Embedded Finance in 5 Charts
“Everything is Fintech” is a common refrain in VC land, referring to the glut of non-financial services companies offering payments, lending, and other financial products in-app.
Businesses can add additional revenue streams through embedded financial products. If well-executed, embedded finance can increase a core product’s stickiness by providing additional value to their customers.
Credit Cards: The OG Embedded Finance Product
Today, everyone wants to offer a credit card, but that’s nothing new. Department stores, airlines, and hotels have been offering credit cards for decades. Facing declining retail sales in the 90s, Sears was able to boost profits with their store-brand credit card.
Of course, Sears’s credit cards proved a poisoned chalice, with an expanding balance of delinquencies convincing Sears to sell their retail credit card business to Citigroup in 2003. Companies should heed this cautionary tale when expanding past their core competency to offer financial products.
New Revenue Streams
Non-financial services companies have realized there are substantial revenues to be unlocked through embedded finance. As is often the case, Big Tech is leading the way.
Embedded Payments are Table Stakes in Big Tech
Big Tech firms operate an increasing slice of the payments pie in e-commerce and at point-of-sale. Embedding payments can help reduce cost and provide additional revenue. But, as always with Big Tech, the real benefit comes from data. Embedded insights provide additional insight into consumer spending.
Take Apple, for example. Before Apple Pay, Apple was able to collect consumer spending data your use of your iPhone and of other Apple products (App Store, iTunes, Safari). With Apple Pay, Apple’s reach expands into the physical world, allowing them to track your purchases made through the wallet.
An Embedded Finance Roadmap
The below chart uses Amazon as an example for how Big Tech is expanding via embedded finance.
This can serve as a roadmap for other consumer products looked to expand their financial offerings.
What’s at stake?
With embedded payments as table stakes, it’s easy to see embedded-finance powered tech firms taking a large bite of the $2 trillion global market.
Where additional growth comes from is more of an extrapolation, with insurance products, lending products, and investment products becoming more common in the apps we use everyday. Embedded finance paves the way for super apps to develop in the US, and may permanently alter how we interact with financial products.
