Nearly a decade ago, engineer/investor Marc Andreessen famously wrote that software is eating the world - he meant traditionally non-tech companies were now being run on software as the core part of their businesses and that it’ll be the new order of the world. Cut to a decade later, and along came headlines about every company becoming a fintech thanks to embedded finance. The business models, they’re a changin.
Obviously that is an oversimplified narrative that overlooks the ‘under the hood’, full stack solutions evolution that’s happening. Storing and moving money, extending credit in a regulated environment, differentiating offerings from incumbent banks, customising products, is what really makes fintech companies extend beyond user interface enhancements.
As such, fintech has been gaining momentum for a few years now and causing disruption in the traditional value chain. In fact, A total of $9 billion was raised by fintechs in 2021. Embedded finance specifically, will be a market opportunity of $7 trillion by 2030, that’s twice the combined value of the top 30 banks (2020).
Embedded to transform: A new business model
The embedded finance revolution is a platform thinking revolution - leveraging third party resources to create more value for your customers. In practice, this means exploiting advanced technologies to capture value. It could also potentially mean that embedded finance will be eating the world.
Take Shopify for example. It’s an all-in-one commerce platform that allows anyone to start and grow their own business. Over the years, it has launched a fulfillment network for its sellers, partnered with Google and Facebook to help power their merchants on these social platforms. But it’s biggest bet has been on itss fintech stack - Shopify pay, Shopify Balance, Shopify Pay Installments, Shopify Capital.
Shopify merchants don’t think about these products as separate from the core commerce platform. By integrating a fintech stack into the platform, it’s solving the most critical issues SMEs run into - managing CashFlows and access to credit.
SMEs tend to be cash constrained with fairly low operating margins. So banks don't know how to build these businesses and rarely have the right data and understanding to take an educated risk. Filling out a loan application can take hours and still have low approval rates.
The traditional financial system simply wasn't built to be the best solution for a very specific user. Meanwhile, software continues to become more and more tailored for the specific user's needs. It's the confluence of these two things, financial services and specific vertical solutions that allow platforms to grape something greater than the sum of its parts.
For example, by enabling credit on its platform, a logistics company, like Lets Transport could generate more business, improve customer loyalty, increase revenue, and increase customer lifetime value . Click here to read how FinBox’s Embedded Finance Platform enabled Lets Transport to scale seamlessly.
So, it isn’t only about creating a beautiful user experience with tailor-made products but real business impact. Every platform also cares about Average Order Value (AOV), customer retention, and CLTV (Customer Lifetime Value). Embedded finance essentially creates a software ecosystem for the user, expanding the platform's flywheel to provide useful features that also make the product stickier. These services also differentiate platforms revenue to be subscription fees plus financial services, strengthening their overall business model. It's estimated that SAS companies can increase their revenue two to five times per user by adding financial services.
There are clear benefits for users who have access to financial services embedded in their verticalized software. And of course, clear benefits for platforms who offer them. But how do you get there? That's where FinBox comes in.
We’re a cutting-edge, full stack infrastructure company that helps provide fair, formal, and in-context credit to 60 million MSMEs in India. FinBox’s tech focused approach and proven underwriting stack can enable any company to become a fintech company in only 3 week! Get in touch with us to know more.