Beyond Payments: The Embedded Finance Opportunity for Software Providers and ISOs

Your merchants want more than payments.

According to 451 Research, 69% of small businesses want their software partners to offer integrated financial products, including payment processing, lending and other financial services.

Embedded payments opened the door. Embedded lending is the next opportunity to deepen relationships, unlock revenue and deliver capital inside the workflows merchants already use.

In this joint webinar with Digital Transactions, 451 Research Principal Analyst Jordan McKee breaks down the market forces reshaping embedded finance, and NMI Chief Marketing Officer Peter Galvin translates that context into a practical playbook for software providers and ISOs ready to act.

What You Will Learn

• Why embedded finance is expanding beyond payments into lending
• How software platforms and ISOs can distribute capital at the right moment
• What readiness factors matter before you launch embedded lending
• How payments infrastructure creates the foundation for embedded finance
• What to look for in an embedded finance partner

Your merchants are ready for more. Learn how to deliver it.

Transcript

Hello, and welcome to, digital transactions webinar series. We've got a great webinar plan for you today, but give us a couple minutes and we'll be right back.

Hello, and welcome to Digital Transactions webinar series. We've got a great webinar planned for you today. We've got two incredibly good speakers.

One is Peter Gavin, and he's the chief marketing officer at NMI, where, you know, Peter is late leads a global team in building strategies and resulting in increased brand awareness, compelling value propositions, and accelerated revenue.

He's a twenty year veteran of global technology organizations specializing in promotion and innovative Ancest and cloud based software companies in leadership positions.

The other speaker we've got today is Jordan McKee. He is head of FinTech Research and Advisory at S and P Global Market Intelligence, where he leads a global team of analysts covering payments and financial technology. With more than a decade of experience as an industry analyst, Jordan advises financial institutions, technology partners, and investors on emerging market trends and growth. So those are two great speakers today, both Peter and Jordan, and I will get out of the way so you can enjoy this.

Jordan, have fun.

All right. Thank you so much, Bob. And hello, everybody. Thank you for joining us. So I'll kick us off.

I'd like to start by taking a step back and really looking at one of the broader trends that we see reshaping the SMB tech landscape. Historically, what we would see small businesses purchasing software to solve an operational problem that could be managing appointments, it might be processing invoices, it could be managing inventory and financial services, you know, historically lived elsewhere, typically with a bank or a third party provider. And what we've seen change over the past decade and really over the past half decade is that software has evolved from being something of a point solution to becoming more of an operational hub for the small business.

And today, more and more vertical software platforms aren't just helping merchants complete an individual task. They're really becoming these systems of record that businesses rely on to run their day to day operations. And that's reflected in the data that you see here coming from our recent SMB survey. More than half of SMBs tell us they're already using vertical software or they're actively considering it.

That's a meaningful shift, It tells us that increasingly businesses want purpose built software that's designed for the unique workflows of their industry shifting away in some cases from some more generic horizontal applications. And so what does that look like in the market? Right? That could be a restaurant using toast, it could be an ecommerce business using Shopify, maybe it's a fitness studio that's using mind body.

These platforms have become very deeply embedded in the daily operations of the business. They're managing customer interactions, they're managing transactions, scheduling inventory employees. In a lot of cases, pretty much every aspect of how that business operates. And as these software platforms become more central to running the business, it very naturally becomes a more effective distribution channel for delivering adjacent services.

And that's, you know, fundamentally reshaping how financial products are reaching small businesses instead of asking a merchant to leave that workflow to apply for a loan or payment processing and merchant account or maybe even a business banking account. You know, those services are increasingly being delivered inside the software that those merchants are already using to run their business on a daily basis.

So that previous slide, you know, it sort of illustrated the macro shift that we're seeing in the market.

This slide is is really about the playbook that we're seeing increasingly emerge. When we look at, you know, many of the leading vertical software companies in the market today, they tend to follow a remarkably similar evolution. It starts with owning the workflow. These companies are out there building software that creates operational efficiency for business owners and business operators.

And as adoption of that software grows, those platforms become very deeply embedded in the day to day operations of the business. Again, they become this system of record and they're capturing all sorts of valuable operational data and they're building trusted relationships with their merchants. The second step is embedding payments. And you know, we've seen that trend rinsed and repeated across the vertical software market payments are very often the first financial product because they sit naturally into the workflow instead of sending that merchant to a separate payment provider.

That platform is allowing the business to accept payments, you know, where that work is already happening, where they're already situated today. And there's a couple of outcomes that stem from that. You know, first, it simplifies the merchant experience instead of having to go outside of that application and contract with a third party provider. Everything is sort of managed in that single pane of glass.

And second, it gives that platform, right, that software provider, great visibility into transaction activity and the cash flow of that business. And then once payments are embedded, once you start to see a decent attach rate associated with payments, you know, that shouldn't be viewed as the end game in financial services. In a lot of ways, I see it as the starting point. At that point, the platform has customer engagement, they've built transaction data on their customers, they've got a lot of great operational context.

And those types of assets create a really great foundation for introducing adjacent financial products. And I think what's important is that these products aren't being introduced as standalone financial offerings that are sort of separate to the software that that provider is offering. They're being surfaced in the context of that merchant's existing workflow, often at the moment of need, at the moment that it's most relevant for that business.

And that's why I often talk about payments as this beachhead for embedded finance because payments establish the infrastructure, they create the data, they build that merchant relationship and they make that broader financial service or financial services possible. It's about removing friction by delivering those financial services where the work is already happening for that business.

So we've talked a bit about how software has become this distribution channel services for SMBs. But I think equally important is what's happening on the demand side. You know, small businesses are increasingly telling us they want fewer systems to manage. One of the clearest signals from our research is that financial operations, for small businesses, they've remained incredibly fragmented.

More than half of small businesses tell us they're relying too heavily on manual processes to manage financial tasks. That creates a lot of inefficiency for the business. It, results in duplicate data entry. It creates all this unnecessary administrative work for a business owner or a business operator who is already stretched for time.

They wanna focus on their customers and their business. Not surprisingly, sixty percent tell us that their business would run more efficiently if the financial services their organization was using was better integrated with the software they're already depending on to run their business. And I think that's an important point. You know, they're asking for a better experience.

They're looking for fewer places to manage their business. And at the end of the day, really want financial services to be part of the workflow rather than again, that separate application, that separate silo that they have to manage and dedicate cycles to. And perhaps the strongest signal is that final data point you see on the slide, two thirds of SMBs tell us they'd like their software providers to offer integrated financial products. If you zoom in and you look specifically at the small businesses that are already using vertical software, that number actually jumps up to eighty percent and it tells us something important.

Know, as software becomes more central to running the business, merchants are increasingly thinking of those software providers, you know, not just as a tech vendor, they're increasingly thinking of them as a partner for the business. And once that trust is established through, you know, everyday workflows and through that payment processing relationship, it's a very natural extension for merchants to begin to look to that same platform for different types of financial services that their business needs. So I want to talk a bit about the opportunity that we think this creates for software providers.

SMBs are telling us they want more integrated financial experiences. That's great. But what does that mean in the context of your business? Well, across the market, we very consistently see three primary business outcomes from expanding beyond payments into embedded finance.

And the first is enhancing value of the platform itself. The most successful software providers aren't thinking of financial services as against standalone products. They're thinking of them as ways to remove friction from the customer's day. I mean, is the goal. You know, that is sort of the day one objective. If you can help a merchant accept payments and access capital and pay suppliers or manage cash flow without having to leave the application they're already using, you're solving a very real operational problem for your customers. And over time, the platform evolves from what was once seen as a software application into what has really become the operating system for running the business.

The second is around better customer retention, right? Every additional financial capability creates another touch point between the merchant and the platform that they're using. And as those services become more and more interconnected, the platform becomes more deeply embedded in that customer's operation. And that's valuable because, know, as a result of that switching becomes increasingly disruptive for that business.

A merchant isn't simply replacing software anymore. They're really replacing the way they run their business at the end of the day. And, you know, from our perspective, one of the biggest strategic benefits of embedded finance isn't necessarily acquiring new customers. Certainly, that is one of the goals.

But I think the the biggest benefit in my mind is strengthening the relationships with the customers that you already have by providing them additional value. And the third outcome and perhaps most obvious is revenue growth. You know, financial services create all these new monetization opportunities through payments or lending or banking. They can do a lot of great things for the business, As a vertical software provider, your total addressable market is inherently limited by the number of businesses in that vertical.

So you have an opportunity to increase ARPU by selling more to that customer. You can improve your tax rates, you can get creative and look for opportunities to move customers into higher value subscription tiers where those embedded finance capabilities are available.

But I'd emphasize that in many cases, the financial upside, I really see it as a byproduct of creating more value for merchants. The platforms that tend to be most successful and succeed in the market are the ones that are solving customer problems first. And the revenue sort of naturally follows that. And so if you take a step back and you think about these outcomes together, I think they help to explain why embedded finance has become such a strategic priority across the software industry. Everywhere you look, right, every software platform that's serving merchants inevitably is heading in this direction in some way, shape or form. It's not simply adding another product, it's about making the platform more valuable, more differentiated and more central to how that business operates and serves its customers.

So let's bring these ideas together. Wanna talk about why we're seeing so much momentum around embedded lending specifically. If payments are the foundation of embedded finance, which I believe is the case lending is very often the first major capability that gets built on top of that foundation. And it starts with a very real pain point for small businesses, which is cash flow.

You know, in our research, more than two and five SMBs tell us that managing cash flow is a challenge for their organization. It's not too terribly surprising, right? You think about how many businesses are dealing with things like seasonal demand, they're dealing with inventory purchases, they've got payroll obligations, could be an unexpected expense, Your restaurant and your your refrigerating system goes down, your HVAC goes down. That is a big expense for the organization.

So the need for working capital is not new, right? This has been a challenge forever. But what is changing is how businesses are accessing it. And traditionally, if you wanted to access capital as a small business, that meant leaving the workflow.

You've got to go and fill out a lengthy application. You've got to pull together all this documentation. You're waiting for underwriting decisions and then you've got to manage repayment through a separate institution.

Embedded lending flips that model upside down. Instead of asking the merchant to go elsewhere, you're surfacing financing directly inside the software that they're using often right at the moment that they need it most. And that's where payments become incredibly important because once the platform is processing payments, it has ongoing visibility into the merchant sales activity and the merchant's cash flow. And that creates a great understanding of the business, you know, much greater than a static application that you complete once a year is ever going to provide.

And it also gives a much smoother repayment experience to that merchant because those repayments can be aligned with the merchant payment flows rather than requiring these fixed monthly payments that might not very naturally coincide with how that merchant's business operates. And then from the merchant standpoint, you think about the benefits, it's fairly straightforward, right? The application is simpler, the decisions happen a lot faster. And because that platform has a deep understanding of the business, it can personalize those offers.

It can better align those offers with the merchants actual performance and actual financing needs. And you contrast that with the reality for many small businesses today, which is going to a bank that often has a one size fits all approach to lending and fails to address the needs and the nuances of an SMB that's operating in a specific vertical. And then if you're the software provider, you know, this is just another example of creating value inside the workflow. Alright, if you're a platform for, let's say hospitality businesses, you've got a latent opportunity to support your customers whose payment volumes are inevitably impacted by factors like, you know, seasonal fluctuations or understaffing or what have you.

And so that's why, we really think of embedded lending as one of the most logical extensions of embedded payments because payments establish the relationship, they generate the data, they create the infrastructure that lending builds on top of to really address one of the most important financial needs for customers.

So I'll close by sharing some of what we've observed among leading software platforms that we've analyzed, who have already expanded into embedded lending and across multiple vertical SaaS providers, we see a very consistent pattern, which is when embedded lending is thoughtfully integrated into the platform, it creates real tangible value for merchants in the software provider. First, we often see stronger merchant growth somewhat unsurprisingly, right? If you're a user of an embedded lending offering, you're frequently experiencing greater sales growth over the following six months than a comparable business that doesn't use those offerings typically to the tune of twenty to forty percent.

And that makes intuitive sense, access to working capital enables that business to go out and purchase inventory, hire more employees, invest in marketing, they can continue growing. And so as a platform, you know, that means you're investing in the success of your customers. That's great. And as a byproduct of that, you're accelerating payment volume growth because your customers are growing as well.

Second, we typically see higher customer retention to the tune of about ten to twenty percent as compared to non users. So the platform isn't just where merchants are managing operations anymore. Again, it's helping them solve important financial challenges as well.

And finally, see repeat usage, So more than half of embedded lending users return for additional capital to us. That's an important indicator that these offerings are addressing an ongoing need for the business rather than just these one time sort of one off events. So you put those outcomes together. And I think it reinforces a broader point I've been trying to make, which is that embedded lending isn't just another monetization opportunity. It's a way to help merchants grow, to make that platform more valuable to the end customer and more central to how they run their operations and ultimately increasing switching costs, making that platform more difficult to replace.

So I'll put a pin in my remarks there. Excuse me there. But before we transition, I'd love to get a sense of what everybody's seeing in their own merchant base. And so the question that we have for you all is based on your experience, how have your SMBs tried to access working capital?

Is it traditional lending and bank loans? Is it a referral from your business? Is it lending that you're already offering? Is it directly through the platform?

Curious to hear what everyone's seeing. I think generally what we see is that you know, businesses often piece together capital from multiple sources over the life of the business. Know, that could be a traditional bank loan, maybe it's a credit card in a lot of cases it is, it could be an online lender. And it tells me at least that the challenge isn't necessarily a lack of financing. It's, It's often a lack of a convenient, timely, contextually relevant way to access capital for the business.

And so just looking at some of these responses come in interesting. So it seems to me that traditional lending bank loans is the direction of travel for most of your customers.

Very interesting to see. I think, you know, the challenge that that creates is that one size fits all approach to lending that many financial institutions adhere to that doesn't take into consideration the specific nuances of merchants in a given vertical.

So to me, that telegraphs a great opportunity for software providers to add that personalization, add that extra context surface that capital at the moment in need for customers scratch a real itch for those end user merchants.

So great. So with that market context in mind, I'd love to hand it over to Peter, who's going to discuss really what software providers should consider as they're evaluating embedded lending, what readiness looks like, and how platforms are bringing these capabilities to market. So Peter, I'll hand it over to you.

Thanks Jordan. Yeah, and just one other thing on that poll.

Other thing that we have seen is that a lot of times when merchants need lending, they're actually using their credit cards and using that for cash advances, and I know it's hard for our poll poll people here to answer those questions, but generally, what we've found is if they need if they need working capital quickly, the bank's bank loan process can actually take a period of time versus putting it on their credit card, but then, of course, they're faced with very high credit card rate and interest charges.

But thank you for that presentation. Great introductory to what I'd like to just talk about and reinforce today is really thinking about the need for starting out with a very strong payment foundation, and which does lead you to this area of finance, embedded finance. And what we found is that one size doesn't fit all, so it's important especially from a software perspective, what are the kind of verticals that those businesses are going after.

We've really seen a movement to a lot of SaaS companies moving into vertical businesses so they can provide a specific solution and need.

And then one of their first challenges is how do they integrate into a tech stack that works well for them, right? And so that integration piece and that making that right choice are really about being able to support multiple ways to pay that are based on their particular business.

Being able to provide different ways to integrate. So if you think about integration, just from a software perspective to start, some some software companies are much more sophisticated and would use an API to directly connect into a payment platform. Others would wanna maybe try using embedded components because they wanna move very quickly. And then you know the third option is always using some kind of, in an e commerce situation, a hosted environment where there's a third party hosted page that could be specifically white labeled for them.

But with this digitization of software and digitization of these businesses, you're seeing a lot more of these vertical software businesses, and you know, the needs, for example, on this slide we have medical and dental versus the needs for education or vending, or parking, or even non profits and charities are very different, and making sure that the payment platform that is chosen meets the needs and can help with the variety of different types of payment methods that may be required for all of these different areas.

If we look at those different things, thinking about those customers as well based on the types of payments they're going to make becomes very critical. So every business you know may need a different set of rails, so traditionally you know at NMI and others we first think of payments starting with you know credit card or debit card.

You know credit or debit's usually in person online, in the front door of most businesses. But in some cases, especially as you get to bigger purchases, ACH becomes more important, or in some cases of recurring payments. So if you think of a gym membership for example, like a software company that's building software specifically for gyms or spas or those kinds of businesses, many times they may choose to take a credit card payment as a recurring payment, or they may want to do a bank transfer and an ACH. And so ACH makes sense many times because it's a much less expensive offering, and from an interchange perspective can be less expensive for those particular companies.

But there is time time, but time is money too. So there is a timing aspect of how quickly someone gets paid. Other ways of thinking about those same rails is thinking about those different types of organizations is really around how long what the cost versus the speed of getting paid is. And so other ways that people think about it are how do you direct to account to account payments, so pay by bank, no card is needed, so in some cases you may have gig workers who are non bank, and then want to be paid by, or maybe want to be paid in other ways.

And then when you think about maybe a insurance company where they're maybe taking payments through ACH or credit cards, and that timing for dollars is less important, but can meet that payment date, versus if they're gonna have to issue a claim, which they may need to do. And so if someone's house burns down and that consumer's house burns down, they wanna be able to have a real time payment method, and it might be a very large amount, and they wanna be able to get that payment to somebody within just a couple of hours. And so using real time payment methods there makes more sense. So, you

know, when you're thinking about, if you're working with software companies to provide them payments, payment products, or you're a software company looking at making and choosing a payment platform, the things that become very important is, you know, how do I how do I get paid, and how do I do that efficiently? And and what are the use cases surrounding how I might wanna be able to get paid versus how the consumer needs to get paid, or how the business or merchant needs to get paid.

I would also say that there are different aspects of how they think about moving money, and how do they actually manage their cash flow, which gets us into things like how do I finance my working capital, how do I finance new equipment that I may need or that is required.

And then I think if you think about the way that they wanna do that, what I think is very important in the end, especially as we talk to more software companies, is what is that customer experience, right? So that customer experience is almost critical to allowing within that software embedded within that software program to be able to use those same tools to be able to provide different all those different types of payment methods and and embedded finance that they can do inside of that piece particular piece of software. And then then it becomes, how do I reduce all this manual work? How do

I begin to automate that those transactions if those are recurring or transactions that are doing on an ongoing basis, or or they could be invoices that are coming in? How do I begin to manage all that? How do I then get access to capital quickly and and provide a mechanism to get get to that capital? And then how do I make sure that I'm keeping connected both to the different payment methods and making sure I have the right amount of uptime that gives me confidence that I will be continually successful with what I am doing.

And then the other piece is that, you know, it's not always business to business to consumer or business to consumer, it's also businesses that are paying other businesses. And being able to have be able to do that all inside of one single, within a single software platform becomes important in any of these vertical instances, and more important in some than others, but being able to provide account to account payments, being able to make sure you can do recurring payments or invoicing payments, any other type of business to business payment becomes important. And then some organizations, when you think about companies that have gig workers, or contractors for example, payouts and disbursements become more important, and the ability to schedule those potentially or accelerate those or make sure that someone can be paid almost instantaneously does become more important.

And then if you start to look at some some, then they start to balance what are the, what's my cost structure taking one type of payment over another type of payment, the ease of taking those payments, you know, credit card payments are accepted you know worldwide, very easy to accept, versus some other lower cost payments, but that can take longer, and maybe in some cases aren't as reliable, or don't have some of the benefits that a credit card does where you can, you know, you can do things like charge backs and etcetera. Charge backs and returns and things like that that are more protective of the end user customer or the consumer in this case.

So those are all things, you know, those are just some small set of things to think about as you're looking at the different payment platforms that may be chosen, and then those payment platforms really lead you to a set of, next set of activities. And what we've seen, and kind of repeating on what Jordan just spoke about, is really firstly thinking about that payment foundation. So making sure that when you're picking a platform and a foundation, that that can accept a variety of cards and credit and the ability to move money across all of these different rails, because those end customers are gonna need and require that type of capability.

And then the second piece is starting to look at how do you refine your product offerings to meet the needs of those specific businesses that that software company may be providing, right? So as a software company, you may be providing services to multiple different types of businesses, or as an ISO for example, you may have different software companies that you wanna provide solutions to. And so being able to make sure you understand the different services that may be available, and how they're thinking about getting paid and paying their suppliers becomes important. And then finally, thinking about fully embedded finance.

And from our perspective, the first part of that is really thinking about how do these organizations manage and get some level of business capital, and we'll talk a little bit more about that as we go through this presentation. So one of the things I wanted to to just set you know, focus on a little bit is once you you figure out the payment platform that works for you and then make sure that you can support all of these different rails, then as you start to look at the vertical solutions that you're trying to provide to a particular end consumer or merchant, I'm sorry, a merchant and their consumers, there really are a number of different ways that you can start to think about that.

So in some cases where you might have customers that are in places like Europe or Central America, for example.

Many of those require some type of payer authentication, usually called 3DS.

There are other options too to help software companies prevent any kind of fraud or or their partners to be able to prevent any kind of fraud. So you can have a couple of different versions of that. One version, for example, uses a network effect of being able to look at cards across the entire set of that ecosystem that particular set of vendors might have, or you can do it in a rules based mechanism, so you can set up different types of rules based on how payments are being made, so that you can detect and find fraud easily.

That's usually when you're thinking about an ecommerce transaction, when you're thinking of a in like an in store or a card present transaction as we like to call them. Then you wanna make sure your devices are fully encrypted so that having those devices fully encrypted gives you the ability to avoid any kind of PCI scope. So as long we or other companies can provide the ability to stay within PCI scope and eliminate any need for an audit.

And then also, you know, making sure that you're maximizing your authorizations, but also can manage any chargebacks so that if you think about the you know, the Visa's, the MasterCard's, etcetera, they want to very much limit that chargeback capabilities and have some, can get to some extensive fines if they believe there's misuse in the system. And so being able to think about, oh, do I need chargeback management? Am I dealing, what's my, what is kind of the risk level of these different types of verticals, for example, and making sure that you're meeting those particular needs.

Then you can get to other areas.

One new sets of technology that's becoming much more popular and is being driven by the card brands is really around tokenization, and there's really two types today. There's really network tokenization that is being sponsored by the networks that by implementing network tokenization usually improves authorization rates, can also improve, in many cases, reduce the total amount that you're paying on interchange depending on the way that that is being set up for you. So choosing to be able to tokenize transactions and using tokenization, whether it's a network token or in some cases it will be a customer token if you're supporting multiple different credit card brands, those become important for both security, recurring payments, and in many cases better and improved authorizations.

And so it also, if you have a situation where you have recurring payments, so if we go back to the gym membership for example, and you have a card on file, you want to be able to make sure that you have the ability to do recurring payments, and using tokenization is the way that you can keep a card on file, and then using technologies like a card, an automatic card updating allows that card to stay updated and be updated to, so that that you can you don't have to go back to the end user to get their new card information. It's automatically updated, and so that those payments continue, and and you have you have a stable set of cash inflows without having to worry about changes in their card, like it expiring for something.

You know, and then just to talk about some of the more business to business functions, electronic invoicing becomes important, or if you're doing a lot of business to business transactions, you can optimize interchange rates again with being able to support level two and level three, which is really being able to provide enhanced information into those systems.

And then as we've seen, there's a little bit more sensitivity to many businesses now around what it what it actually cost them to do a credit take a credit card transaction. So the ability to do surcharging and cash discounting become more important, and those are additional services that in some cases restaurants, for example, are trying to implement given they rely on very thin margins.

But you need to make sure that you're doing it in a correct way. There's some states that have totally outlawed surcharging, for example, in California and New York, and I think a couple others.

And then there's also the ability of either doing surcharging, which is adding additional fee, or cash discounting and being able to, you know, like most gas stations used to do, I'm not sure they do it as much anymore, but being able to think about cash discounting from, hey, you have a credit card price that you publish and a cash prod price, so they regularly and better understand as a consumer what is their actual cost.

And then, you know, again, as a any business, whether you're any business that you're thinking about, you wanna have better insights into the entire portfolio of your business, and so understanding the business, the merchants or the clients that you're working with, and getting better insights into them so that you can provide the right products and services and values to them that makes sense. And then, you know, as we see this more movement to digital, there's of course people are paying with contactless payments now, so they're using Apple Pay and Google Pay and other digital payment methods like that.

But the reverse is true too, so being able to think about some types of organizations, especially use cases where you might have a pop up restaurant, or a food truck, or even a farmers market, where instead of wanting, instead of being able to take payments using, you know, an expensive device, for example, they can easily put now a POS on their existing device. So they can take their Apple phone or their Android device and add a a point of sale capability and support just contactless. Or in some cases, might see a servicing organization where in many cases you have service pros, for example, that go to different a plumber or a electrician that might come to somebody's house and use text to pay to be able to text the actual invoice or payment information to the consumer they can easily input their credit card information or pay that invoice via text.

And then also having, thinking about extending any kind of application to application, and ensuring that that mobile application, either on a standalone basis or as a part of that mobile application, can take payments as well. And so those are some of the services, and then you look at how do I extend those different services to make sure that for a b to b business that I can connect to QuickBooks for example, or I might wanna use a variety of shopping carts, so Shopify being an example of being having an embedded or integrated service that you want. And then of course being able to have access to business capital becomes another important consideration on that journey.

And so once you have, you know, and have decided on the set of services and capabilities that you need for that particular client or merchant, and if that's a particular vertical, they have very specific needs, Now you start to build a very strong payment relationship that gives you both trust with that client and merchant, and starts to give you a lot of information about their business so you can provide them additional services. Right? So you begin to understand their transaction types, their history, the risk levels that that business may have, so you can incorporate the right tools and the right services that we just talked about to meet those particular needs.

And you make sure you have all the operation operational and risk data that gives you insights into providing better types of capabilities. All of that information also helps determine the right types of embedded finance solutions that you might want to offer in the future.

And so now you start to think about what are those finance offerings that I'd want to have? Would I want to provide something like an embedded lending product, or do I wanna be able to make sure that I can embed specific payouts and disbursements and different types of timings to those gift workers or contractors that they might have in those organizations?

Or, you know, do I wanna be able to support payroll or maybe some kind of marketplace as well? So being able to start to collect that information, utilize that information, and understand it allows you to start to build on on that relationship and start thinking about what are the embedded finance products that you would actually wanna have and and deliver into those organizations. And we what we've seen really first, and what we've seen demand from our our partner base and our software company base has really been thinking about embedded lending. And so again, when you start to think about embedded lending, they're using these tools for a variety of reasons.

They're using them for buying new inventory, maybe managing seasonal demand so you can see, especially between any holiday season for a retailer or something like that, they may need to be able to get capitals, and certainly capital in a short period of time to just manage these, the buying of inventory, and then having a big sale in two or three months.

In some cases, if you're working with a growing business, then you're working with companies that are doing, you know, plumbing and HVAC and those kind of systems, being able to upgrade equipment or easily invest in the business really becomes more important.

And then or in just some cases, they wanna fund some type of part of their operational business. And part of this whole embedded lending is really not to, you know, be forcing loans onto people, but to be able to give these merchants access to capital when they need it and and for as long as they need it. And so as as Jordan explained, what we've also seen with being able to provide embedded finance capabilities is this ability that you end up with a recurring loan structure. And I think what we'll we'll just pause here and ask some questions, and really wanna understand based on what you what any of you have seen, what's your biggest barrier to launching an embedded lending product.

What we've seen is that there have been embedded lending products, for example, that have charged very high rates, and so in some cases they look like sim they're very similar to credit cards in the way that organizations have to have to manage the the sorry, how organizations really look at the actual cost of that capital, and so there have been a lot of lending programs that are charging rates that are similar to credit cards, and make it very difficult for the end merchant or end client to pay those off.

What we've seen is being able to find loans that you can underwrite properly, provide the right set of interest rates that meet the needs of the business, actually brings back repeat users, and then being able to rely on a platform that gives you the capability of some level of flexibility in how you might want to pay back those loans, and having flexible loan offerings that kind of are more attached to the type of business and the type of business that they need.

So it's interesting to see, definitely underwriting and compliance I can see as being complex, especially if it's on the burden of the software company or the partner, we've seen quite a bit.

And I think, yes, I think picking the right technology partner is very key, and we can talk a little bit about NMI and some of the things that we've done there. I don't know, Jordan, if you have any thoughts or comments as well on the poll?

And you're on mute, I think.

Looks like looks like, unfortunately, Jordan's got himself he may be double muted, but maybe what we'll do is we'll try to move on to the the rest of the slides, and we'll, maybe we can talk about that as we get further down the line.

So what I wanted to talk about just to give you some examples of, and help answer some of those questions within those poll questions, is think about working capital and working capital funding.

And so we have looked at that in a couple of different ways, and again, based on how we think about use cases and use cases to particular types of organizations.

And so, you know, when you think about an established business that may have seasonality to it, so they may wanna be able to pay, do repayments based on what are their daily sales, and then have that that automatically debited from their accounts.

We consider those flex loans, right? And so flex loans have different use cases. They may be the case of being able to buy before the holidays and pay off. So maybe prior to the holiday season, your business is slower, but as the business during, you know, let's say Christmas for example, or Labor Day sales, that your business is higher. And so having a fixed percentage of your total credit card payment be pay off that loan, makes that a flexible loan.

You're you're getting a set amount of capital that you're sorry, the merchant or client is getting a set amount of capital at that particular time, and then they have the ability to kind of extend the payout payment of that loan based on the variations of their business.

The second type of thing that we look at is being able to provide what are called starter loans, right, are really designed for new businesses.

In many cases, that's one of the hardest places to get lending, and being able to provide those types of loans from a bank can sometimes be difficult. Usually to do that through a bank account for example, a lot of times you're you're putting up your own, you're putting up some kind of asset, and it could be somebody's personal house or something, especially for a small business.

So as long as once that business is up and running, and they have just a little bit of transaction history, there are these starter loans that allow for new businesses to get some working capital so they can get off the ground faster. And usually these are like new ecommerce shops, or newly opened restaurants, or retail locations that really doesn't have much payment history, but allows them to start and get some working capital so that they can start off and get going. And then really for larger businesses that have a little bit more control, and you know may have CFOs that really are focused on making sure that they understand their cash flow over time.

Those are more of like traditional loans, like more term loans, where those scaling businesses want a fixed loan amount at a fixed rate on a very predictable payment schedule, so they can manage their cash flow, they know what's coming.

And so we see that as like more larger businesses that were looking for those loans, so they have multiple locations maybe, they're looking into larger expansion, maybe a big expansion of a new franchise, or a new moving into a new city, or adding another e commerce site, and so being able to do that becomes important.

And then the key here for us, and you know, to think about is to be able to deliver that all through that same platform that you're using today. And it really goes back to having that payment foundation because now you have the information, you know especially with flex loans and term loans that are about that existing business, and allows us as a you know, NMI for example, to be able to deliver loans based on looking and understanding all of that data that has been collected, and then being able to provide the right loan at the right time through our partners to their end customers. And so that's one way to think about the embedded lending.

Another way that I'd like people to think about and considering is also many organizations are looking at paying and lending to creators and gig workers. And so, you know, there is a need for being able to do this through different types of mechanisms, and as we think about these types of paying and lending, payment could be through ACH, same day ACH, or real time payments.

And now we're seeing more things with the ability to push to card. And again, these are user use case driven, and so really thinking about what is the particular use case, how quickly money is needed and money is required, and then being able to meet that particular need. So if you look at some of the data that we collected here, you know, a lot of consumers would like prefer instant disbursements if given the choice, they want the money as quickly as possible.

A lot of contractors or gig workers would pay a fee to get their funds instantly, and consumers are already interested in borrowing money as well quickly and instantly. So being able to have other products that meet the needs of end consumers also becomes more important.

And then lastly, like as we talk about being able to instantly deliver payments, now we're starting to see a trend around being able to push the car. So if you think of gig workers again, who are unbanked, for example, the ability to push wages or loans instantly to a debit card, or a prepaid card, and that actually doesn't necessarily require a bank account to be linked.

It's a much more powerful capability. And so being able to have a debit card that they can use, leverage, and also they're willing, there's a certain willingness for them to be instead of being paid on Friday, they get paid at the end of the day instantly into a debit card.

Is can be important for you know, just important for a gig worker as it is for a merchant in managing their cash. And so again, this is another use case to be thinking about as as you're looking at a pay you know, a payments foundation and a platform of what you might need now and in the future.

And so, you know, I'll just leave with leave you with some some thoughts around how do you make this work?

What are the needs and the operating model that you're looking for and some of the questions that you wanna be able to answer.

Where will the offer appear? Like in some cases, will it appear directly in the software product? Will it appear will they get it via email?

What business data is required? And making sure that whatever your whatever platform you're using is helping you collect that data, but collecting it anonymously, right? So you're not you're you're protecting the client and the the partner in these cases. And then what is really about, you know, the end client experience, and making sure that is a great experience. And then what is, who owns the risk, right? So in most cases, our partners and software companies wanna limit their risk, and not have to worry about doing the underwriting, and not having to worry about doing the servicing and support, and making sure that they still maintain that relationship with the end user, or with the partner, and the partner with the end user, but that any of the payment complicated issues are helped or taken care of by maybe the payments platform itself.

And then what's the business impact, right? How is that performance provided, and how do you continue to earn revenue on these embedded finance products?

And so, you know, from our perspective, being able to provide embedded payments is really we are designed for being able to do that for every stage of growth. And so, you know, as the leaving you with the one minute NMI kind of commercial, making, you know, being able to support a single platform with all of these different modularities, being to have different ways to be able to integrate, so we talked a little bit about low code, no code, low code, you know, embedded payment, embedded components, APIs, and also AI native workflows, because now we're seeing agents looking at using agents to build to build web pages and to build software.

So being able to have the AI actually do the integration becomes more important. Making sure there's a sandbox for developers to be able to test these applications using open banking services so you can get instant verification and helps with all of the automation. And then I think one of the other key parts is ensuring that you have a white labeled platform, which allows for the branding of the individual software company to be able to brand the software and make sure that they have that continuous customer experience is critical.

And so the role that we play is really providing a single platform, and providing many financial capabilities and experiences for our partners to deliver to their either end clients or their merchants.

And so being able to be able to char, be able to support, you know, omnichannel card payments, both credit and debit, online, in app, being able to provide a host of different types of devices that work for different use cases, supporting different bank payments, automating automating the onboarding of, you know, a a individual software company and their merchants, being able to help manage the underwriting and risk tools, either have our partners do that, or the partners do that on behalf of our partners.

Being able to provide in-depth reporting across the entire portfolio, so you have insights into that portfolio, and how do you work with each of those individual partners and provide the right information to to those merchants.

And then being able to provide a series of embedded lending products that continue to add value to your to your business and continue to provide a mechanism for bringing more value to your to your to your end customers or to your software or to the software companies that you may serve, or the software companies that are serving their end clients.

And so, you know, just some practical takeaways, and then I will open it up for questions, but you know, start with the business problem, right? When you're looking at the different types of end customers somebody is serving, think about what are those use cases, and how are they thinking about getting paid, how are they thinking about moving money, how do they, what type of working capital requirements do they need, are they a seasonal business, are they a large business, and then, you know, what do they wanna, how do they limit the amount of manual work needed for onboarding, reporting, and accessing the right automation tools that are required to make all of this be seamless.

And then at the end of the day, we're seeing a lot of interest in AI and making sure that it's a platform that is extensible to use with AI agents so that AI agents can have access to the information that's needed in the platform to help speed up integration and do that more quickly. And so with that, I'm gonna conclude with this one slide.

You know, we really believe that the customer experience becomes really critical, and you know, a lot of the feedback, especially from software companies, has all been about making sure that they have the best customer experience, so being able to work with a single organization that can provide a number of different services for them, and making sure that the services that they are providing look like all the other services that they have within their software stack.

And so I wanna thank you know, all of you for staying on for you know, the fifty nine minutes that we've gone through this. We will try to answer a couple of quick questions here, and then we'll conclude the webinar. But thank you all for your time and attention.

Thank you, Peter. I think it was excellent from your part and you as well, Jordan.

We do have time for a couple quick questions, but let me just assure the audience that your questions will be answered directly from the NMI people. So we know that your question we noticed that it's important to you and we'll definitely get back to you on that one question one person let up was for push to card wages Is that through a payroll provider of NMI?

So that, so that push to card capability is a future capability that we're actually working on, and we'll be happy to, you know, if you'd like to contact us directly, we'd be happy to talk to you more about those different capabilities about being able to push to card, but as you can imagine, lot of the value added services that we've talked about today were the are extensions for our existing platform for different services that we have, and some of it is a little some of the things that we're working on in the future to be able to provide to our partners.

Excellent. Another one someone else said asks is how do you accomplish paying other businesses through the software when it's either embedded or done via API?

So we have a API first money movement set of product offerings that uses integration, a single API to integrate into being able to move money.

Probably a great question to engage us with with one of our sales engineers who knows a lot more about that than we do. Usually what we do is we work with our partner on figuring out how do we actually solution that particular requirement or need depending. So it could be an insurance company with a bunch of different API capabilities that a partner is trying to solve the problem for. It could be other types of organizations. So right now, it's usually done through a single API to be able to move money, and that is integrated with the software company to be able to do that.

Alright. Well, thank you, Peter, again for your time, and you as well, Jordan.

You're gonna make, if you would like to come back to see the presentation I know on digital transactions website, we've got it under webinars and we're happy to be up there of this afternoon and you can take a view at the event So again, thank you for attending this digital transactions webinar series, and definitely thank you to NMI as well as S and P Global Market Intelligence for Peter and Jordan's participation, and we wish you to have a great afternoon. Thanks, bye.

Thank you all. Thanks Bob for being such a great host.