all about? Does the software platform have an appetite to go through underwriting from a sponsor bank? These are all key questions to consider across that.

Then you get in the technology realm, most software platforms have a very stashed product road map, but really exciting things core to the software offering across all of that. Now you're talking about the potential for multiple integrations into the financial service realm and the reconciliation across all of that, the ongoing maintenance of all of that. You have to ensure that your experience is in line with your core software platform experience. Lot to consider on that.

And then finally, just the business plan, what’s your go-to-market? Do you know how to pitch the value prop associated with capital or embedded accounts or commercial charge cards across all that? How are you going to track progress and performance against all these things?

So that's a lot to consider for any given software platform on top of the day-to-day there. And I, I think it's a key reason why we've seen a more tempered adoption curve in this area.

Yeah, I think if you're a software platform and your palms got sweaty as Ian was talking through all that, that's the, the natural response. There's so much to consider with embedded finance and a big part of why I'm excited to wake up every day and, and kind of work in this realm, is our built to launch approach to that, which I really think differentiates ourself in the market.

And so, as you touched on, right, if I'm a software platform, I can't hire, train, the experts and all that's embedded finance, even if I have maybe a background in capital or cards accounts, a little bit here and there.

When you start to pull in all the different components of what's needed, you realize you need to focus on what you do best, you know, what's made you great as a software platform. And so how do we tackle this need to attack the embedded finance revolution while still doing what we do really well?

And, and I think that's the ready to launch approach.

And so, what if you could have, you know, all the upside of offering these money management tools with a strong partner who's going to take on go to market. They're empowering you with all the different marketing tools you need to drive adoption.

You've white labeled customer support. And so one of the biggest things to consider when launching a product is like, how am I, you know, my customers be supported? How are they going to be treated when they need help, when there's escalation processes and who's going to be the expert there?

And last, managing risk and compliance, right, we, we can't dive into the nitty gritty of all these different products and tools. We're managing all the different risk and compliance components of our software business itself.

All of this being prebuilt in a way that can be integrated into your software within a single sprint is really what has us so excited over here. One single sprint, one integration, and you're able to kind of either dip a toe in or do a full cannonball into this embedded finance side where you're leveraging all these different tools that you're benefiting from as a software platform, but almost more importantly, your merchants are really going to benefit from as well.

That's fantastic. I need to play that back, clear upside. We talked about the benefits of what this entails for launching it within the software platform, but lots of considerations to sort through, but what is seemingly a pretty practical path to get there with the right partner.

So, Whitney, if I'm leading a software platform today, when should I make that type of a move? Where are we in the evolution of this?

Yeah, I mean, I would say tomorrow if I didn't say now, but yesterday if I didn't say now. But I think software budgets are rising, expectations from our merchants are really rising for these in-product financial tools. And so I think showing up for them and making sure we're partner with the right person in order to do that, you know, getting started can be very easy for these platforms.

Fully agree.

And just speaking from the Worldpay for Platforms lens, we spend our days thinking about how we help software platforms power the possible on their path to becoming that everything platform within their specific focal area and for their customers as well. I think embedded finance is a quintessential example of this.

If you're exploring embedded finance, Worldpay for Platforms can help you plan the right starting point, scales as the adoption grows. So, my recommendation would be, go download the guide and connect with us to map your path forward.