Cloud-based applications operating on the SaaS model can significantly benefit from the opportunities brought by embedded finance, welcoming additional revenue streams, enhanced user experience, and improved efficiency.
If you’re old enough, you still remember the times when people needed to buy CDs with licensed software to install it on their PCs and finally use it. Today, that is rarely the case, due to the emergence of SaaS solutions.
SaaS in a Nutshell
Cloud-based apps that follow the Software-as-a-Service (SaaS) model are platforms that users access over the internet rather than installing dedicated software locally. These applications often provide subscription-based services and can serve a broad customer base on a global scale.
Some popular examples of such platforms include Shopify – a cloud-based e-commerce resource, that hosts approximately 5.6 million active stores across more than 175 countries, and QuickBooks – a cloud-based accounting solution, serving over 7 million users globally.
The SaaS market has experienced substantial growth in recent years, reflecting its increasing adoption across various industries and use cases.
At present, approximately 14 billion people use SaaS products worldwide. The majority of this market’s offerings are focused on enterprise software. This segment accounts for 70% of the SaaS market revenue, driven by the rise of cloud-based office solutions. It is especially useful for the Customer Relationship Management (CRM) sector, which is the largest and fastest-growing area within SaaS.
The market was valued at approximately $273.55 billion in 2023, projected to reach $317.5 billion by the end of 2024. Some estimates suggest that the SaaS market could grow to nearly $908.21 billion by 2030 and $1,228.87 billion by 2032. With such great potential, SaaS applications play an integral role in modern business operations. To make them even more attractive to customers and profitable for developers, one should consider leveraging the embedded finance add-ons.
Embedded Finance Growth
Embedded finance refers to integrating financial services (such as payments, lending, banking, or insurance) directly into non-financial platforms. It gives companies, including those operating within the SaaS paradigm, an opportunity to offer financial products within their applications without users needing to visit separate banks or financial service providers.
The embedded finance market is expanding rapidly, presenting a multitude of business possibilities for industry players. The market for these embedded services experiences notable annual growth. In 2022, its value stood at $58 billion, rising to $83.32 billion in 2023. Over the next five years, it is projected to expand at a compound annual growth rate (CAGR) of 29% to 33%. The forecasts differ, with various experts estimating the embedded finance market value to reach somewhere between $1 trillion and $7 trillion by 2032. The growth potential is especially evident for ‘buy now pay later’ services. Revenue from embedded BNPL solutions is forecast to account for over half of the embedded finance market in 2026.
How SaaS Businesses Benefit from Embedded Finance
Embedded finance offers a range of benefits for businesses across different sectors. For SaaS providers, who often deal with recurring payments due to their subscription operation model, the benefits are even more pronounced.
Amplified User Experience
SaaS platforms embedding financial services directly into their offerings can create a more seamless experience for their customers. For instance, a cloud-based invoicing tool offering embedded payment processing, which allows users to issue invoices and receive payments without switching to external platforms, is perceived as more convenient and user-friendly.
The real-life use cases are illustrated by SaaS accounting platforms like QuickBooks and Xero. They embed financial tools including invoicing, payroll, and integrated business loans. The platforms also offer automated payment reminders and instant payouts, reducing the time businesses wait to receive funds. With these integrations, small businesses and freelancers who use the accounting services benefit from improved cash flow management and streamlined financial operations.
Another example is financing solutions embedded into telehealth platforms like Teladoc and Zocdoc. They offer lending services directly within their desktop and mobile applications, allowing patients to split medical payments into instalments or access alternative financing options for expensive procedures. Considering the high cost of some medical treatments and their emergency nature, patients, who gain flexible payment options, can receive critical medical help without disrupting their regular expenses. Such combinations of fintech solutions are making healthcare more accessible for sick people, while also reducing payment delays for providers.
Customer Retention and Acquisition Boost
SaaS companies often see embedded finance as a way to build stronger relationships with customers by providing them with more comprehensive solutions and significant added value. Thus, SaaS platforms that feature embedded lending may encourage long-term use by offering clients the ability to secure financing directly within the app without looking for a separate provider. Companies that diversify their offerings with embedded payments or banking tools also create more avenues for customers to remain engaged with their products and services.
Research has shown that companies offering integrated financial solutions retain 30% more customers on average compared to those that don’t. This is especially evident in industries like accounting, project management, and CRM platforms. The vast majority of businesses that adopt embedded finance solutions (88%) witness increased engagement, and 85% also say that it helps them acquire new customers. This way, such solutions open up new target markets and improve existing customer satisfaction levels.
Prospective customers are more likely to choose SaaS platforms that offer a one-stop shop for all their business needs. For instance, embedded finance tools that offer instant financing options (like working capital loans or credit lines) can be a big draw for small and medium-sized businesses that need quick access to funds.
Let’s take a look at the example of Shopify Capital, an embedded financing option for Shopify store owners. It allows merchants to receive funding based on their sales data quickly and easily. Additionally, the e-commerce platform recently introduced a single admin portal, Shopify Finance, for the seamless management of all its financial solutions, faster access to funding, and streamlined tax compliance.
Since its launch in 2016, Shopify Capital has provided over $5 billion in funding to merchants. In 2024 alone, the embedded solution originated 50% more merchant cash advances and business loans than in the previous year. The e-commerce platform itself also witnessed a 20% increase in active stores compared to 2023. Today, Shopify supports over 5.5 million active online shops.
Improved Cash Flow
Liquidity is a very important business aspect, especially for SMBs and freelancers. Embedded finance tools that offer instant financing options or BNPL loans add immediate financial flexibility for the service clients. It makes the service more accessible and inclusive. Besides, this flexibility significantly enhances cash flow management for businesses. It can increase sales and lead to improved profitability too.
Along with instant financing, embedded tools that facilitate faster transactions reduce the time it takes for funds to become available. This immediacy ensures that businesses have quicker access to their revenues, may reinvest the funds quickly, and maintain smooth operations without delays typical for legacy payment processing methods.
For example, ride-hailing apps Uber and Lyft offer the participating drivers instant payouts through embedded financial services, allowing them to access their earnings immediately instead of waiting for scheduled payments. While gig workers, who often have unstable financial circumstances, benefit from greater flexibility, the hosting platforms increase driver retention. Another illustration is platforms using Stripe for embedded payments. They can receive payouts in real time, reducing funding delays and optimising cash flow.
Greater Personalisation
Embedded finance tools enable SaaS platforms to offer personalised financial products based on user data such as customer behaviour, spending patterns, or sales history. This way, the platform can be more responsive to client needs while offering tailored loans, credit lines, or insurance packages. For instance, Lendio, a SaaS platform for small business loans, uses its customer data to personalise loan offers for SMBs based on their creditworthiness, financial needs, and industry specifics. Besides, using data from embedded finance tools, SaaS platforms can better personalise all other non-financial features as well.
Mindbody, a SaaS platform designed to manage and grow fitness, wellness, and beauty businesses, provides a range of tools, including appointment and class scheduling, payment processing, automated reminders, CRM capabilities, and marketing automation. Due to its embedded finance mechanisms, the platform offers various personalisation features to help wellness businesses tailor their services and communications to individual client preferences based on detailed client profiles, payment details, and service history. Mindbody’s business clients can create custom membership types and pricing structures, as well as personalised email campaigns, to cater to the unique needs of their clientele. Studies show that hyper-personalised campaigns can increase conversion rates by as much as 60% compared to traditional ones.
Additional Revenue Streams & Flexible Subscriptions
Many SaaS companies have successfully monetised embedded financial services by charging small fees, premiums or commissions on instant transactions, loans, or embedded insurance. According to recent McKinsey research, in the realm of embedded-finance lending products, 55% of revenues are allocated to balance sheet providers, who assume credit default risks. However, 30% of these revenues are directed to the distributing SaaS platforms. Furthermore, distributors reap the majority of benefits from payment and deposit products, as they manage the direct relationships with end customers.
Embedding payment solutions into a SaaS platform allows businesses to offer flexible payment options for their subscription plans, making it easier for potential customers who may be hesitant due to upfront costs to get started. For instance, Xero, a cloud-based accounting software, embeds payment tools that allow users to make monthly payments for its subscription plans. Besides, combining financial services with existing SaaS offerings into premium subscription packages can justify higher pricing tiers, leading to increased recurring revenue.
Summary
Embedded finance is transforming SaaS platforms by integrating financial services like payments, lending, and insurance directly into their offerings. This innovation enhances user experience, strengthens customer retention, and creates new revenue streams.
By embedding financial tools, SaaS platforms provide a seamless and convenient experience for users. Solutions like QuickBooks’ automated invoicing and Teladoc’s flexible payment options simplify transactions, making platforms more user-friendly. Companies that adopt embedded finance see higher customer engagement and a 30% increase in retention. Shopify Capital, for example, has successfully boosted merchant loyalty by offering quick, data-driven financing.
Beyond engagement, embedded finance also improves cash flow management. Instant payouts, as seen in Uber and Lyft, give gig workers immediate access to their earnings, reducing financial strain and increasing platform loyalty. Additionally, data-driven financial services enable greater personalisation, allowing companies like Lendio and Mindbody to offer tailored financial solutions based on customer behaviour.
SaaS companies are also leveraging embedded finance to generate new revenue. By monetising transactions, premium services, and flexible payment options, platforms like Xero have successfully increased profitability. With the SaaS market rapidly growing, embedded finance presents a valuable opportunity for businesses to innovate, attract more users, and drive long-term success.
