The future of B2B marketplaces is SaaS-y

Aparna Chandrashekar   /    Content Specialist    /    2022-03-24

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Embedded Finance (EF) intuitively fits into businesses. 

Financial services and transactions never truly stand alone - they’re always embedded into other functions in our lives. Whether it's ordering food, paying bills, ride sharing, accounting or CRM, the financial function is simply a component of the actual job being done.

And some of the most simple ideas are the most powerful. 

We’ve already written extensively about why EF is the magic potion for customer retention, it’s super-app potential for B2B marketplaces, how it strengthens your business and how transforming businesses is the core value proposition of EF

Embedded Finance then is revolutionary in more ways than one. Elemental to this EF revolution was the platform thinking revolution -  leveraging third-party resources to create more value for your customers. 

That’s exactly what we’re exploring in this blog. 

B2B2SaaS - The Embedded Finance value-add

‘The technology is a commodity, the power is in the network” 

Consider a young B2B marketplace with limited demand from its customers that doesn’t quite satisfy a broad spectrum of third-party suppliers. How can it provide extra-incentive to persuade these suppliers to stay on the platform? 

It can provide this incentive via technology, data and/or connectivity - it can “commoditize the complement”. With the network effect,  B2B marketplaces can give away adjacent software that builds demand-side economies of scale. The B2B pivot to Software-as-a-Service (SaaS) then, is much like the platform thinking revolution in many ways. 

I mentioned earlier that Embedded Finance is a simple, but powerful idea. It can indeed transform businesses.  Use Embedded Finance as the complement that’s commoditized and watch B2B marketplaces evolve into Software-as-a-service (SaaS) providers. Here are four ways we see it play out -

1. CAC & LTV 

Every platform cares about Customer Acquisition Cost (CAC) Customer Lifetime Value (CLTV) . Lowering CAC while increasing CLTV makes a direct, inside sales go-to-market possible where it previously wasn’t. And Embedded Finance does exactly that. For instance, by enabling credit on its platform, a logistics marketplace, like Lets Transport could generate more business, improve customer loyalty, increase revenue, and increase customer lifetime value . (Click here to read how FinBox’s Embedded Finance Platform enabled Lets Transport to scale seamlessly.) 

With Embedded finance, FinBox essentially created a software ecosystem for Lets Transport, expanding the marketplace's flywheel to provide useful features that also make the product stickier.  Embedded Finance’s potential to increase CLTV means that B2B platforms can pivot to SaaS offerings, by wedging them into the already existing user base by offering it for free or at a  lower price. 

2. Centralized insight 

B2B transactions are notorious for multiple pain points, like paper-laden processes - from invoices to paper checks - result in late, even lost payments. Embedded finance, the great rebundling of all financial services - includes opening a business checking account, invoicing, payment acceptance, paying bills, accessing credit. An Embedded finance stack that underwrites credit can also provide account reconciliation services - a challenge for most businesses that then look to vertical software providers for solutions. A dashboard giving real-time insight into how a business is performing, its optimal mode of payment,  invoice splitting, etc., can act as a SaaS play where demand and supply side companies can make holistic decisions. 

3. Alternate data 

Embedded Finance underwriting models use alternate data to lend. This means every buyer and seller is vetted thoroughly and quickly. The same underwriting models reveal customer behavior. Most fintechs offering embedded finance solutions run on AI/ML models that are predictive - FinBox’s CollectX for instance, knows exactly when to nudge the customer for collecting loans. With a risk-focused approach, loan amounts are customized to the borrower's ability to pay, which helps borrowers repay on time, improving their credit profile further.

Similarly, Embedding Finance implies a trove of customer data, both on the buyer’s side and the seller’s side. And SaaS companies are built on the value proposition that it helps customers achieve business goals using their software. With a dime-a-dozen SaaS companies, the value add can be data from EF, combined with the large net of a B2B marketplace, that can help personalize subscription services to pivot seamlessly to SaaS solutions. 

4. Point-of-Sale to new customers 

Embedded Finance allows B2B (and B2C) platforms to embed credit at the point of sale. The borrower receives funds exactly at the point of transaction through a seamless process, and this boosts conversion rates and Customer Lifetime Value (CLTV). SaaS tools like, point-of-sale systems, automating recurring payments, monthly payrolls release to vendors, help subsidize the value so the marketplace can get better access to customers and/or suppliers.

Conclusion 

One of the many complications that Embedded Finance solves for B2B marketplaces is the lock-in effect. Unless there are other features that make suppliers and buyers stick to the platform, they’ll take it offline. 

And while the financial function is simply a component of the actual job being done, this component achieves stickiness, critical mass, and gathers immense software/process/industry knowledge for B2B marketplaces. The perfect basis to pivot to SaaS solutions. 

A B2B marketplace on the other hand,  opens up opportunities in markets previously deemed too small, or not cost efficient to acquire customers, to be viable, for pure play SaaS players. And a B2B marketplace that brings in a full suite of Embedded Financial services can speed up the 2-5x revenue increase per customer for SaaS providers. 

So, how do you get there? That's where FinBox comes in. 

We’re a cutting-edge, full stack infrastructure company that helps provide fair, formal, and in-context credit to 60 million MSMEs in India. FinBox’s tech focused approach and proven underwriting stack can enable any company to become a fintech company in only 3 week!  Get in touch with us to know more.