Embedded finance is revolutionising the SaaS industry, driven by strong demand from small and medium-sized businesses (SMBs).
- Recent Adyen and BCG research reveals a 25% market growth, highlighting a $185bn opportunity for software providers.
- SMBs are shifting from traditional banks to integrated financial services within SaaS platforms, looking for more than just basic payment processing.
- The ongoing changes in the banking sector, such as higher interest rates, are making embedded finance more appealing to software companies.
- Despite the growth, less than 20% of the potential market has been tapped, indicating vast opportunities for software platforms.
Embedded finance is increasingly shaping the landscape of SaaS platforms as they respond to the evolving needs of small and medium-sized businesses (SMBs). Recent research from Adyen and Boston Consulting Group (BCG) highlights that embedded financial services have become a vital growth driver, contributing to a 25% market expansion. Currently valued at $185 billion, this burgeoning market presents significant incentives for software providers aiming to integrate finance into their offerings.
SMBs are progressively moving away from conventional banking relationships, seeking comprehensive financial solutions directly through the Software-as-a-Service (SaaS) companies they utilise. This transition is motivated by a desire for services that surpass basic payment processing, as evidenced by data from sectors including food and beverage, retail, and hospitality. For those unfamiliar with the model, what is SaaS software? It refers to cloud-based services accessed via the internet—offered on a subscription basis—used for everything from payments to project management.
The changing dynamics of the banking industry add further momentum to this shift. With interest rates rising, the revenue from deposit accounts has soared, presenting a more attractive proposition for SaaS companies to bundle banking features with their main products. This transformation is underlined by BCG’s finding that less than 20% of the potential market is currently being addressed, highlighting a significant area for growth as small businesses demand inclusion of products such as business accounts and lending services.
Highlighting this trend, Stefan Dab, founder of BCG’s Payments and Fintech practice, notes that there is an evident desire among SMBs for a broader range of financial services within their SaaS platforms. He comments, “We are observing an appetite from SMBs to consume a broader range of financial services from within their SaaS platforms, notably loans extending beyond simple cash advances or current accounts tightly integrated in receivables and payables workflows.”
Moreover, the integration of financial products into SaaS platforms is proving to be not only beneficial for users but also highly profitable for software companies. The research points out that platforms incorporating these financial services generate more than half of their revenue from such offerings, achieving a revenue boost between three to four times when adding services like business loans and credit cards.
Blake Breathitt, SVP Platforms & Financial Services at Adyen, explains the mutual benefits: “Embedding financial products creates a win-win scenario: SaaS platforms deepen user relationships and unlock new revenue streams by addressing SMBs’ overlooked financial needs.” The analysis encompassed feedback from 2,000 SMBs surveyed across North America, Europe, and Australia, clearly illustrating the rising demand and untapped potential in the embedded finance sector.
The research strongly points towards a major opportunity for SaaS platforms to enhance competitiveness through embedded finance, offering vast unexplored potential.
