The Emergence of Embedded PropTech
In collaboration with Mike Heller and Navitas Capital
Embedded Infrastructure & Platforms
Over the past decade, consumers have experienced radical shifts in how financial transactions are completed. From splitting a check at the restaurant to applying for a personal loan, we now expect seamless, digital experiences that require as few clicks as possible.
To meet these expectations, financial technology (FinTech) platforms rely on an array of solutions to power different aspects of the transaction experience, often unbeknownst to us. Compliance screening, underwriting, and money movement are all examples of ‘embedded infrastructure’ that run in the background. These solutions have become critical building blocks for digital financial services companies, and the most successful are consumable via developer tools with little disruption to the end-user experience. A few examples within the money movement supply chain include Stripe for payments, Marqeta for card issuing, and Plaid for transaction aggregation.
The success of these embedded infrastructure companies is tied to their symbiotic relationship with broader FinTech platforms. Platforms specialize in acquiring users and matching them to desired products and services — all through a seamless and delightful user experience. Meanwhile, infrastructure companies specialize in building the pipes and technical solutions for specific, but sometimes narrow, pain points. By working together, everyone benefits — platforms offer users expanded functionality that drives more revenue; infrastructure companies achieve rapid scale and broad reach.
PropTech and FinTech Converge
The ecosystem of embedded infrastructure solutions within FinTech has created a backbone upon which platforms can quickly innovate to offer customers a wide range of desired solutions. The world of PropTech is in the early stages of a similar evolution. Like other industries, users within real estate and construction increasingly prefer to manage transactions online, both large and small. This wave of digitization has spawned a host of vertical software platforms.
The emergence of end-to-end platforms within PropTech has created an opportunity for embedded solutions to help foster the pace of innovation and enhance the user experience. Instead of building countless custom integrations and structuring an ever-expanding set of commercial relationships, platforms often prefer to leverage existing infrastructure. Businesses like Cherre help real estate investors make better decisions through connected data infrastructure. SwiftConnect has been called the ‘Stripe for Access’ because it simplifies the complex technical architecture of building access control into an easy-to-integrate API. Lendflow offers a range of financing products to small and medium construction businesses by embedding a credit application within workflow software platforms.
The parallels between the growth of the FinTech and PropTech ecosystems abound, but they are perhaps most apparent when considering consumer-facing technologies. Consumers gravitate towards low-friction products and are much less likely to put up with a clunky experience. Therefore, embedded solutions have a particularly exciting opportunity to unlock value within consumer-facing PropTech platforms.
A Delightful Homebuying Experience
Home transactions are notorious for being some of the least digitized and most disjointed experiences a consumer may go through in their lives. Consumers typically must turn to a guide — specifically, a professional Realtor — who helps them navigate a complex process. The guide often introduces the consumer to a range of other service providers (e.g., lender, inspector, insurer, title company, notaries, etc.) to successfully complete the transaction. Each of those providers may or may not have digital capabilities, resulting in duplication, wasted time, and often frustration.
Combine the scale of frustration with the size of the market ($$$T), and you can bet that digital platforms are now trying to disrupt this process by pushing as much of the transaction online as possible. There are players that have positioned themselves in the market at different entry points along the customer journey and, as a result, have varying offerings. However, at their core, they are all platforms that guide consumers through closing a home transaction and, therefore, are laser-focused on customer acquisition — similar to the broader fintech platforms.
Like other financial transactions, the home buying and selling process is complex, but also predictable and undifferentiated. Assuming similar cost and quality, consumers are largely indifferent across service providers — can you differentiate one appraisal company from the next? The more that they can do with the fewest touches, the better. The promise of digital homebuying platforms is that they can indeed become the one-stop shop.
However, accomplishing all that is required within the operational bounds of a single company isn’t possible due to existing regulations and the breadth of required services. Enter the growing ecosystem of embedded infrastructure solutions within PropTech. Note that home transactions usually require some level of onsite services that cannot be fully automated or digitized today (e.g., inspection) — this is a notable distinction compared with most financial transactions. But they can become more digitized. For example, by leveraging structured data feeds that are piped into platforms, even onsite services can become ‘embedded’ into a digital homebuying process.
While these solutions haven’t yet truly achieved the status of “industry utilities” that we’ve seen in FinTech, we see their potential to become critical components of the customer experience that platforms are increasingly looking to offer.
As home transactions increasingly move towards digital platforms, we look forward to an evolution in the supporting infrastructure ecosystem. Given the parallels with FinTech, we see the beginnings of a similarly symbiotic relationship between the platforms that acquire the homeowners, and the builders of the pipes that will power the digital experience. However, this is just one example of a broader convergence of property and financial technology. Over the next several years, we hope PropTech platforms will find compelling opportunities to leverage embedded solutions that enhance users’ interactions with the physical world.
