Unlocking Growth Opportunities: How Embedded Lending Empowers B2B SaaS Merchants
The software-as-a-service (SaaS) industry is flourishing, boasting a global market value of $3 trillion in 2021, with an anticipated growth rate of 20.7% by 2030, as per a 2022 McKinsey Digital article. SaaS companies, offering a spectrum of solutions from data analysis to email marketing, enjoy cloud computing benefits like scalability, accessibility, and security. However, they also encounter challenges such as high customer acquisition costs, low retention rates, and rising competition. To achieve sustainable growth and stand out, providing added value to customers is essential.
Embedded finance, integrating financial services like lending, payments, insurance, and accounting into platforms, emerges as a pivotal innovation bridging the traditional financial sector with the digital economy. The anticipated growth of SaaS companies parallels that of embedded finance, projected to burgeon into a $7.2 trillion industry by 2030, outstripping the current market value of the top 30 global banks and insurers.
Embedded finance can enhance the user experience for SaaS companies by providing timely financial solutions without the need to switch platforms. For instance, an e-commerce SaaS provider could offer embedded lending, enabling merchants to secure loans or credit lines for inventory, marketing, or expansion.
This approach not only boosts the SaaS company's revenue through fees or commissions from lending partners but also creates a more engaging product that reduces churn and enhances customer lifetime value. The 2023 Embedded Finance Survey Report highlights that payments significantly contribute to average revenue per customer, especially in the 20-49% Annual Contract Value (ACV) range.
Moreover, SaaS companies can use their data and insights to craft personalized financial products aligned with customer preferences. The same 2023 survey indicates that 98% of respondents across various software verticals plan to introduce or enhance embedded finance products within a year, encompassing payments, lending, payroll, accounting, and banking services.
Bain & Company forecasts that by 2026, embedded finance will generate $7 trillion in transaction value, with lending and payments as the dominant segments. The report also points out potential sectors for embedded finance, including e-commerce, food delivery, wellness, and education.
However, integrating finance into a SaaS platform is complex, requiring an in-depth understanding of customer journeys, regulatory landscapes, and technical infrastructure. Successful partnerships, such as Shopify with Treasury Prime and Mindbody with Lendio, exemplify the synergy between SaaS companies and financial service providers like banks, fintechs, or Banking as a Service (BaaS) platforms.
Shopify, a leading e-commerce platform, and Treasury Prime, a BaaS provider offering API-based banking services, collaborated to launch Shopify Balance. This business account and debit card for Shopify merchants facilitate cash flow management, bill payments, and rewards access. Similarly, Mindbody, a wellness SaaS platform, joined forces with Lendio, an online lending marketplace, to introduce Mindbody Capital. This lending program provides Mindbody customers with financing options to expand their businesses.
These examples underscore how embedded lending can empower B2B SaaS merchants, offering financial tools and resources crucial for market success. It's a mutually beneficial scenario for SaaS companies and their lending partners, generating new revenue streams, bolstering customer loyalty, and mitigating risk.
As the SaaS industry evolves, embedded finance will increasingly become a key differentiator and competitive advantage. SaaS companies that provide embedded lending will unlock new growth opportunities and deliver greater value to their stakeholders.
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