How marketplaces can add revenue streams with embedded finance

We live in a time of speed and convenience – and online marketplaces are facing increasing pressure to not only deliver seamless user experiences and stand out in a sea of competitors, but also drive continuous revenue growth. As a marketplace, you may be looking for ways to stay ahead of the curve and add new streams of reliable revenue. Embedded finance may be the answer.

With the global embedded finance market expected to reach US$606 billion in the next year, the potential for marketplaces is huge. Below, we’ll explore the opportunities and types of embedded finance products for marketplaces, and how to monetise them.

The power of embedded finance for marketplaces

Embedded finance is changing the way digital marketplaces operate. By integrating financial services and products into your marketplace platform, you can offer an all-in-one experience to users – something small and medium-sized businesses are particularly interested in. In fact, 82% of SMBs operating on marketplaces claim they would change from their existing payment service provider if their marketplace offered a like-for-like alternative. This presents a substantial opportunity for you to better serve customers, enhance stickiness, and differentiate your marketplace from competitors.

Incorporating financial services like payment processing, FX conversions, and digital wallets, directly into your marketplace lets you create a seamless experience for users and increase the lifetime value of customers. Value-added features of embedded finance, including fraud protection and chargeback management, strengthen brand trust and loyalty. It also introduces new revenue streams and enhances business scalability, allowing you to further capitalise on your investment in embedded finance solutions.

But how exactly can embedded finance capabilities influence revenue generation?

How marketplaces can monetise embedded finance

Embedded finance offers a wealth of opportunities for those marketplaces searching for new ways to unlock additional revenue streams. With a range of solutions and services at your fingertips, you can tailor your embedded finance offerings to create a more comprehensive and profitable ecosystem. 

Directly, you can add new, reliable revenue streams by monetising financial services through fees, interest, and commissions. Indirectly, centralising embedded finance within your marketplace can lead to greater engagement and time spent on the platform, as customers are able to easily access the financial tools they need to complete transactions. For example, Shopify’s Shop Pay delivers up to a 50% conversion lift compared to a simple guest checkout due to its one-click accelerated checkout.

Below, find specific examples of how to monetise different types of embedded finance products within your marketplace.

Payments and payment gateways

An embedded payment gateway allows buyers to complete their purchases without leaving the marketplace. This seamless experience reduces friction and increases the likelihood of completing a transaction. You can earn revenue by adding a percentage-based fee on each payment processed through your platform’s payment gateway.

You can also increase your profit margin on flexible payment options, like Buy Now, Pay Later (BNPL), by charging merchants a fee for each BNPL transaction they process. The fee structure can be customised and pre-set depending on the payment option used, allowing for automatic and easy scaling of this new revenue model.

Through streamlining payment processes and reducing friction, you can help merchants on your marketplace reduce cart abandonment rates and increase customer satisfaction.

Multi-currency wallets

By offering multi-currency digital wallets, you can give merchants an easy way to store collected money, pay suppliers, convert currencies, and manage their finances on your marketplace, simplifying cross-border transactions. You could monetise this convenience by adding a mark-up on FX fees when merchants convert currencies within their digital wallet.

For example, a 0.2% fee could be charged to merchants changing US$30,000 to euros, resulting in a US$60 profit, with the converted funds being available to the merchant instantly.

Card issuing

A new revenue stream can also be opened via issuing cards at scale via API. As a marketplace, you could issue branded multi-currency payment cards to merchants, collecting a percentage of each transaction processed. This bypasses the need to transfer money to a traditional bank account, enabling immediate access to funds via a virtual or physical card. These cards may be used to make purchases and pay suppliers, providing merchants with a convenient and efficient way to manage their finances.

Foreign currency exchange (FX)

Grow income by adding surcharges to foreign currency conversions your merchants want to make on cross-border payments. You could also charge a small percentage fee on the total transaction value. By leveraging a global payment network and a strategic partnership with the right fintech, you're able to provide efficient global payment processing to merchants, while supporting additional business growth.

Payouts

You can monetise a global payout offering by adding ‌a per-payout fee to merchants. For example, you could use Airwallex’s Payout network to enable your merchants or creators to swiftly fulfil global invoices, or transfer funds to a bank account, with 90% of funds being received by the recipient within one business day.

Lending

Offering loans and lines of credit can earn interest, which is usually charged as a percentage of the money borrowed. Using data to calculate the risk on lending products, you may be able to offer customers competitive borrowing costs, alongside the convenience of accessing funds through one interface.

Getting started with embedded finance on your marketplace

It’s important to keep in mind there can be barriers to adoption when it comes to embedded finance. Integrating financial services requires navigating complex regulations and compliance requirements, which can vary significantly across different regions. You must also ensure strong security measures are in place to protect sensitive financial data. 

Having the proper skills in-house during planning and implementation, along with ongoing management, is key to a smooth delivery – so much so that 43% of businesses cite technical implementation as their biggest challenge when introducing embedded finance. On the bright side, these barriers can be overcome by partnering with an experienced embedded finance provider.

Consider the following best practises when getting started:

1. Identify opportunities for embedded finance

Before adoption, you should first analyse customer needs and pain points related to things like payment friction, financing needs, and cross-border transactions. Based on these insights, establish a clear vision of how embedded finance will improve your overall marketplace experience and grow revenue.

2. Understand the technical requirements

Thoroughly researching and understanding the technical requirements for embedded finance integration is a must. This involves evaluating your platform's existing infrastructure and assessing whether it can support the integration of financial services. 

Selecting embedded finance solutions with well-documented APIs and strong developer support can significantly simplify the integration process. For example, Flow, a travel and hospitality marketplace in Asia, faced roadblocks with technology integration. However, after implementing Airwallex’s flexible APIs, they were able to easily connect with over 10 different payment platforms across Singapore and Malaysia – something they had struggled with previously.

3. Thoroughly research regulatory and compliance

It’s vital to have a deep understanding of regulatory and compliance requirements, like the General Data Protection Regulation (GDPR), Revised Payment Services Directive (PSD2), or Know Your Customer (KYC). This due diligence ensures your marketplace will continue to operate within legal boundaries and maintains the trust of users.

Fortunately, partnering with a trusted embedded finance provider can significantly streamline the regulation and compliance process. Airwallex, for instance, can facilitate KYC checks, ensuring a seamless process while reducing in-house administrative KYC applications as your marketplace grows internationally. ‌Airwallex also holds over 60 licences and permits globally, to ensure you adhere to all local regulations.

4. Find the right embedded finance partner

When evaluating vendors, consider the following questions:

• What's the vendor's track record in the industry, and do they have experience working with similar marketplaces? What's their history in presenting a seamless experience for our buyers and merchants?

• What range of financial products and services does the vendor offer, and do these align with our marketplace's needs?

• What are the costs of partnering with the embedded solutions provider? What are the potential revenue opportunities this will generate?

• Can the vendor customise their embedded finance solutions to fit specific requirements?

• How robust and well-documented are the vendor's APIs, and will they integrate seamlessly within existing infrastructure?

• What security measures does the vendor have in place to protect sensitive data and ensure compliance with relevant regulations? Can they provide the necessary licences and certifications?

• What level of customer support and technical assistance does the vendor offer, and is it available in the time zones where our marketplace operates?

Ready to unlock new revenue streams with embedded finance?

Offering seamless financial services within your marketplace not only improves user experience but also unlocks significant revenue opportunities.

Airwallex's Embedded Finance solutions are designed to make this transition smooth and efficient. With powerful APIs, comprehensive security measures, and a customer-centric approach, Airwallex empowers marketplaces to innovate and grow. Our Embedded Finance offerings enable you to:

• Expand into new markets by introducing branded payment solutions directly on your platform without redirects. This allows merchants to accept payments in 180+ currencies and via 160+ local payment methods.

• Generate new revenue streams from your platform by monetising payment offerings

• Streamline payouts for merchants by offering efficient and cost-effective cross-border transfers and like-for-like settlements.

• Ensure compliance with local marketplace regulations via Airwallex’s global licences.