Embedded Finance: What It Takes to Prosper in the New Value Chain
As this market expands, success will hinge on rethinking the risk and brand calculus, embracing different integration models, and understanding where to play.
The report features five key takeaways:
- Embedded finance provides a “win-win” value proposition to both consumers and businesses – End customers increasingly prefer the convenience of using payments, lending, insurance, and other financial services embedded in their day-to-day software, rather than accessing standalone services from traditional financial institutions. At the same time, businesses will benefit from reduced costs, risks, and barriers to reaching new customers.
- The new value chain favors platforms – Software companies (think of Shopify, or your favorite food delivery or vertical SaaS platform) that offer financial services through their native customer journey will be the main benefactors of the market’s expansion.
- The market is large and growing – We found that embedded finance already accounted for $21B in revenue on $2.6 trillion in total transaction volume in 2021, and we expect it to exceed $51B in revenue on $7 trillion in volume by 2026.
- Sectors and services are developing at different rates – Payments and lending will continue to be the largest segments of embedded finance, but we expect the momentum to extend to insurance, tax, accounting, and other services.
- Traditional financial services have reached an inflection point – Incumbent financial institutions face the threats of shifting economics and adverse selection with this new value chain, but they can also realize tremendous growth if they identify where to play across specific vertical segments.
Read the report here.
By Matt Harris, Blake Adams, Adam Davis, and Jeff Tijssen