This is Part 2 of a two-part series. You can read Part 1 here.
Recap: How Embedded Fintech is Reshaping Software and Finance
Digital platforms that execute a successful embedded fintech strategy can become indispensable operating systems — or “systems of action” — via the “Second Act” (embedded fintech products) that unlocks value beyond the linear growth of subscription fees. Banks and accounting platforms can also offer embedded fintech as value-added services to business clients who want greater visibility, control, and insight into their end-to-end cash flow.
Analysts expect transactions via embedded fintech products to exceed $7 trillion by the end of 2026 (up from $2.6 trillion in 2021), representing nearly 25% of all US digital transactions and more than 10% of all U.S. financial transactions.
Well-known investors from A16Z, Matrix, Tidemark, and Redstone/ Defy have identified similar patterns among their best investments. Digital platforms use payment products and embedded fintech solutions to expand their addressable markets, drive product stickiness, and expand their average contract values.
“Fintech holds, or even lowers, the cost of customer acquisition (CAC), while increasing the lifetime value (LTV) in vertical SaaS.” —Angela Strange, A16Z, Fintech Scales Vertical SaaS
Part 1 of this series outlined the user experience flywheel (bundling + becoming ‘irreplaceble’) that embedded fintech can create by looking at some of the most successful recent examples like Shopify and Toast. Part 2 will look at the business model impacts of embedded fintech (revenue multipliers and the data advantage) that create a four-pillar virtuous cycle:
- 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.
“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
Part III: The Revenue Multiplier: Deconstructing the New P&L of Platforms
The addition of fintech products does more than just retain customers; it fundamentally rewrites the financial DNA of platform businesses.
Embedded fintech catalyzes a powerful revenue multiplier, creating new monetization opportunities beyond subscription fees in the form of usage-based financial services. This transformation supercharges key metrics like Average Revenue Per User (ARPU) and Lifetime Value (LTV), creating a far more scalable and profitable business model than traditional SaaS or traditional financial services alone.
What’s more, in today’s competitive environment embedded fintech helps platforms generate more free cash that they can then reinvest, accelerating the growth cycle. For example, Toast strategically uses its revenue from payment processing to subsidize the cost of its hardware, lowering the barrier to entry for new restaurants and accelerating its market penetration.
“On average, locations that have been on the Toast platform for five years have an ARR over $16,000, representing a 6x increase from their initial ARR.” —Speaker: Chris Comparato, Company/Org: Toast (CEO), Source: Toast Q4 2022 Earnings Call
3.1 Revenue Re-Allocation: From Subscriptions to Financial Services
Once a platform has won the right to offer embedded fintech products, the transition from ‘new revenue opportunities’ to ‘multiple revenue streams’ to ‘we’re a financial services company’ can happen remarkably quickly.
For the most mature platforms, the majority of revenue is no longer derived from software subscriptions but from a share of the commerce and financial activity they enable. This represents a shift from a recurring revenue model to a usage-based, transactional model with a significantly higher ceiling. As a platform’s customers grow their businesses, and as they run more of the business on a single platform, the platform’s revenue grows non-linearly.
“As restaurants add more of our products to their operations, they become more efficient and successful, and we see a direct correlation to our own success with higher retention rates and a 4x to 6x lift in ARR per location compared to a location that only uses our POS.” —Speaker: Chris Comparato, Company/Org: Toast (CEO), Source: Toast Q2 2023 Earnings Call
The data bear this out. Bessemer’s analysis highlights that as far back as 2022, both Shopify and Toast were already generating over half of their revenue from payments. A closer examination of their public filings reveals the depth of this transformation:
- Shopify: The company’s 2024 10-K filing shows that its “Merchant Solutions” segment—which includes Shopify Payments, Shopify Capital, and other financial services—accounted for 74% of total revenue. This segment’s revenue dwarfs that of the “Subscription Solutions” segment, proving that Shopify’s business model is now overwhelmingly driven by the financial services it provides to its merchants.
- Toast: The company’s Q2 2025 earnings report underscores this dynamic, with “Financial Technology Solutions” revenue growing by 25% year-over-year. In 2024, Toast ended the year with $706 million in subscription revenue (with a ~70% profit margin) and $4.1 billion in payments revenue (with a ~22% profit margin), making payments 85%+ of total revenue. Financial products make up the primary engine of the company’s overall growth and demonstrating the power of running transactions through its restaurant operating system.
- Square: Far from its start as a simple card reader, Square’s business model is now predicated on blending software and financial services. Its Q2 2025 financial results show that the gross profit growth of its Square ecosystem was driven by the combined strength of “software, integrated payments, and banking products” though financial solutions revenue accounted for nearly $19 billion, or 86%, of total revenue.
- ServiceTitan: ServiceTitan demonstrates the potential to embed fintech products within a purpose-built workflow. ServiceTitan reports $78,000 average revenue per active customer—significantly higher than typical vertical SaaS peers. The company’s revenue mix shows ~70% subscription platform revenue, ~25% usage-based fintech revenue, and ~5% professional services. While ServiceTitan still generates the majority of its revenue from subscription services, analysts assess that net new revenue splits ~55/44 subscription-to-usage, meaning the percent of usage-based fintech revenue will likely climb.
| Company | Year | Total Revenue | Subscription Solutions Revenue | % of Total | Merchant/
Financial Solutions Revenue |
% of Total | Source |
| Shopify | 2024 | $8.88 B | $2.31 B | 26% | $6.57 B | 74% | 1 |
| Toast | 2024 | $4.81 B | $706 M | 15% | $4.10 B | 85% | 2 |
| Square | 2024 | $21.92 B | $2.84 B | 13% | $18.91 B | 86% | 3 |
| ServiceTitan | 2024 (approx) | $813 M | $569 M | 70% | $203 M | 25% | 4 |
Note: Revenue categories have been standardized for comparison. Block’s “Subscription and services-based revenue” is used for Subscription Solutions, while “Transaction-based” and “Bitcoin” revenues are combined for Financial Solutions.
These data move the argument from a conceptual claim that “fintech is important” to a hard financial fact. For the most successful platforms, the primary engine of revenue generation has switched from software to financial services. Looking at Block/Square in particular, with its start in payments processing, it also stands to reason that adding the right workflow products to traditional financial services will also increase client LTV through a combination of reduced churn and increased revenue on high-margin software services.
These data demonstrate why we call this pillar “the revenue multiplier”—platforms with successful embedded fintech strategies show a 1.25x to 4x increase in unit economics (ARPU). As Xero CEO Sukhinder Singh Cassidy noted in Xero’s FY24 Results Presentation, the revenue multiplier relies on both increased spend and reduced churn, which ultimately rest on customer value: “Our average revenue per user (ARPU) increased in FY24… This was driven by a combination of price increases and, more importantly, the adoption of our broader platform offerings, like payroll and payments, which deliver more value to our subscribers and increase their stickiness.”
“As we’ve launched more products and scaled our investments, we’ve nearly doubled our active seller base, and increased our average gross profit per seller ~4x, creating a powerful compounding effect to drive growth. This is a demonstration of the increasing utility of our ecosystem across a widening range of sellers.” —Speaker: Amrita Ahuja, Company/Org: Block (CFO & COO), Source: Block, Inc. 2022 Investor Day
3.2 Supercharging Unit Economics: The ARPU and LTV Explosion
Improvement in customer unit economics represents the second component of the revenue multiplier. By layering financial services on top of a core software offering, platforms can significantly increase their average revenue per user (ARPU) with minimal incremental customer acquisition cost (CAC), as the financial products are upsold to an existing user base.
Mindbody, a platform for the wellness industry, provides a powerful case study. Even before being taken private in 2019, a significant portion of its revenue—reportedly one-third—was already derived from payment processing.28 Today, analyses indicate that more than half of Mindbody’s total revenue is generated from its embedded financial products, such as payments and merchant cash advances through Mindbody Capital.
Mindbody’s history tracks with typical success metrics: 6-15% factor rates compared to 30%+ from traditional providers, 1-2 business day approval versus 45 days for traditional bank loans, and 85% of merchants crediting the capital with helping business growth. Moreover, Mindbody customers who also use fintech products generate approximately $250 per customer per month (60% increase over software-only) by adding ~$100/month from payments and other fintech revenue to their ~$150/month software fees (1.6x).
Incumbent banks understand this dynamic as well, which accounts for a range of fintech partnerships that deliver financial management tools on top of traditional accounts. Chase’s partnerships with Gusto for payroll, US Bank’s acquisition of point-of-sale Talec and partnership with Gusto for payroll, and Capital One partnerships with Melio for bill pay and Trovata for treasury management are just a few examples of fintech products that connect the bank more deeply to business customers’ cash flow. As Ben Walter, CEO of Business Banking at Chase, said during the 2023 Investor Day, “Clients who have both deposits and lending have four times higher balances and are ten points more likely to be primary with us than clients who have deposits alone… We’ve modernized our credit engine and rebuilt our small dollar lending origination process to deliver a fast, digital experience that could be completed in as little as five minutes with funds available in as soon as 24 hours.”
Toast CEO Aman Narang emphasizes that “high product attach rates is an important driver of ARPU,” with the company seeing an average revenue per location reaching approximately $65,000 annually. PayPal’s data provides additional validation of the revenue multiplication effect: the company reports that debit card active users generate 5x more transaction activity and 2x the average revenue per account compared to users who only use branded checkout.
“We’re focused on building products that can both help our customers thrive and run a great business. Our vertical focus on restaurant continues to be an advantage as we open up deeper parts of the TAM and expand ARPU by building differentiated products for the industry… As we approach 100,000 locations and beyond, our upsell team’s TAM gets bigger, and we continue to see this as a big opportunity for growth in our business over time.” —Speaker: Aman Narang, Company/Org: Toast (COO & Co-founder), Source: Toast Q3 2023 Earnings Call
The improvement in unit economics creates a cascade of strategic advantages. First, a platform that can triple its LTV while keeping its CAC relatively flat, as suggested by Square’s data, changes the calculus of customer acquisition (the LTV/CAC ratio) entirely. It allows the platform to invest far more aggressively in sales and marketing to acquire new users for its core software, confident that the long-term payback from embedded financial services will be massive. This creates a virtuous cycle of growth that competitors without a viable embedded fintech strategy cannot hope to match.
Furthermore, above-average unit economics make it profitable to serve smaller customers with more niche solutions that would be uneconomical for traditional banks or standalone software companies. A platform like Jobber can profitably serve a small, independent contractor because the combined revenue from a modest SaaS fee plus a percentage of their payments and financing volume creates a viable LTV. This strategic advantage unlocks vast, previously underserved market segments.
“As our customers realize the positive impact of using our platform, they often adopt additional ServiceTitan features, namely our FinTech and Pro products. This increased adoption not only drives our revenue… but also gives us a sharper inside perspective of how customers engage with our platform and what additional add-on products might be helpful for us to innovate.” —Speaker: N/A (Company Filing), Company/Org: ServiceTitan, Source: ServiceTitan S-1 Filing
Part IV: The Data Advantage: Turning Operational Insights into Financial Alpha
The final and most disruptive pillar of embedded fintech comes from the data advantage that platforms create. By serving as the core operating or cashflow management system for their customers, these platforms accumulate a deep, real-time, and proprietary dataset on the health of the businesses they serve. This data allows them to underwrite risk and personalize financial products with a level of precision and insight that disconnected financial institutions, reliant on generic and lagging indicators, cannot match.
“We have a unique advantage in underwriting because we have the deposit relationships. We see the cash flow of the business in real-time. That allows us to be smarter about how we extend credit, often automating the decision and making funds available much faster than a traditional underwriting process.” —Speaker: John Stern, Company/Org: US Bank (CFO), Source: Barclays Global Financial Services Conference 2023 (paywall)
4.1 The Ultimate Underwriting Engine: Real-Time, Contextual Data
Correct risk assessment sits at the core of many embedded fintech opportunities. The traditional approach to underwriting a small business loan (from a standalone bank) relies on historical documents like tax returns, business plans, and personal credit scores. In the past, these data — often stale or incomplete — offered the best the underwriter could ask for even though they provide little insight into the real-time operational health of the business.
Today, a vertical SaaS platform like Toast or ServiceTitan or a platform with end-to-end cash flow visibility like Mercury, Xero, or Freshbooks, has a continuous, granular, and dynamic view of a business’s vital signs. These platforms might see daily sales figures, transaction sizes, customer repeat rates, seasonality patterns, inventory turnover, and employee productivity in real-time.
Contextual data provides a far more accurate and predictive measure of a business’s ability to repay a loan than a static credit score. A report from Bain & Company articulates this advantage clearly: “[the] vast well of customer insights to assess risk… triggers better financial accessibility for customers who might be ignored, rejected, or mispriced by traditional institutions.”
“We pride ourselves in our ability to anticipate and recommend which products would best serve a customer’s unmet needs… Our ability to retain and expand customer relationships is evidenced by our net dollar retention rate of over 110% for each of the last ten fiscal quarters.” —Company/Org: ServiceTitan (CEO & Co-founder), Source: ServiceTitan S-1 Filing
Operational or cashflow underwriting represents a paradigm shift in risk assessment. Platform data helps to quickly and profitably underwrite many small and medium-sized businesses (SMBs) that legacy financial services providers often deem too risky. This creates a powerful engine that unlocks new opportunities as platforms systematically identify and serve the most creditworthy SMBs within their specific verticals. Banks that cannot offer more comprehensive platforms themselves will increasingly see more of the riskier, less data-transparent applicants, which could erode the core of the traditional commercial SMB lending market.
“Banks are custodians of funds for small businesses… how do we help when [business banking] clients are running low on cash, or when they need partial payments to be made? By bringing together our banking products, payment products, and integrated software like accounts payables, cash flow management tools, and payroll, we want to make sure we offer a one-stop shop within our banking software.” —Speaker: Shruti Patel, Company/Org: US Bank (EVP and GM, CPO of Business Banking), Source: PYMNTS interview September 2025
4.2 Personalization at Scale: The End of One-Size-Fits-All Finance
The platform data advantage extends beyond better underwriting to enable a new level of product personalization. Traditional finance institutions still largely offer one-size-fits-all product offerings. Embedded fintech, powered by real-time data, allows for the creation of dynamic, tailored financial solutions that align with the specific needs and cash flow patterns of each individual business.
Mindbody’s partnership with Parafin to offer Mindbody Capital is a prime example. Parafin pre-qualifies the financing offers based on a business’s actual sales history on Mindbody’s platform, eliminating the need for credit checks or collateral. Parafin and Mindbody also design the repayment structure to match the realities of a small business. Customers often repay with a percentage of future sales instead of a fixed monthly payment that can be crippling during a slow season. This means the repayment amount automatically adjusts to the business’s performance—higher during busy periods and lower during slower times—providing greater flexibility and alignment.
Similarly, Jobber Capital (via Stripe and Parafin) and Vagaro Capital (via Liberis) provide users with control and flexibility. Business owners can often customize the amount of financing they receive from a pre-approved offer. They can also choose between different repayment structures, such as a percentage of daily sales or a predictable fixed schedule, allowing them to select the option that best suits their cash flow management needs. This level of control shifts embedded fintech products from rigid obligations into flexible tools for growth.
“From day one, we knew payments would be a huge part of our offering. Our platform would not have caught on with providers if it was just a way for them to book appointments, market their services and manage their back-office processes; they also need to get paid… Owning the entire payments tech stack has been invaluable to our growth as a company, because payments now represent half of our revenue.” —Speaker: Fred Helou, Company/Org: Vagaro (CEO), Source: FTV Executive Interview
4.3 The Future is AI-Driven: From Reactive Offers to Predictive Finance
All signs point to applied artificial intelligence (AI) as the next frontier in leveraging the data advantage successful platforms generate. For example, AI may enable platforms to move from offering reactive financial products to providing predictive financial guidance. By analyzing historical and real-time platform data, AI models could, in theory, anticipate a business’s future needs and opportunities, positioning the platform as an AI ‘Chief Financial Officer’ for SMBs.
Industry leaders are already moving in this direction. As ServiceTitan CEO Ara Mahdessian articulated during the 2025 Q2 earnings call, “We have an entrenched and expanding ecosystem, compounding data-related network effects, and industry-specific benchmarking that allows ServiceTitan to deliver differentiated outcomes… The introduction of AI has now made it possible for our customers to reimagine the way their businesses operate“.
This points to a future where the platform’s role becomes even more strategic. An AI-powered ServiceTitan could analyze a contractor’s cash flow trends and predict a potential shortfall in three months, proactively offering a flexible line of credit to bridge the gap. It could detect a surge in high-margin installation jobs and automatically suggest a capital advance to purchase a new vehicle or specialized equipment to meet the increased demand. It could benchmark a company’s profitability against anonymized peers in the same region and provide actionable recommendations for improving margins.
While still an aspiration today, there are clear possibilities for a not-so-distant future where platforms transform, once again, this time from a system of record into a predictive, strategic partner, making data-driven decisions that help customers thrive.
“The founder’s edge is shifting. Speed alone isn’t enough. You need product intuition, empathy, and clarity of purpose. You don’t just need a better model—you need a better model of the world. The companies that win next won’t do more AI. They’ll do the right AI—at the right altitude, with the right outcome.” —Company/Org: Bessemer Venture Partners, Source: The State of AI 2025
Conclusion: The Platform is the New Bank
The convergence of software and finance is creating a new generation of dominant companies. The analysis across these four pillars—cross-product integration, platform effects on stickiness, revenue multiplication, and the data advantage—leads to a clear conclusion: for a growing number of industries and SMBs, digital platforms become their bank (or vice versa).
“Tools like Shopify Magic exist to help merchants write product descriptions, respond to customers, generate content, and run smarter businesses. Faster. Easier. With leverage that used to be reserved for the biggest players. This is how to think about AI. It’s not about chasing trends – it’s about using technology to level the playing field. Helping more people start, scale, and own their future.” —Speaker: Harley Finkelstein, Company/Org: Shopify (President), Source: The Operators Podcast (excerpt)
The economic model platforms offer clearly beats the first and second generation SaaS models. Enabled by the power of the bundle, the seamless integration of workflow and fintech products into a single interface creates a superior user experience that standalone point solutions cannot match. This is a land and expand strategy, typically starting with payments and moving to higher-margin products like lending or churn-focused products like payroll.
When embedded fintech products generate ‘1+1=3’ value for customers, they stick around longer and see the platform as irreplaceable. Payments, banking, lending, payroll, and more enable above-average customer retention and help create formidable competitive moats. This deep entrenchment then fuels the revenue multiplier effect, fundamentally altering the business model. Revenue shifts from limited SaaS fees to a share of the financial activity now flowing through the ecosystem, typically increasing ARPU and LTV/CAC ratios.
Finally, the data advantage works like a flywheel for the platform’s value prop. Proprietary, real-time data allows platforms to underwrite risk more accurately and inclusively than traditional options, enabling them to serve previously overlooked markets and personalize financial products at scale. As Joe Schmidt, Partner at A16Z, points out in ‘Trading Margin for Moat’: “Incumbent systems of record are valuable because they own workflows that capture valuable data, which helps them become their company’s source of truth. If emerging AI applications really want to succeed, they should similarly position themselves to become the system(s) of work that generate, capture, and store valuable company data.”
This synthesis of strategy, technology, and data presents a challenge to the established order. Traditional banks risk being disintermediated from their most valuable SMB customer relationships if they cannot offer a digital platform experience that keeps clients in their ecosystem. Standalone fintechs will struggle to compete with the low-cost acquisition channels and rich data context of embedded platforms. And software companies that fail to execute a “Second Act” strategy will find themselves competing on features alone, unable to match the superior unit economics and deep customer entrenchment of their embedded fintech-enabled rivals.
“[AI] has been awesome for our customers because as they grow and they hire more technicians and they serve more parts of their respective markets, they can do so without having to hire the same level of dispatchers. The math is compelling: traditionally, dispatchers can effectively manage 15-20 technicians. With AI-powered dispatching, that ratio can increase significantly, improving unit economics while maintaining (or improving) service quality.” —Speaker: Ross Biestman, Company/Org: ServiceTitan (CRO), Source: SaaStr Annual Summit 2025
The winners in the next wave of the digital economy will be the platforms that successfully leverage their customer relationships and proprietary data to become the central, trusted hub for the cash flow and the workflow of the industries or functions they serve.
In Part 1 of this series we examine the user experience drivers that make embedded fintech attractive to digital platforms. You can also read more on the ‘Future of Small Business Platforms: Cash Flow vs Workflow.’
Additional Sources
- Embedded Finance: What It Takes to Prosper in … – Bain & Company, https://www.bain.com/contentassets/a5ad904e61324de88b62707de879f174/bain_brief_embedded-finance.pdf
- The Five Waves of Fintech – Bessemer Venture Partners, https://www.bvp.com/atlas/the-five-waves-of-fintech
- (1) SHOPIFY INC. SEC 10-K Report – TradingView, https://www.tradingview.com/news/tradingview:475f01f674cf2:0-shopify-inc-sec-10-k-report/
- (2) Toast, Inc. SEC 10-Q Report – TradingView, https://www.tradingview.com/news/tradingview:feab29399ee51:0-toast-inc-sec-10-q-report/
- (3) Block Q2 2025 slides: Gross profit growth accelerates, guidance raised – Investing.com, https://www.investing.com/news/company-news/block-q2-2025-slides-gross-profit-growth-accelerates-guidance-raised-93CH-4179024
- (4) ServiceTitan S-1 Breakdown, Meritech Capital, https://www.meritechcapital.com/blog/servicetitan-s-1-breakdown
- How embedded finance is transforming Vertical SaaS, https://www.unit.co/guides/embedded-finance-transforming-vertical-saas
- Flexible financing solutions for Mindbody merchants – Parafin, https://www.parafin.com/blog-posts/empowering-mindbody-merchants-with-flexible-financing-solutions
