How to get started with embedded lending and drive revenue

Embedded finance offers a chance for fintech firms, vertical SaaS companies, and marketplaces to drive revenue growth and build a sticky offering. 

Always strapped for cash and with their owners juggling multiple responsibilities at once, small businesses increasingly adopt vertical SaaS platforms to run their operations, the demand for integrated banking, payments, and lending solutions continues to accelerate.  

For firms that can successfully navigate this landscape, embedded finance offers a powerful pathway to differentiation in an increasingly competitive market while addressing the critical financial needs that traditional institutions have struggled to meet effectively.

On the show today, I am joined by three leaders in the space sharing insights into what it takes to succeed:

• Yoseph West, Co-founder and CEO of Relay which is a digital business banking platform serving SMBs,
• Sol Lax, CEO of Revenued, a leader in revenued-based financing and 
• Caleb Avery, founder and CEO of Tilled, a modern embedded payments provider for software companies

Tune in to hear us plot the market shift from embedded payments to lending, underwriting challenges for thin-file customers, and strategic partnership models that create comprehensive solutions for small businesses. 

In this episode we will examine two case studies: how  Relay and Tilled are implementing embedded lending in their platforms through their work Revenued and sketch out a plan for fintechs that want to mature their embedded finance offerings to offer sophisticated products like lending and working capital to their SMB customers.

If you’re a platform serving SMBs, embedded lending isn’t just a feature – it’s a way to make your product indispensable.  As customers look for financial solutions that meet them where they are, platforms that deliver seamless, flexible capital access will win.

This episode is a must-listen for any SaaS, fintech, or marketplace operator considering how to move up the embedded finance maturity curve.

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Market shift: Program maturity begets a move towards embedded lending

Embedded finance is gaining traction because it’s responding to business needs and demands, as well as tapping into technological advancements. Small businesses increasingly want financial services directly integrated into the software they use to run their operations.

“One of the key trends that we all benefit from is the core idea that we’re taking technology that was previously only available to mid market companies, and making it available for small business,” shared Relay’s Yoseph West. “This is a mega trend.”

But even as fintechs and retail companies bet big on embedded finance, traditional financial institutions are struggling to keep pace with this shift: “Every time I have a conversation with the bank, I’m astonished that banks don’t get it and they don’t see the competitive threat,” said Revenued’s Lax. He explained that about 25% of their customers are using vertical SaaS to run their businesses, but that number is growing rapidly year over year.

While many fintechs start in embedded finance by integrating payments, over time they are likely to branch out to more sophisticated and more profitable offerings, like embedded lending. 

“Since COVID there’s been a pretty dramatic acceleration of the actual small business owners adopting the vertical software solutions. But I think there’s been a secondary trend where the vertical software providers are moving beyond just embedded payments,” said Tilled’s Avery. 

Underwriting challenges for thin file customers and the embedded finance fix

For businesses with limited credit history, alternative data sources are becoming increasingly important for underwriting decisions, but the podcast guests emphasized that building reliable models remains critical to long term success.

Caleb Avery shared Tilled’s approach: “We have been trying to look at sources like Plaid as well as social proof on the owners, as some alternative streams for us. Otherwise, if you’re looking at brand new businesses through traditional methods, it can be really difficult.”

Sol Lax cautioned about the complexity of lending in the current economic environment: 

“It’s not for the faint of heart. It’s really hard putting together models that work at scale quickly for very large populations… models are great, but when things get discontinuous, models break down. I think we’re about to enter a recession… and small businesses do not cope well with inflation.”

As the macroeconomic environment makes stability hard to achieve for SMBs, embedded lending players can move in to fill in the gap left by traditional FIs, as access to cash and liquidity becomes more uncertain. 

“It’s going to be a great environment to help small businesses and provide capital, but it’s going to be a super challenging environment to pick carefully between what’s doable and what’s not doable,” said Lax. 

Case studies: Relay and Tilled

As competition intensifies in the fintech space, embedded lending has emerged as a powerful differentiator that enables companies to expand their value proposition and deepen customer relationships. Strategic lending partnerships allow fintechs to serve previously underserved segments, particularly small businesses at various growth stages without strong credit histories.

West detailed how Relay’s partnership with Revenued provides value to its customers: “For context, Revenued gives Relay customers revenue-based financing. So these businesses might not have strong credit just yet – they’re probably earlier in their journey, but have some solid revenue streams. Revenued was a pretty obvious choice from our perspective – a strong product would work well for our customer set.”

When discussing what makes these partnerships effective, Tilled’s Avery emphasized the importance of having complementary offerings for different customer segments: “The way that we think about our risk and underwriting model is that it starts with the ISVs and being picky about the actual partners that we choose at the software company level… that’s been one of the lessons for us over the six years that we’ve been doing this.”

Avery added:

“One of the bigger challenges as we’ve looked at this sector, is there is no one solution that makes sense for everyone. We know that we need to have a network of solutions and partners to be able to service that each base. Here, what Revenued has available is incredibly compelling and very differentiated from a lot of the other, primarily Merchant Cash Advance (MCA)-based offerings that are available to the small business owners today.”

If you want to learn more about how embedded lending drives revenue, retention, and competitive advantage​, download our new playbook here.