In an age of digitalisation and enhanced expectations, business owners are actively seeking out integrated ecosystems in which they can easily access all financial services in one place.

This has given rise to a thriving embedded finance sector, which is predicted to grow at a compounded rate of 29% through to 2032, leading to a projected value of $730 billion.

The embedded finance revolution now offers the world’s independent software vendors (ISVs) and vertical Saas companies a new route towards improved customer acquisition and revenue growth, while also providing their customers with best in class customer experiences.

ISVs are already operating at the forefront of technological innovation, creating bespoke solutions that not only meet but also anticipate the future needs of the businesses they serve. And as the world’s ISVs consider how they can provide more value and deepen user engagement, embedded finance has emerged as a real area of opportunity. It’s one that should be grasped with both hands.

A logical extension of trust

The world’s first computer software company, Computer Usage Company (CUC), was founded in New York in March 1955. An initial investment of $40,000 supported the founders, Elmer Kubie and John Sheldon, and a fledgling staff of five.

In the subsequent decades, ISVs have grown impressively, becoming indispensable in terms of providing tailored software solutions for specific verticals, whether that’s enabling scheduling for dentists or doctors, rolling out new front- and back-office solutions for restaurants, or supporting vehicle fleet management. Earlier this year, we launched in the Canadian market with our partner Vagaro, an ISV that provides a comprehensive business management platform for the beauty, wellness, and fitness industries. There are now ISVs serving all parts of the global economy.

Vertical Saas and the modern ISV sector has evolved with the times and now includes companies such as QuickBooks for accounting, RepeatMD for Doctors, and Toast for restaurants. Along the way, they have all become trusted partners to the businesses that depend heavily on their services.

Now, thanks to advancements in embedded finance technology, ISVs can take another step forward and cement this trust by also owning the payments experience. The rise of embedded finance has not only transformed the way in which consumers interact with financial tools; it has also empowered ISVs to provide financing options within their products and platforms.

This integration presents new ways for ISVs to boost the value of their software and streamline the end user’s experience. Seamlessly embedding the lending process into everyday software applications, for example, enables ISVs like Vagaro to support small businesses in accessing fixed-cost financing with flexible payment terms. It provides business owners with the more convenient, frictionless experience they are seeking, helping them to receive funding in as little as four clicks

Unlocking new benefits along the value chain

Consequently, ISVs that have embraced embedded finance early on stand to gain a significant competitive advantage in the market, attracting more customers and driving higher levels of engagement.

Embedded finance is giving ISVs the ability to tap into new revenue streams, whether that’s through offering payment processing, card issuing and lending capabilities, revenue-sharing agreements with financial service providers and fintechs, or premium feature offerings.

The addition of financing capabilities is a valuable added benefit for software customers, and a proven way to increase customer retention and stickiness. By addressing the financial needs of their users directly within the platform, ISVs can increase user engagement with their software, leading to lengthier customer lifecycles.

It’s no longer necessary for customers to arrange financing through long, drawn-out processes with banks, or to work upfront with third-party suppliers that they may not fully trust.

Instead, by offering the latest business finance tools within their software solution, ISVs can provide all the business products their customers will need in one place without having to do the coding or front up the cash themselves. Users benefit from a one-stop shop, where they can manage their business operations and financial transactions in a more unified environment, elevating the perceived value of the ISV relationship.

Preparing for the new landscape

Payments and other financial services were perhaps once considered a cost centre to be carefully managed, but ambitious ISVs now need to think of them as a core component of their business, and their proposition, moving forward.

Embedded finance is a necessary step towards future-proofing their business because we are rapidly moving towards a future where all transactions will become woven into the purchase journey itself, making separate banking interactions obsolete.

Despite the clear benefits on offer, it’s understandable that some ISVs may still have concerns about integrating embedded finance solutions. Whether it’s regulatory considerations about implementing financial services, or worries about the technical integration challenges, there is certainly a lot to think about.

ISVs can lighten this load by working with experienced partners who are operating at the forefront of market developments and can help them to identify and implement the right solutions that will help them to take full advantage of this compelling opportunity.