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Beyond the Transaction: The Flywheel Connecting Embedded Fintech and User Experience

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This is Part 1 of a two-part series. Stay tuned for Part 2 shortly!

Introduction: The Trillion Dollar Reshaping of Software and Finance

 

While AI gets more headlines of late, embedded fintech continues to fundamentally reshape the digital economy by shifting the user experience and how value is created, distributed, and captured — far beyond the initial convenience of in-app payments. 

Embedded fintech products transform SaaS applications from simple software providers into the indispensable operating systems — the strategic “Second Act” that unlocks value beyond the linear growth of subscription fees. They also represent the frontier of value-added services that banks and accounting platforms can offer to business clients who want greater visibility, control, and insight into their end-to-end cash flow.

The scope of this transition can get lost. In the United States alone, the value of transactions flowing through embedded fintech products is expected to exceed $7 trillion by the end of 2026 (up from $2.6 trillion in 2021); while estimates vary, this represents just under a quarter of all US digital transactions. These figures suggest that embedded fintech will account for more than 10% of all U.S. financial transaction value within the next few years.

Leading venture investors like Bessemer (BVP) have taken note as well. “Most of our vertical SaaS leaders emerged as market-defining companies through the power of ‘The Second Act.’ In many cases, these businesses leveraged payment products and embedded fintech solutions to expand their addressable markets, drive product stickiness, and expand their average contract values.”

“Financial services components of these businesses were strong catalysts for increased retention and stickiness, and led to ‘sneaky large TAMs.’”  —Charles Birnbaum, Bessemer Venture Partners, Wharton Fintech Podcast

Other well-known investors from A16Z, Matrix, Tidemark, and Redstone/ Defy have identified similar dynamics among their successful portfolio companies. The initial software offering—the ‘First Act’—serves to acquire the customer and become the system of record or create a ‘control point’. Then embedded fintech products—the ‘Second Act’—solve related pains for customers and therefore increase value. As Angela Strange and team from A16Z note, “Fintech holds, or even lowers, the cost of customer acquisition (CAC), while increasing the lifetime value (LTV) in vertical SaaS.” 

When SMB-focused platforms execute well, smart strategy starts to look like alchemy and a flywheel takes hold—we’ll look at several companies where this dynamic exists like Shopify, Toast, and Mindbody, among others. 

  • Part I: The Power of the Bundle demonstrates how seamless cross-product integration creates a superior user experience and solves more pain for customers.
  • Part II: The Path to ‘Irreplaceable’ examines how embedding fintech products forges unbreakable customer relationships and strong competitive moats.
  • Part III: The Revenue Multiplier quantifies how this strategy fundamentally alters the unit economics and key operating metrics of platform businesses.
  • Part IV: The Data Advantage explores how proprietary platform data enables personalization and more targeted upsell approaches.

 

Embedded fintech flywheel: power of the bundle, path to irreplaceable, revenue multiplier, data advantage

Together, these four pillars provide a comprehensive framework for understanding one of the most significant and value-creating trends in technology and finance today.

Part I: The Power of the Bundle: Seamless Integration as a Competitive Weapon

 

The power of embedded fintech lies not just in the individual financial products offered, but in their combination within a single, unified platform. By bundling financial services with operational software tools or adding software-enabled workflow tools on top of traditional financial services, platforms create a superior, frictionless user experience that standalone competitors—from traditional banks to single-product fintechs—cannot replicate. 

Veracross, a platform for private schools, maintains 99% customer retention rates with an exceptional net promoter score of 48 (compared to an industry average of -9.5 for student information systems). Beyond managing student and parent information, their embedded tuition management reduces payment processing times to 2-3 days versus 10+ days for competitors while saving schools over 100 hours annually through automated workflows. 

 

1.1 The Land and Expand Playbook in Action

The dominant strategy for SaaS companies to implement embedded fintech follows a clear land-and-expand playbook. A platform first lands customers by providing an essential operational tool that solves a key pain in daily operations, creating a ‘control point’—such as a point-of-sale system, an e-commerce storefront, or a booking engine. From this foothold the platform can expand the customer relationship by offering financial products contextually, at the precise moment of need, and directly within the existing interface.

The sequencing matters. Research from McKinsey confirms this trend, noting that many platforms begin by offering payment acceptance and deposit accounts. These initial products “promote stickiness” by connecting workflow to cash flow for customers. In most cases, payments act as the beachhead, providing the data and trust necessary to launch more profitable services like lending and insurance.

Square demonstrates similar gains, with customers reporting that integrated systems eliminate the need for “maybe two full administrative persons” according to Graze on Main’s testimonial. Small businesses typically save 8+ hours per pay period when implementing integrated payroll systems—a 90% reduction in administrative time. 

The evolution of Square offers an example of this playbook. The company initially acquired merchants with a simple payment dongle that plugged into a smartphone. From that foothold in payment processing, Square has expanded its offerings into a comprehensive financial and operational ecosystem. Today, a merchant on the Square platform can access Square Banking (business checking and savings accounts), Square Capital (business loans and cash advances), Square Payroll, and customer loyalty programs, all managed directly from the same POS terminal and business dashboard they use to run their daily operations. Each new product is not a separate sale but a natural extension of the existing relationship, offered contextually within the merchant’s workflow.

“In 2022, 44% of Square gross profit came from sellers that used four or more monetized products… We have seen greater retention from larger sellers and those that adopt more products: In 2022, mid-market sellers who adopted four or more products had 15x greater retention than those who only adopted one.” —Speaker: Amrita Ahuja, Company/Org: Block (CFO & COO), Source: Block Q4 2022 Shareholders Letter

 

1.2 Case Study Showcase: From Workflow to Wallet

Examining how leading platforms integrate fintech products provides a clear picture of the user experience dividend that this bundled approach creates.

 

Mindbody: Financing the Wellness Economy

  • Integration: A yoga studio owner uses the Mindbody platform as the central hub for their business, managing class schedules, client bookings, and payment processing. Within their daily dashboard, they see a pre-qualified offer for “Mindbody Capital,” a working capital advance powered by Parafin.
  • The UX Dividend: The traditional alternative to access working capital would likely involve a long, paper-intensive application process at a local bank with no guarantee of approval. With Mindbody Capital, the studio owner can apply in minutes, get a decision based on their existing sales history within the Mindbody system, and receive funds in their bank account in as little as one to two business days. The repayment process is equally seamless; the advance is paid back automatically as a flexible percentage of their daily credit card sales, which are also processed through Mindbody. The result: a frictionless loop that a disconnected bank plus a stand-alone scheduling software could never offer. Most significantly, 85% would recommend Mindbody Capital to others, indicating strong product-market fit and potential for viral growth within the platform ecosystem.

    “From a B2B standpoint, we started out with a core software that was really focused on scheduling, CRM, the point of sale, and payments. Now, as you think about what we do, we’re the ERP system, or the operating system of these businesses… What we see, especially in the SMB segment, is that most of these customers look almost like consumer users. They want it to be as simple as using an iPhone.” —Speaker: Josh McCarter, Company/Org: Mindbody (Former CEO),  Source: Decoding Digital podcast

 

Toast: The Restaurant Operating System

  • Integration: A restaurant owner relies on Toast’s point-of-sale to handle everything from taking orders and processing payments to managing inventory and payroll. Because Toast has a real-time view of the restaurant’s sales and cash flow, it can proactively offer Toast Capital to fund a new location or automate overtime and tip-outs for weekly paychecks.
  • The UX Dividend: Toast manages both operations and finances for the restaurant through a single, cohesive interface. The platform proactively identifies the need for capital via Toast’s own data, the offer is presented contextually on the platform, and the funds are used to grow the business. Similarly, because staff schedules, clock-ins/-outs, and customers checks all connect seamlessly within the POS, the risk of miscalculating wages decreases while giving managers time back at the end of the night.

    “We delivered 125% net retention in 2022, a testament to our platform’s ability to grow with our customers. This is driven by restaurants adding new locations and adopting more products like Payroll, Marketing, and our new supplier-side solutions.” —Speaker: Elena Gomez,  Company/Org: Toast (CFO),  Source: Toast Q4 2022 Earnings Call

Shopify: The Commerce Operating System

  • Integration: An online merchant builds and runs their entire business on the Shopify platform. They use Shopify Payments to accept money from customers, which then flows into their Shopify Balance business account. When they need to purchase inventory, they can access financing through Shopify Capital. The entire experience is unified, from the front-end customer checkout with Shop Pay to the back-end financial management.
  • The UX Dividend: This strategy of creating a single, all-encompassing platform is an explicit goal to better serve merchants and grow Shopify as a business. As Shopify President Harley Finkelstein stated in a Q4 2022 earnings call, “When our merchants do better, we do better. And this is evident in our results. The more merchants that we have on the platform and the more that they sell, the more opportunities we have to help them grow with our solutions, including payments, capital, markets, and installments.” This quote illustrates the intentional and successful execution of a strategy to bundle disparate services into a single, powerful, and unified offering that becomes the central nervous system for commerce.

“When merchants use Shopify Payments… they see, on average, a 15% to 20% higher conversion rate. So that’s one example of how us being more integrated reduces friction and provides a better outcome for the merchant.” —Speaker: Kaz Nejatian, Company/Org: Shopify (COO), Source: Shopify 2022 Q4 Earnings Call

 

Embedded fintech offers a ‘win-win-win’ for platforms, their customers, and embedded financial services providers: platforms increase revenue and improve retention, customers save time and get improved access to financial products, and financial services providers gain a new growth channel. 

Part II: The Path to ‘Irreplaceable’: How Embedded Fintech Forges Unbreakable Customer Relationships

 

A successful embedded fintech strategy solves more customer pain and creates powerful, unique value for customers. The result: customers stay longer than they otherwise would. 

Connecting embedded fintech products with workflow tools (or vice versa), platforms transform themselves from a useful tool into indispensable infrastructure. Deep operational entanglement dramatically increases customer switching costs and builds a stronger competitive moat that new entrants or standalone point solutions must overcome.

“And the beauty of our model is the more products that our customers use, the stickier they are, the lower the churn and the more successful they are. So that flywheel continues to work and it’s evidenced by the strong net retention rate.” — Speaker: Elena Gomez, Company/Org: Toast (CFO), Source: Toast Q4 2022 Earnings Call

 

2.1 Engineering Indispensability: From “Nice-to-Have” to “Can’t-Live-Without”

When a business runs its payments, banking, payroll, and financing through the same platform it uses for scheduling, inventory, and customer relationship management, the software ceases to be a discretionary expense. It becomes an operational necessity, as fundamental to the business as electricity or an internet connection. This transition from a “nice-to-have” tool to an “irreplaceable” utility shows up in customer lifetime value (LTV) calculations.

The financial metrics of companies that have successfully executed this strategy provide clear evidence of this effect. ServiceTitan, a leading vertical SaaS platform for the home and commercial trades industry, disclosed in SEC filings a gross revenue retention rate of over 95% and a dollar-based net retention rate that has remained above 110% for ten consecutive quarters.

These are elite metrics in the software industry. A gross retention rate exceeding 95%, compared to benchmarks of 85% to 90%, signifies that a negligible number of customers are choosing to leave the platform. It is a powerful indicator of extreme customer satisfaction and dependency. Roofstock’s Stessa platform shows customers using cash management accounts retained at 3.5x higher rates than other users. 

The reason for these exceptional retention figures lies not just in the quality of the software, but in the operational friction associated with leaving it. For a contractor using ServiceTitan, migrating to a competitor takes much more than merely exporting a customer list. They would need to rip out their payment processing system, severing and then rebuilding bank account connections and automated expenditures. They would have to find a new financing partner for their customers and a new capital provider for their own business needs. The entire staff would need to be retrained on the new system or systems, inevitably leading to operational chaos and frustrated employees.

This self-inflicted pain and business risk act as a powerful deterrent to churn. The operational dependency becomes the moat, giving ServiceTitan both pricing power and a captive audience for the launch of new products. Unlike a standalone software tool that must constantly re-justify its cost, ServiceTitan sits at the financial and operational core for customers.

Academic research validates these platform economics. A Harvard Kennedy School report for PayPal shows that SMBs using 4+ products on platforms are 8-15x more likely to continue using the platform, while McKinsey reports embedded finance customers spend 20% more per visit than non-users. 

“Better Together represents the idea that every additional product Toast offers works in harmony with Toast’s core point-of-sale system of record. Each product saves a restaurant time, makes them more money, or enables better decisions because of integrated workflows, a richer data set, and a better customer experience.  All while lowering the total cost of ownership.” —Speaker: Chris Comparato, Company/Org: Toast (CEO), Source: Tidemark VC: Excellence in Action

 

2.2 The Platform as the Trusted Partner

Beyond creating operational lock-in, embedding fintech products uplevels the relationship between the platform and its customers. By solving financial pain points—such as forecasting cash flow, accessing working capital, and automating payroll—in the context of the customer’s core workflows, platforms elevate their status from a software vendor or bank to a trusted partner.

Jobber, a business management platform for home service professionals, exemplifies this transformation. The company began by offering core operational software for quoting, scheduling, and invoicing. Over time, it has systematically layered on a suite of financial tools designed to address the most pressing challenges faced by its small business customers.

  • Jobber Payments: This integrated solution is designed to get service professionals paid significantly faster—reportedly up to four times faster than with traditional paper checks. Features like Instant Payouts directly address the critical cash flow needs of small businesses, allowing them to access funds within seconds of a job’s completion, even on weekends and holidays.
  • Jobber Capital: Recognizing that many small service businesses struggle to secure traditional bank loans, Jobber offers access to business financing. Eligibility and offers are based on the business’s payment processing history on the Jobber platform, creating a streamlined and accessible source of capital for needs like purchasing new equipment or hiring staff.
  • Consumer Financing: Through a partnership with Wisetack, Jobber allows its users to offer financing options to their own customers directly on quotes. This empowers a contractor to win larger, more profitable jobs by removing the upfront payment barrier for homeowners, who can opt to pay for a major repair or renovation in installments.

This strategic evolution is reflected in the company’s mission. As Sam Pillar, CEO and co-founder of Jobber, has stated, “What we care about most is the success of the small businesses we serve. We’re committed to doing everything we can to help them transform the way they deliver their services and operate their companies.“

This statement is more than just corporate messaging; it’s a reflection of the business model. By providing the essential tools for payment and financing, Jobber directly impacts its customers’ financial viability and growth potential. This builds a level of trust and reliance that a simple scheduling application could never hope to achieve, reinforcing the platform’s stickiness and cementing its role as an indispensable partner in its customers’ success.

For ServiceTitan, even more telling is the net retention rate of over 110%. This figure demonstrates that the expansion revenue generated from existing customers—who are adopting more modules and increasing their usage of services like payments and financing—more than compensates for churn. This is the “stickiness flywheel” captured in a single metric: customers not only stay, but they also systematically increase their spend over time, making the future adoption of new financial products like insurance or payroll a near certainty 

“We really move the expectation of what a customer experience is from just a user interface experience to an end-to-end financial services journey. That’s where we really think we’ll have a step-change improvement in how we serve our customers today… [Payments helped] FreshBooks grow the businesses by 22%, improved monthly retention by 9%, and increased revenue by 31%.” —Speaker: Andrew Gunner, Company/Org: FreshBooks (Payments PM), Source: FreshBooks Case Study from Stripe

 

Stay tuned for Part 2 of this post shortly where we’ll examine the business case behind embedded fintech. In the meantime, read more on the ‘Future of Small Business Platforms: Cash Flow vs Workflow.’

Additional sources

Brian Busch Brian is currently Head of Marketing at Gusto Embedded; the only payroll API with 10 years of experience and actionable data behind it. Before joining Gusto, Brian held leadership positions at Cloud Elements, Kapost, and Captricity. He holds a BS in finance and a BA in philosophy from Boston College and an MBA from the Cal Berkeley Haas School of Business.

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