Banking-as-a-Service (BaaS) has transformed the financial landscape by enabling businesses with the ability to embed financial services seamlessly into their ecosystem.
The benefits of embedded banking include:
- Improved customer experience.
- Increased conversion.
- Repeat visits.
But how does this translate to revenue? Brands offering embedded banking products are essentially acting as de facto banks for their customers, so do they earn revenues like a bank?
In this blog, we’ll explore four different embedded banking revenue opportunities and how businesses can benefit from cutting-edge BaaS..
1. Increased conversion rates and growth of the core business
The first key advantage is the potential for higher conversion rates and transaction volumes in the core business. One study from Finacle shows that eCommerce merchants embedding lending at the checkout can increase conversion by 20% to 30%, as well as larger average baskets and improved funnel conversion rates. Similarly, gig platforms offering branded debit cards for immediate payouts attract more freelancers, boosting platform activity.
Our research indicates that more than a fifth (22%) of European consumers are likely to make more purchases with brands offering embedded banking, while 23% are more likely to spend more money with them over competitors.
Businesses can enhance their customer experiences, increase sales, and foster loyalty by offering a variety of payment financing options. Thus, BaaS creates a multifaceted revenue stream, encompassing both interest earnings and broader business growth.
2. Loan Interest Revenue
BaaS offers a gateway for businesses to provide financing solutions to their customers. Whether it’s offering small business loans through merchant financing, or point-of-sale financing like Buy Now, Pay Later (BNPL), BaaS empowers businesses to earn interest on the customer loans.
The integration of lending services into a business’ platform allows them to give customers more choices, which can boost conversion, drive customer loyalty, and create revenue through increased sales and interest on financing.
3. Payment Processing Revenue
Embedded banking also allows businesses to streamline payment processing and earn revenue through transaction fees. BaaS enables secure and efficient payment capabilities, facilitating seamless transactions for both customers and partners alike.
When businesses integrate BaaS payment solutions, they gain the ability to process various payment methods, including credit/debit cards, mobile wallets, and even cryptocurrency.
Providing a frictionless payment experience to customers while building additional revenue is possible by charging a small fee for every transaction processed.
4. Interchange Revenue
Interchange revenue is another revenue stream made possible by BaaS. In traditional payment processing, interchange fees are the charges levied by card networks (like Visa and Mastercard) on merchants for each transaction. BaaS providers can negotiate favourable interchange rates for their partners, resulting in cost savings and increased profitability.
Notably, this benefits not only the BaaS provider but also facilitates the sharing of interchange revenue with partners, allowing businesses to allocate more resources for growth and expansion. Businesses can maximise their revenue potential by managing interchange fees and optimising payment processes.
Businesses that embrace BaaS aren’t just providing their customers with financial services that make doing business easier, but are also generating new revenues. Embedded banking allows any company to directly offer financial services, and in turn, offer a better customer experience while also generating revenues like a bank. The embedded finance ecosystem continues to expand with more use cases across different sectors, so get in touch today to see how we can support your business needs.