THIS IS EMBEDDED FINANCE

So what is embedded finance?

“Every business will be a fintech company” first announced in 2019, this is an idea that has been spreading through the financial world for several years. But why?

The principle behind it is that the benefits of embedded finance are so grand, all businesses would soon be looking to embed financial services into their offerings, becoming what we think of today as ‘fintechs’. If your immediate reaction to this idea is that it is perhaps hyperbolic, don’t be so sure.

In 2020 it was estimated that embedded finance would be worth $7.2 trillion globally by the turn of the next decade. Even by 2025, it is expected to be worth over 10x its value in 2020.
However, this is not all about the future. Earlier this year Grab Financial Group reported a compound annual growth rate of its revenue of 95% with 93%, that is $320 million, being derived from embedded finance.

So what is it? And how is it taking finance by such force? In this section, we outline the enormous potential embedded finance brings to all businesses, with a particular focus on Independent Service Vendors and online marketplaces.
So how does embedded finance work?

Embedded finance is the integration of financial products and services into non-financial businesses.This allows businesses to offer financial services to their customers without having to obtain any kind of license - a process that is costly and can take months or even years, with a dedicated compliance team often required when the license has finally been granted.

What’s more, businesses do not need to build the relevant infrastructure to support these types of services - they are delivered by a financial service provider through an API. This means that everything that is being done by the financial service provider remains completely hidden. For the end-user or customer, it appears as if the service is being provided by the business they are interacting with - they do not need to leave that product ‘ecosystem’ at any point. As such, it is the business that decides when, and how, the financial service is offered - allowing them to build their product around what best suits their customer.

From payments to banking, lending to insurance, any type of financial service can be embedded. There are many ways in which this can enhance their offering, but we have examined some of the most common.

One of the biggest advantages of embedded financing is additional revenue streams. Embedding financial products and services allows businesses to take advantage of completely new revenue streams. Perhaps a platform business wants to introduce a percentage-based fee on sales, as well as their flat fee for using the platform. Using embedded finance, the size of this percentage can differ by user, date - allowing promotions to be run, size of transaction and more.

UNIPaaS has tailormade revenue stream models for both marketplaces and B2B software platforms. Find out more in our ‘How we differ’ section.

Alternatively, an online retailer may decide to introduce a ‘buy-now-pay-later’ scheme. which is a form of lending. The customer may pay a slightly higher price in order to pay in installments, which the retailer can benefit from.

Additional revenue streams create knock-on benefits for businesses. New, reliable revenue streams open up new possibilities in terms of strategy - businesses can take more risks, or at least manage risk differently knowing they can offset it against the additional income they’re receiving. Demonstrating steady wealth generation can also help in terms of raising investment, which can take businesses scale and transition to their next phase of growth faster.

As we’ll explore later in more detail, Business Management tool HoneyBook was able to grow their service 100% within a year using embedded finance, with an estimated amount of $1.9 billion in customer transactions.

Another big advantage of embedded financing is a closer relationship with customers. By embedding certain financial services a business can build a stronger relationship with its customers and increase loyalty. This is done in two ways. Firstly, they can make any financial aspect, such as payment, currently within the product entirely branded, as the solution is white-labeled. Customers will no longer be directed to a payment provider’s screen or even see their logo - all steps of the flow are owned by the business.

Secondly, customers are encouraged to interact with the business more regularly as it has given them more reasons to do so. Let’s imagine a holiday planning service called MegaTrips has just embedded a savings account to help travellers save and budget for their trip. The travellers will now be using MegaTrips Payments to monitor their funds, therefore the number of interactions they have with the brand drastically increases.

A third big advantage of embedded financing is better CX and new levels of data. Taking ownership of the payment systems also allows businesses to remove any friction that exists within the funnel. Currently, checkout success is always at least somewhat dependent on the service of the payment provider. If they choose to change their flow in any way, the business has to accept it. Embedding payments means that the business has full control over how payments are completed, and can make the process as smooth as possible for their customers.

Increased ownership over flows, combined with potential new financial services, results in access to a far deeper level of customer data for businesses. This data provides valuable information about customer pain points, customer desires, onboarding obstacles and more. All of this knowledge will help businesses to optimize, make positive iterations on their product, and understand how they can market it more effectively and more profitably.

So how embedded finance is currently being used?

A lot of the current discourse on embedded finance focuses on the impact it is going to have in the future. What shouldn’t be overlooked is how much it is changing how we experience finance right now.

The following are some examples of how embedded finance has revolutionized the offering of B2B software companies, platforms, and other businesses in a variety of industries.

The first example is embedded payments with HoneyBook. HoneyBook is a Business Management tool which allows SMEs to book clients, manage their workload and get paid all within the same product ecosystem. By embedding payment solutions, HoneyBook is able to handle a lot of payment-related duties on behalf of the business, such as recognizing when payments haven’t been received and sending automated reminders to the businesses’ clients. They also make it easy for clients to pay businesses with an ‘autopay’ solution, helping businesses get paid faster and relinquishing the payment duties of the client. HoneyBook has also embedded banking services, as payments via bank wire have been integrated.

These features give HoneyBook a competitive edge over similar B2B software companies as they are using payments to remove pain points from their customers’ (and their customers’ clients’) operations. Payments received on the HoneyBook platform can be transferred to bank accounts 24/7 within a matter of minutes, meaning the benefits gained far outweigh the convenience lost from funds not going directly into a business’s bank account.

UNIPaaS offers T+0 settlement speeds, meaning transactions between buyers and sellers are settled instantly and appear in bank accounts within a maximum of 2 hours. Find out more in our ‘How we differ’ section.

Another great example is embedded banking with Shopify. For a number of years, Shopify was a highly successful platform for small businesses to conduct eCommerce. Spotting the potential of embedded finance, they first launched Shopify Payments, making it easier for vendors to receive payments without having to open a merchant account (whilst also monetizing the payment flow for themselves).

Over time, Shopify then began to realize that the lack of a merchant bank account posed challenges when it came to budgeting, financial forecasting, accurate bookkeeping and more.

As such, they decided to embed banking within their offering and launch ‘Shopify Balance’. This gives merchants access to a separate bank account within Shopify, with the same functionality as any other bank account. Cash flow can be managed more effectively, expenses are easier to keep track of and bills can be paid directly within the account.

Businesses are also now able to access advanced loans to aid cashflow - an example of embedded lending. The Shopify offering is therefore far more valuable to their customer base without the company having to go through the extensive rigmarole of becoming licensed as a bank.

A third great example is embedded landing with QuickBooks. B2B accounting software company QuickBooks have incorporated lending services into their business model. As a company which accesses the financial data of SMEs and sole traders, they have the perfect perspective to evaluate risk when it comes to business loans.

Not only are they giving themselves an additional revenue stream, but they are establishing a long-term relationship with their customers and solving a genuine problem. 60% of SMEs can’t get access to working capital, embedded lending from QuickBooks ensures far higher financial stability.

The fourth great example is embedded insurance with Tesla. Embedded insurance is also gaining pace, with businesses which sell luxury or high-value goods, allowing their customers to insure them at the point of purchase. Tesla has been one of the first businesses to take advantage of this, with their California customers able to insure their cars through Tesla, despite Tesla not being regulated as an insurance provider.

Tesla gains access to all data relating to claims, which enables them to better understand their customers and even build better cars, as well as assess risks for insurance risk management and pricing.

There are many transformative possibilities within embedded finance.

One of the main reasons there is such buzz around embedded finance is that it will likely be utilized in new and innovative ways, transforming how we experience finance on a day-to-day level.

We may well be heading into a future in which you can purchase mobile phone insurance through your social media profile - after all, it benefits those companies for you to be on your phone as much as possible.

We may be able to receive a short-term loan from our supermarket, making sure we can still buy the essentials we need when we’re low on funds and pay day is still a few days away. Your favorite online magazine or publication might offer you an option to invest in the business you’ve just read about, with the ability to manage your portfolio through their app.

This is not to suggest all of the above will happen, but the point is that with embedded finance, they certainly can. One area which will undoubtedly experience change is the digital platform economy, composed of gig economy platforms and online marketplaces, and ISVs.

Online marketplaces, for example, connect buyers and sellers. By embedding payments, the marketplace is able to offer businesses specific payment terms to make it more likely that transactions will take place.

If vendors on the marketplace are selling raw materials to construction companies, delivery may take weeks or months. In that situation, when is payment made? If at the point of sale, the buyer has cashflow problems, or if at the point of receipt, the seller has cashflow problems.

An embedded finance solution can solve these challenges, either by offering short-term loans to cover missing funds, or even allowing payment to be processed by ‘milestone’ - 10% at sale, 30% more when goods are in transit and so on. This makes the marketplace much more advantageous to use than a competitor for all parties involved.

For platform businesses the opportunities embedded finance brings are endless. So the question, therefore, becomes not ‘if’ to integrate embedded finance, but ‘when’ to do so?

Why embedded finance needs to be considered today?
Simply put, it is a race against the clock.

Due to embedded finance being in its early stages, there may be a temptation to wait a little while and see how its uptake progresses. There is a strong argument to be made that this would be a mistake.

According to a panel of experts interviewed by Sifted, 70% of brands plan to launch embedded financial services within the next two years4. Businesses planning to ‘wait and see’ need to be aware that their competitors may not have such a cautious approach.

Secondly, it should be noted that the idea of embedded finance is not entirely top-down.
In financial services there is a widely understood ‘expectancy gap’ - the level of service that customers experience is approximately 20% lower than they expect it to be.5 This is substantially lower than other industries and owes much to the legacy technology and legacy thinking that plagues traditional financial services such as banks.

A recent study by EY showed that 63% of consumers would ‘highly value’ some form of embedded finance, connecting to third party providers and making their experiences more personalised6 Whilst businesses may still be getting to grips with embedded finance, customers do not need to be convinced - the desire is already there.

To conclude this section, we now understand what embedded finance is, why it is so advantageous to businesses and how companies are already seeing huge benefits from its adoption.

We’re also aware that embedded finance’s potential goes far beyond what we have seen so far, and that digital platforms are in a particularly strong place to reap rewards due to its innovative payment options. Finally, it is clear that the rollout of embedded finance is something that the vast majority of businesses are considering in the immediate to short-term, with a likely welcome from consumers, due to their desire for improved access to, and experience of, financial services.

With the above being true it is fair to ask, why has embedded finance’s impact not been even more explosive? Why has it not been internationally adopted faster? In the next section, we examine the limitations of embedded finance providers that have prevented businesses from getting the type of service they want and deserve, and what UNIPaaS is doing to change that.

What are embedded finance’s current obstacles and solutions?

The high market valuations and multitude of successes regarding embedded finance can lead to the assumption that it is being implemented flawlessly. Any business that launches embedded finance is set for new revenue streams, stronger customer relations and a completely revolutionized offering.

Sadly, this is not the case. Certain obstacles are preventing businesses from receiving what they thought they would, or stopping them from launching embedded finance at all. Below, we examine these challenges in more detail.

Remember it is “Embedded”, not embedded.

One of the challenges facing businesses that are looking to benefit from embedded finance is that many of the services which currently claim to offer it are actually providing something else.

Certain providers will integrate a financial infrastructure, but it is not embedded. This means that the process is not white-labeled and the client is redirected to a third party funnel when completing the business’s flow. At the very least, the client will be presented with a screen from the payment service provider.

As such, businesses lose so many of the benefits that come with a genuinely embedded service. The ability to see all the data and remove friction, the closer relationship with their customers, designing financial flows as they wish - all disappear. They have financial services without becoming regulated, but they are still subject to the operations of the payment provider.

To make this challenge even more frustrating, when services are not embedded, key data can be lost. When a customer is onboarding or at the checkout phase, if they are redirected to a third party, the business has no way of viewing what’s happening during that process or any of the data associated with it.

If a customer abandons their checkout, or a merchant on an online marketplace gives up halfway through setting up their account, the business has no indication as to why and therefore cannot make improvements to their flows. This transactional data is key in developing risk models and analyzing consumer behavior and without it, a core benefit of adding financial services to your business disappears.

Finally, without embedding financial services the benefit of increased loyalty on your platform is lost. If payments are embedded, the only way money can be exchanged is through your designed flows. If payments exist outside of your product ecosystem, there is nothing stopping transactions from taking place outside of your platform altogether - for example merchants on an online marketplace offering their clients to pay them in a separate way. If this happens, not only are financial gains potentially lost, but important transaction data goes with it.

The UNIPaaS solution is a truly embedded, fully white-labeled solution.

When UNIPaaS embeds finance, we really embed it. All services provided are completely whitelabeled, meaning that your customers won’t be taken out of your flow, or even presented with a UNIPaaS branded payment screen. We are providing you with the machinery, how you choose to display it is up to you.

As opposed to key data being lost at both onboarding and payment stages, we provide your business with full visibility as to what’s happening at every process. With other providers, all onboarding data is only released to your business whether the vendor (the platform’s customer) has been onboarded to your platform or not.

With UNIPaaS, your business receives regular updates as to how the onboarding process is going and is even able to communicate with the vendor to help them complete the flow. This significantly improves your conversion rate.

Finally, UNIPaaS not only provides you with all financial data, but allows you to create actions dependent on what that data is. For example, if you are a platform providing invoice and payment services for small businesses, you may want to automatically send them an alert offering them a short-term loan when their balance drops to a certain level.

This type of action was previously only available to banks, but with effective embedded finance this can be performed safely and legitimately by businesses which have no experience whatsoever in financial services.

There is a development barrier to embedded finance.
Considering that embedded finance is usually implemented via API, there should be a certain level of simplicity assumed. However, this is rarely the case. To truly embed services, many providers require a large amount of development work from your own team.

This is not an industry secret. Stripe is upfront about the level of work required on their own website, describing the level of technical input required for a custom solution (the only solution which gives a business what it truly wants) as ‘very high’. This level of development work essentially prevents any other project on a business’s roadmap from being continued, and may even require additional hires.

For many businesses, this is simply not feasible. Tech teams already carry so much weight in a young business, the idea they can dedicate more bandwidth to a completely new project would never work.

A certain level of understanding of the finance and payments landscape is also likely to be required to integrate a trustworthy, compliant and functioning payments infrastructure. Alternatively, hiring what would essentially be an entirely new team is also off the table for the majority of businesses, as they do not have unlimited budgets to draw from.

Even for those businesses with comfortable levels of funding, finding the right talent to manage a tough integration, where previous fintech experience may be required, is no small feat.

According to experts at RPInt:

“The FinTech sector is booming and this surge has led to a surge in demand for FinTech talent which has led to a digital skills shortage.” 7

It is estimated that over 90% of executives across the world are now facing a digital skills gap.

Whilst Stripe is upfront and transparent about their requirements, many other providers require a similar level of development input from the business which prevents them from even getting close to embedded finance.

The UNIPaaS solution is a simple integration for tech teams of all sizes.

Businesses of all sizes can benefit from embedded finance, so we don’t believe it makes sense to reserve access to enterprise size companies only. We have a tiered approach which ensures financial services can be embedded to any business, regardless of tech capacity.

Our API integration was designed with simplicity at its centre. We keep requirements from your development team to a minimum and the average implementation time is less than one week. For businesses with very limited tech resources, we also offer a ‘low code’ option, meaning you can fully embed financial services with as little as one line of code.

What’s more, new financial components can be added to the business at any time in the form of widgets. These widgets hold all logic and possible scenarios related to your business, so there is no additional work required from your developers.

An example of this may be that you are an online digital platform and want eWallets to be used as bank accounts for merchants. Alternatively, you may be an online savings platform and decide to introduce an easy-to-use investment service.

With UNIPaaS, this is possible because you are not embedding an inflexible payment infrastructure that cannot be adapted to suit your needs. Instead, you are embedding financial services by component, meaning that what you offer can easily be adapted over time as your business strategy develops.
In the following section, we provide further detail on the widgets, as well as an overview of all of our features and a deep-dive into our tech.

Now, let take a look at UNIPaaS in detail.

UNIPaaS is a specialist embedded finance provider that offers a truly embedded solution that can be integrated regardless of a company’s tech capabilities. Formed in 2020 by a team of fintech experts, the company designed an embedded finance infrastructure which is accessible to businesses of all sizes.

In this section, we will explain all the features of the UNIPaaS offering, including a full breakdown of our API docs and tech integration.

So what are the features of UNIPaaS?

The UNIPaaS approach is built on the principle that embedded finance should be flexible. It should allow businesses to get more out of finance and build more innovative products and services. It should also be accessible and easy to integrate with - we are committed to keeping the hard work on our side. Financial cases are handled by UNIPaaS, not the platform developer.

For us, security is king - we have no greater priority than protecting your money. As a payments institution, any weaknesses here would make our service useless. Partnering with us alleviates any worries over being compliant and keeping the users of your service safe. We have you covered.

All the features listed below are fully embedded into your product ecosystem. Your customers are always kept fully within your service and your own branding is applied to all services.

The following is an overview of all our central product pillars - displayed in the payment flow diagram below - as well as features unique to the UNIPaaS solution.

There are several product pillars.

The first product pillar is onboarding.
Embed onboarding within your ecosystem for a quicker, smoother process. With no possibility of the flow breaking down due to external forces, conversion rates skyrocket.

This includes full KYC, KYB and AML checks; PSD2 compliant; responsive onboarding component; manageable brand settings; customizable welcome text; and real-time tracking

Lower friction does not in any way mean lower security. Our built-in security enables you to focus on growing your business with no increased risk of nefarious actors.

The second product pillar is Pay in:
After your customers are onboarded, all parties need to be paid. How payments are received is completely down to what works for you and your customers - whether they are businesses or consumers.

No matter the flow, payments can be routed a variety of ways using a number of methods, with no additional overhead required from your business. This includes: multiple currencies; multiple payment methods - including online bank transfers; branded checkout experience; multiple vendors within a single checkout experience; subscriptions and recurring payments; full PCI and PSD2 compliance and fraud protection; full Account receivable and Account Payable (AR/AP) automation.

Balances are visible in real-time and reconciliation and payouts can be completely automated.

The third product pillar is eWallets:
UNIPaaS offers a multi-vendor eWallet system, giving you a comprehensive view of your entire payment operations from one centralized system. From this system you can manage and track activity on vendor’s eWallets; view balances; configure platform commissions; perform escrow services; and transfer funds instantly.

All payments, including recurring payments, reconciliations, eWallet transfers and scheduled payouts can be automated, enabling you to scale without incurring any additional manual overhead.

Through real-time, automated reconciliation, your business can avoid one of the most time-consuming, error-prone elements of payment processing - manual bank reconciliations.

The fourth product pillar is Pay out:
As with Pay in, Pay out is a crucial step in the payment journey allowing customers on your platform to access their funds.

All parties in your ecosystem (vendors, individuals and businesses) can be paid automatically, to any bank account, in under 2 hours. Payments can be scheduled for a fixed time or sent on demand. Your platform’s back-office processes are streamlined by eliminating time-consuming and costly manual procedures.

So how does UNIPaaS differ?

As well as the core pillars of our offering, we have added certain features to our service that you won’t find in any other embedded solution.

The first unique solution is embedded financial widgets.

UNIPaaS enables individual financial components to be integrated in the form of widgets. Developers only need to insert a single line of code and all financial and technical configurations are handled by UNIPaaS.

An example of this might be a vendor on a platform wanting to accept a new currency. A new balance can be added to the vendor with no input needed from the platform. It doesn’t matter if the change is a small alteration or a whole new path for the business. Using widgets, the process is the same.

Most importantly, UNIPaaS ensures that any new component applies to the same rules set by the platform, so if the vendor accepting a new currency can receive a maximum of €10,000 per month, their balance will reflect that. There is no additional input required from development teams, meaning the platform can focus on growing their business as opposed to constantly integrating new tech requirements.

Another unique feature is New Revenue Streams.

UNIPaaS has 2 tailormade revenue streams for separate business models: platform commission (for online marketplaces) and the Buy Rate and Sell Rate model (for B2B platforms).

The first is the Buy Rate- Sell Rate Model.
B2B platforms that want to provide financial solutions for their customers can define ‘Sell Rate’ for each financial service (credit card processing, bank wire etc) they are offering. ‘Buy Rate’ is the operational cost of the service. The fees are charged to the customer by UNIPaaS and then shared with the platform, so the platform receives the delta between the two rates directly to the platform’s eWallet as a new revenue stream.

The second is the Platform commission also known as Payment splitting.
Online marketplaces have unique payment flows and would therefore like to have full control over the fees they charge. When a buyer makes a payment it must be split between the vendor and the platform, in real-time, so the marketplace can collect its agreed fee without having to manually reconcile all payments.

But why stop there? The marketplace may want to change how payments are split based on transaction size, vendor type, date, or anything else. For example, they may wish to offer a new promotion for certain vendors of no fees on their first 100 transactions. The UNIPaaS solution offers payment splitting, and refunds for split payments, with no additional code required.

Another unique feature is B2B Checkout.

B2B transactions are different from B2C transactions, so this should be reflected in the payment system. The UNIPaaS B2B checkout offers offline bank transfer, online bank transfer, and card payments to suit every business preference. What’s more, the invoicing process is optimized, with automatic payment reminders available and splitting options to share the cost between multiple parties within one business.

Invoices even include a direct payment link to encourage payments to be made faster. Including all of these features within one suite simplifies the entire process of being paid and alleviates one of the biggest challenges of B2B businesses.

UNIPaas also offers the ability to pay faster with T+0 Settlement.

For freelancers and small businesses, cashflow often represents a huge problem. UNIPaaS offers T+0 settlement with Open Banking, meaning that money is reconciled between buyers and sellers instantly and appears in bank accounts within 2 hours. Every day of the week, any time of the day.

This approach to settlement also saves platforms money, as transaction fees of bank wires are far lower than the transaction fees of credit card payments.

In conculsion, as a team of fintech professionals with a combined experience of over 100 years working in this sector, we have no reservations in saying that embedded finance presents opportunities bigger than anything seen since the creation of online payments.

Embedded payments in particular, are solving problems that have plagued businesses for years: high transaction costs, poor flexibility, high amounts of manual overhead for payment reconciliation, high latency times for international payments and more.

That said, embedded finance does more than solve current problems, it allows non-financial businesses to use finance to their competitive advantage. To enhance their offering in ways that only a few years ago would have been unthinkable without astronomical budgets to become regulated themselves.

Make no mistake, not all embedded finance providers are the same - there are providers today that are restrictive in what they offer and inaccessible in what they require.

However, the UNIPaaS solution was created to address the shortcomings that businesses are finding with embedded finance, and we take great pride in having helped businesses that have been letdown elsewhere. A truly white-labelled solution with a simple integration enables businesses to achieve strategic goals and be equipped to tackle future challenges.

Leveraging embedded finance can solve small issues or completely transform your business, and everything in between. It does not just enable your business to grow, it changes the way in which you can grow, opening new and innovative avenues and enriching your entire business vision.

With its potential so far-reaching, the only thing we advise against, is not exploring it.

If you want to know more about how we can help you utilize embedded finance, talk to us today by emailing [email protected]

Meet the UNIPaaS team!

The four UNIPaaS founders first worked together at a payments' acquiring business. They saw firsthand how difficult it was to serve new rising economies of multi-party digital platforms and marketplaces, as the payment solutions available at the time were not suited to modern payment flows, such as B2B payments and embedded experience.

UNIPaaS was created to address these challenges. All founding members have had a long-established career in payments, and between them hold over 100 years of experience in the sector.

UNIPaaS is led by David Avgi the co-founder and CEO, a seasoned entrepreneur with over 20 years of experience in the payments and fintech industry. David was the former co-founder and CEO of SafeCharge International Group, one of the leading payment technology companies in the industry. In August 2019, SafeCharge was acquired by the Nuvei Group for $890 Million.

Oded Kovach is the Co-founder and CTO. He is an experienced CTO with a proven track record of 15 years in the fintech industry. He has a history of successful leadership of Israeli and global R&D teams, with vast experience in online payment processing, alternative payments methods and consumer financing. In recent years he took part in building the fintech startups AskToPay and ChargeAfter.

Limor Liberman is the co-founder and COO. Limor has 18 years of experience in the fintech industry and an MBA (Master of Business Administration). She has a proven track record managing Customer Success and Technical Delivery Operations as a senior executive in an international public company.

Tsach Einav is the co-founder and CFO. He is an experienced CFO with over 15 years in the fintech industry. With a proven track record leading the financial operation of an international public company through successful IPO and M&A activities.