What Marketplace Enterprises Stand to Gain from Embedded Finance

As competition heats up, the offering of financial services may be the key differentiator for your vendors
Headshot of Patrick Lee
Patrick Wong
Content Manager
,
August 4, 2022
Several small buildings representing different small businesses connected to a phone with an active app on it.

Consumers have more choices now than they ever have before. From ride sharing to food delivery to vacation rentals, major marketplace verticals are seeing huge growth and the emergence of big players. It’s expected that by 2025, online marketplaces will account for 45-50% of online spending, matching pace with direct e-commerce spending.

What’s separating the most successful of these businesses? Banking as a service.

Marketplace enterprises have an added layer to consider when trying to remain competitive in this hypergrowth landscape: How can they keep their vendors who supply direct services to their end-users happy and loyal? Banking as a service providers (BaaS) can provide the necessary technology to enable marketplace enterprises to supply their vendors with platform-embedded financial services that make doing their jobs that much easier and more convenient.

Competing for vendors

There is an obvious trickle-down effect in how marketplace enterprises operate. If vendors aren’t satisfied with the platform in question, the end product or service suffers. Unhappy vendors will either produce subpar work or take their services elsewhere.

A crucial way in retaining vendors — and thereby improve the end-user experience — is through banking as a service. Banking as a service enables enterprise businesses to provide financial services that are contextually important to the jobs of their vendors. 

Vendors have joined these marketplace platforms to make money, so improving the way that vendors can interact with their money and the end-user is an added competitive edge that can be the difference in keeping vendors on-platform and even converting vendors from similar enterprises.

Providing these financial services is especially important for gig workers because they tend to be less financially secure and prepared for rainy days. 45% of full-time gig workers report feeling a sense of “economic anxiety” while over 50% of gig workers report concern over a lack of workplace benefits, and 80% say they feel unprepared to handle an unexpected expense of $1000 or more.

Gig workers generally aren’t afforded the same protections and regulations that their traditional full-time counterparts may be privileged to have. Adding embedded financial services like the ability to open a bank account or same-day deposit, to a marketplace platform, can help smooth vendors’ payment processes and save time. Vendors who feel free to handle their finances safely are likely to stay loyal to the brand that supplies this freedom or other ancillary perks like loyalty programs.

And while implementing embedded finance solutions is an important undertaking for your vendors, it's not a burdensome one. A BaaS provider like Treasury Prime connects any enterprise directly with a bank (or series of banks) using cutting-edge API. Rolled into Treasury Prime are also risk mitigation and real-time transaction monitoring tools provided by top industry partners like Alloy and Unit 21.

Learn more about the extensive suite of services and tools offered by Treasury Prime by speaking with our team.

Creating a payments ecosystem through BaaS

The real opportunity with BaaS for marketplace enterprises is removing any kind of friction for their vendors. Making the movement of money completely seamless with the added benefits of supplementary financial services can potentially convert vendors from competitors. Because vendors today typically aren’t exclusively signed to just one marketplace platform, they have choices — but a platform that supports wider needs will encourage them to patronize your platform the most.

A frictionless experience translates into an owned ecosystem that can keep vendors in a self-serving loop. One example is the DoorDash Capital initiative.

DoorDash needed to keep its delivery drivers happy as well as the restaurants that make the DoorDash platform possible. Just like gig workers, small businesses like restaurants don’t always have access to the same resourcing as larger corporations, and with razor-thin margins, it can be difficult for restaurants and food operators to generate the capital to invest in growing their businesses. DoorDash Capital gives eligible restaurants and food businesses a cash advance to cover needed expenses in exchange for a small fee and interest-free payback in the form of a percentage of food sales.

Applying for a loan can be costly and time-consuming, while getting a cash advance from DoorDash instead can be done via their platform with no added paperwork or lag time. SMBs automatically repay through their sales, making the entire process automated and effortless.

Uber provides another example with its newly dropped Upfront Fares, Trip Radar, and forthcoming driver-specific debit card program. Upfront Fares allows Uber drivers to get the full picture of every ride: the pricing of the ride, the driver’s cut, and the destination. Trip Radar also provides better visibility into nearby riders to pick and choose trips more suited to them. Finally, the debit card is planned to give drivers cash back on using the debit card to buy gas.

Embedded financial services tailored for marketplace businesses

The right financial services to offer will vary depending on the needs and operation of your organization, however, there are several use cases to consider that will benefit your vendors. 

Account opening:

The ability to open a bank account alongside their platform account makes it that much easier for vendors to manage their finances. Gig workers may use several different platforms to supplement their overall income and being able to onboard while also opening a bank account can make vendors a lot more apt to work on your platform. 

Same Day Payments:

Working with a Baas provider allows you to pay vendors even sooner. A modern API, like the one developed by Treasury Prime, enables marketplace platforms to initiate payment processing immediately so that vendors can get paid within a matter of hours versus days. Take a look at the dramatic difference private charter platform Tuvoli had by partnering with Treasury Prime.   

Card Issuance:

Similarly, many gig workers may also be independent contractors. By offering white-labeled cards that can be loaded with the vendors’ pay-outs and can then be used to purchase materials/cover expenses empowers vendors to use your platform to directly grow their own business.

Issuing cards also opens up marketplace enterprises to generate more income through interchange revenue, which can also be leveraged to provide a rewards system for the vendors.

Direct Deposits and Cash Advances:

With gig workers reporting concern over unexpected expenses, platforms can add extra assurance to their vendors by allowing for them to easily receive direct deposit (and the ability to use funds even if they haven’t been fully processed in their bank account) or cash advances to cover emergencies or large business expenses. 

A marketplace enterprise that provides these services can actively protect the wellbeing of their vendors and keep them brand loyal. 

How a BaaS provider fits in

Clearly, embedded financial services can truly enhance a vendor's experience. 

Partnering with a BaaS provider can close the entire usage loop for a vendor and thus keep them in- platform indefinitely. From onboarding and opening a bank account, vendors can find work, get paid, reinvest profits in their personal businesses, and enjoy fringe benefits like rewards programs and business tips and advice.

BaaS providers like Treasury Prime also remove the need for a vendor to interact directly with a bank, while still enabling a marketplace business to provide the same financial services and benefits. For the enterprise, Treasury Prime’s normalized API fits into any existing tech stack, and is so developer-friendly that those without any financial background will be able to use it.

And because we know that as consumer behavior shifts, vendor behavior — and thereby business operations  — changes over time as well, Treasury Prime’s network of banks is there to support any pivots. With the largest bank network of any BaaS provider, marketplace enterprises that need to find a different bank to accommodate business needs can easily be done with our API.

Of course BaaS partnerships with banks don’t stop at the vendor. BaaS partnerships with marketplace enterprises also open up the opportunity to offer added benefits to their most loyal end-consumers. Think loyalty programs to reward their purchases, white-labeled debit cards as a means to offer even more rewards (and interchange revenue for the business), and an e-wallet to make spending money at the business easier.

Interested in learning more about Treasury Prime and how it can elevate your marketplace business and the experience for your vendors? Contact our sales team, they’d be happy to chat more with you.

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