2024-05-13-OC_C-Embedded_Finance_12页_3mb

Embedded Finance Opportunity for ERP and Payroll SaaS Providers

Opportunity Size and Benefits

Embedded finance presents a substantial opportunity for ERP and payroll SaaS providers, potentially delivering a 20-30% EBITDA uplift within 2-3 years. This is due to the ability to integrate financial services into existing workflows, enhancing customer retention and value through mission-critical offerings like financing.

Value Chain

The embedded finance value chain involves end customers (e.g., SMEs), software platforms (e.g., ERP/payroll providers), and financial services enablers (e.g., banks or fintechs). Providers can offer financial products with minimal regulatory exposure by leveraging external partnerships, reducing the need for in-house fintech capabilities.

Emerging Embedded Finance Products

Key products embeddable include company cards for expense tracking, business loans for financing, and international transfers for payments. These are integrated into ERP and payroll workflows, such as automating payments, providing earned wage access, and supporting workforce management, with traction evident in deployments.

Cost and Revenue Structure

The cost to play, estimated at approximately 30% of incremental revenue, covers fees to financial enablers, technical integration, and customer support. Revenue streams include interchange fees, interest, and revenue shares from transactions or loans.

EBITDA Uplift Estimation

Realized EBITDA uplift varies by product but can reach 20-30% for large-scale deployments, with sensitivity analyses showing potential boosts up to 50-55% with factors like higher revenue share or customer attachment rates. Examples, such as Toast's success, demonstrate profitability from financial services integration.

Accessing the Opportunity

Providers can partner with financial enablers (e.g., BaaS providers) instead of building in-house capabilities. Models include build-your-own solutions or ready-made offerings like Weavr's licensed plug-ins. Industry players like Xero and Sage are actively exploring these avenues.

Expert Consultancy

OC&C offers strategic support for experimenting with embedded finance, scaling operations, and identifying partners or acquisition targets, as seen in case studies and market landscape mappings.

James McGibney, Partner
james.mcgibney@occstrategy.com

Andrea Delconti, Associate Partner
andrea.delconti@occstrategy.com

Justin Walters, Partner
justin.walters@occstrategy.com