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Ka Ching: How embedded finance creates new revenue streams for B2B companies

Chitwan Kaur   /    Content Specialist    /    2022-03-23

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What’s a reasonable price to pay for quality customer experience?  

Discovering that sweet spot between customer experience and its financial viability can take countless experiments that crash and burn. But for the most part, an ideal CX journey economics model is the ever-elusive white whale that platforms hell-bent on delighting are obsessed with.

FinTech is turning this conundrum on its head. Now, you can elevate your customer experience while also opening up additional sources of revenue. 

Look at some of the great CX stories in recent years — in-app payments for Uber rides, Starbucks payments with your mobile phone, buy-now, pay later on Amazon, car insurance from Tesla, or banking for merchants on Shopify. 

All these are examples of embedded finance in action. The platforms not only delighted customers, but in doing so, created an alternate revenue stream for themselves. Whether it’s lending, insurance, cards or bank accounts, platforms can offer financial services to —

  • Improve the customer experience through financing at the point of demand creation.

  • Supplement their core revenue with alternate sources.

Read: How embedded finance brings defensibility to business

Embedded finance increases revenue per customer

Embedded finance enables platforms to increase their revenue from existing customers, apart from unlocking a new user base. It lowers customer acquisition costs, increases the lifetime value, while also improving margins.

Acquisition costs and lifetime value

By monetizing financial services, digital platforms can retain their costs of customer acquisition (CAC) while increasing their lifetime value (LTV). It opens a parallel revenue source and frees up sales budgets to acquire new customers who would otherwise be expensive to onboard. Potentially, it could also allow platforms to lower the price of their core offering and tap into a user base that may be otherwise reluctant.

Margin improvement

Embedded financial services improve product stickiness by offering a seamless experience. The platform data can be used to underwrite and extend in-context products, improving margins on financial products and contributing to the higher revenues.

Read: Embedded finance is the magic potion for customer retention. Here’s why.

Revenue-sharing partnerships

Before embedded finance, platforms were partnering with financial institutions by referring customers for loans, insurance and more. Such referrals are not part of the user experience and take place outside and independent of the customer journey. The digital platform typically charges a referral fee for bringing business for the bank.

Now, depending on the core offering, maturity or tech capabilities of a business, several partnership options with financial service providers are available to it. Here are two common bank-fintech-platform partnership models that can help boost revenue —

Pass-through services

The digital platform allows the bank to embed its branded financial services wherever relevant in the workflows. This is achieved by connecting the bank, FinTech and other parties with the platform through APIs. The platform charges the bank for access to its customers via their app or website.

Whitelabelling

In this model, the platform offers a financial service with its own branding. The product, deeply ingrained in the platform’s workflows, is often co-created with the bank as a solution to solve specific pain points for the platform’s customers. Such a collaborative tailored solution offers the platform an opportunity to charge a fee or enter a revenue-sharing agreement.

Read: Toward super apps: An embedded finance blueprint for B2B marketplace

Use cases

Such partnerships can be applied across a host of financial services with the objective of expanding revenue sources. Here’s how platforms can make money by incorporating various financing functions into their journeys —

Lending and insurance

Platforms have repositories of proprietary data basis which partner banks can better underwrite their customers. This way, they not only expose banks to a new set of customers, but also the data needed to gauge their creditworthiness accurately. They are typically involved in the underwriting process and share a portion of the risk. By entering a profit-sharing agreement with a bank, they can be rewarded for their value creation in the form of a percentage of the loan amount. 

Similarly, platforms can offer embedded insurance products using their data for underwriting in return for a percentage of the premiums sold.

Payments and bank accounts

Digital platforms with a high frequency of payments and collections can offer an in-app bank account for constant transactions without having to wait for bank transfers. The platform data can be used for better underwriting. Platforms can augment their revenue by charging a monthly fee or via an interest-sharing partnership.

Platforms can also offer whitelabelled virtual or physical cards if their operations are highly fragmented and require repeat transactions. The platform can make money by charging an interchange fee as a percentage of the transaction.

Bringing banks and platforms together

FinTechs are building the infrastructure required to connect banks with digital platforms in mutually beneficial revenue-sharing partnerships. Plug-and-play embedded finance architecture is helping platforms leverage the value they bring – in-context, accurate data underwriting and exposure to new markets — to maximize their revenue.

FinBox has built credit infrastructure that offers end-to-end lending functionality from risk assessment to compliance. The smooth user experience helps facilitate repeat transactions and reduce risk by underwriting with relevant platform-focused data insights – ensuring a higher inflow of revenue for your platform.