If you’re a platform or marketplace that accepts payments without offering your customers embedded bank accounts, you’re missing a big opportunity.
While you may earn some revenue by marking up these transactions, the lion’s share of the money passes through your platform and is deposited in external bank accounts.
Rather than sending money to customers’ external bank accounts, brands like Lyft and Shopify are keeping those funds “on the platform.”
Meanwhile, banks are helping your customers store, send, and borrow money. In the process, they're generating revenue, gathering usage data, and increasing loyalty—all benefits you could be capturing with embedded finance.
But that’s changing. Rather than sending money to their customers’ external bank accounts, brands like Square and Shopify are keeping those funds “on the platform.” They’re offering embedded banking and lending, and it’s helping them increase revenue by 2-4x.
If you’re a leader at a platform or marketplace that accepts payments, this guide is for you. In it, we’ll explain how to generate more revenue from your existing customers. We’ll answer questions like:
What’s wrong with sending money to your customers’ external bank accounts?
The problem is that it represents three missed opportunities. Companies like Square and Shopify that offer embedded finance ultimately capture more:
Shopify is a prime example of a platform that’s winning with embedded finance. In 2020, they launched “Shopify Balance,” a suite of financial services for their merchants. Today, Shopify earns more than 73% of their revenue from merchant solutions, the vast majority of which are embedded financial products.
To show why embedded finance is so valuable, let’s use a real-world example: Square Banking.
Square launched Square Banking in July 2021 as a way to “help small-business owners easily manage their cash flow and get more out of their hard-earned money.” Ever since then, Square merchants have been able to apply for bank accounts (offered through a partnership with Sutton Bank) directly in the Square app. The vast majority are approved in a matter of moments.
Square Checking accounts work like other bank accounts. The main difference is that all account activity takes place on Square’s platform. Square has visibility into it and generates revenue from it.
How does Square generate revenue from its embedded financial products?
In order to keep your customers’ funds on your platform, you’ll need to connect your payment processor with your banking environment. It may sound complicated, but it’s actually pretty straightforward.
To illustrate, let’s use an example. Say you’re the VP of Product at Etsy, and you’ve recently launched embedded bank accounts under the product name Etsy Balance. Here’s how you connect your banking environment with your payment processor:
One advantage of embedded bank accounts is that your customers can access their funds faster than with a payment processor. With early payment access, the money can be made available in their bank accounts within moments, whereas they must wait 2-5 days to get paid out by your payment processor.
Once you’ve launched embedded bank accounts, you’ll find that it’s relatively easy to offer additional financial products.
Below we’ve listed a few examples. In each case, they deliver additional value to your customer while helping you generate new revenue.
In recent months, several payment processors (e.g., Adyen, Stripe) have started offering embedded bank accounts as an add-on to their payment services.
These options can seem appealing, as they don’t require integrating with a new provider. However, we strongly recommend that you choose a partner who specializes in banking and lending, as they provide the following benefits:
Your customers expect a complete set of banking products—and most payment processors don't offer them.
Here’s one way to think about it. When you chose your payment processor, you likely chose a best-in-class solution, a provider for whom payments is their focus. Why? Because payments are important, and it’s important to get them right.
When selecting a financial infrastructure platform, you should adopt the same lens. Offering your customer banking and lending products is important: it’s high-stakes, and you owe it to your customers to get it right. Rather than defaulting to a bundled solution, choose a path that will deliver the best results for both your customers and your company.
Unit is a leading financial infrastructure platform. We work with nearly 200 leading tech companies to help them offer embedded banking and lending to their customers.
Our customers use a variety of payment processors, including Stripe, Adyen, and Checkout.com. We work closely with all of them to ensure that our customers have established safe and effective links between their payment processors and their embedded bank accounts.
With certain payment processors, we may also be able to eliminate KYB/KYC duplication by leveraging shared identity data to remove a step in onboarding.
If you’re thinking about how to earn more revenue by offering financial products (including embedded bank accounts) to your customers, please reach out. We’d love to brainstorm with you.
May 16, 2023
Frequently asked questions
“Payments acceptance” refers to the systems, processes, and software associated with accepting card payments. In the context of this article, it refers to the ability of platforms and marketplaces to accept card payments.
A payment processor is a third-party vendor (like Adyen or Stripe) that companies use to enable them to accept card payments. The payment processor acts as an intermediary between the seller, the purchaser, the card network, and the merchant acquirer, handling all of the associated complexities.
Also known as an acquiring bank, a merchant acquirer is the financial institution (e.g., Wells Fargo) that enables a seller to accept card payments. A payment processor (e.g., Adyen) typically “wraps” one or more merchant acquirers, streamlining the connection for their customers.
The track records of platforms like Gusto, Lyft, Uber, and Invoice2go have shown that end-customers are eager to adopt embedded bank accounts. For your customers, there are four main benefits:
Check out our guides page to learn more about embedded finance