1、The Rise of Embedded FinanceA Report on the Evolution and the Future of Embedded FinanceRadboud VlaarManaging Partner,Finch CapitalEdward MooreHead of EMEA SaaS Platforms Revenue&Growth,StripeForeword1Over the last decade we have shifted from disrupting financial institutions to embedding the world

2、of finance behind apps and websites to enable a better and smoother user experience and allow high digital traffic and user players to further monetise and increase stickiness.This trend is widely referred to as“embedded finance,”and it is fast becoming one of the most disruptive trends across payme

3、nts,banking,lending,insurance,and payroll.Embedded finance uses connective technologies to integrate payments and other financial products directly into non-financial platforms,such as company websites or mobile apps,enabling any merchant or brand to offer innovative financial services to customers

4、rapidly and at a relatively low cost.The proliferation of cloud computing and the growing use of open application programming interfaces(APIs)has been a major catalyst,accelerating and reducing the barriers to entry,to make embedded finance possible and accessible.We predict that the embedded financ

5、e industry will become one of the most value creative sectors in fintech,reaching a value of$7 trillion globally over the next ten years.While some of the early embedded finance models(e.g.,payments and lending)are starting to mature,we still see significant growth potential across industries like h

6、ealth,real estate,and employment where plenty of white space remains.In some ways its easier to run a small business today than it has been for a long time.The proliferation of software services designed to take the pain out of undifferentiated operations means businesses can focus on what makes the

7、m special.This is best encapsulated in the rise of vertical specific software platforms.If you want to run a local gym,theres a software platform to help you keep track of memberships,class bookings,and more.If you want to open a restaurant,theres a software platform to help manage table reservation

8、s,ordering,and takeaway deliveries.Financial services have been notably absent from this trend.If the gym or restaurant owner wants a loan,all of a sudden they have to close the laptop and re-enter a world of pen-and-paper forms,faxes,and in-person appointments.By reengineering the distribution path

9、s for financial services through these software platforms,we can make it far easier for businesses to access funding and manage their money,and so provide a vital boost to the small business economy.Its clear this is already happening,but its equally clear theres a long way to go.At Stripe weve spen

10、t 10 years embedding payments services into software platforms,and we are now doing the same with lending,account provision,card issuing,and more.Embedded finance is a positive sum trend were excited to catalyse;banks can serve small businesses at scale,software platforms can diversify their revenue

11、,and small businesses can grow more easily.1.IntroductionThe evolution of platform solutions from SaaS to BaaSSaaS 3.0.Embedded finance is surfing the wave of platformification and proliferation of APIs.The barriers to entry are coming downcard issuing example.What problems is embedded finance solvi

12、ng?.2.Investor PerspectiveThe market is maturing with an increasing amount of growth rounds The majority of EF deals in 2022 are B2B software solutions raising$4-15m.The biggest exits are happening in the US.Insights from experts on the market.What industries are buying embedded finance products?3.I

13、ndustry Deep DivesShaping the bank of the future,part 1financial services(BaaS).Shaping the bank of the future,part 2financial services(BaaS)Stripe use casefinancial services(BaaS).Reducing the protection gapfinancial services(embedded insurance).Creating more value for customersplatforms and market

14、places.Stripe use caseplatforms and marketplaces.Improving CX to increase loyaltytravel and hospitality.Stripe use casetravel and hospitality.Shaking up the traditional payment methodshealthcare.Transforming consumer behavioursretail and ecommerce.Stripe use caseretail and ecommerce.Finch Capital fe

15、atured portfolio companies.Summary of content25678622324252627123Summary of content31.Trends and the Future of Embedded FinanceWhy is the opportunity now?Embedded finance VC hype cycle.Our predictionspart 1.Our predictionspart 2.2.ConclusionKey takeaways How Stripe can help.Abo

16、ut Finch Capital 4529303132343536IntroductionThe evolution of platform solutions from SaaS to BaaSSaaS 3.0A decade ago,almost every platform could be considered“SaaS 1.0,”where they simply offered tailored software services(e.g.,appointment scheduling for salons)and generated monthly recurring reven

17、ue from customer subscriptions.Today,most platforms are considered part of the“SaaS 2.0”generation,where they also facilitate payments on behalf of customers.Now,with the rise of banking-as-a-service solutions,platforms are beginning to evolve yet again to SaaS 3.0offering additional embedded financ

18、e features(such as loans,accounts,and cards)to customers beyond payments.SaaS platforms notably use BaaS providers to embed financial services into their platforms through simple APIs and open banking.Other embedded financial services are also emerging beyond banking such as insurance and payroll.Ho

19、w BaaS worksThe Evolution of SaaS platforms5Full-service payroll,employee benefits,time and Attendance,hiring and onboardingBusiness Model MaturityEF is surfing the wave of platformification and proliferation of APIsPAYMENTSThe rise of new business models that enable a companys core service to be ut

20、ilised as a component of another firms broader proposition.LENDINGEF:Embedded FinanceSource:Financial Related API added to ProgrammableWebCARDSINSURANCEBANKINGCOMPLIANCEPAYROLLOpen bankingCore banking solution providers start to emergePSD2 RTS deadlineGrowth of Embedded finance API layer2010s2020sTh

21、e evolution of the embedded finance ecosystemCard programs(physical and virtual;credit,charge,prepaid,and debit)Payments capabilities(wire transfer,direct deposit,ATM deposit,bill pay,international payments)Credit and lending(cash advances,loans,revolving credit,BNPL,revenue financing)Treasury,full-

22、featured deposit accounts (savings,checking,clearing,cash,FBO,etc.)Personalised products(e.g.,house,auto,etc.)with simple buying process matched to time of need.AML,KYC/KYB,document fraud detection and automation,identity,privacy6The barriers to entry are coming downcard issuing example217%71%$6.8TG

23、lobal value of virtual card transactions will reach$6.8 trillion in 2026,from$1.9 trillion in 2021Growth in the number of B2B virtual card transactions in 2020B2B payments will account for the majority of virtual card transactions in 2026FintechIssuer processorIssuer bin sponsorCardnetworkPlugins(e.

24、g.,fraud,3D Secure)CardproviderCredit cardsCorporate cardsPurchasing cardsVirtual prepaid cardsLower risk to the issuerOpen API card issuing and payment processing platforms have lowered the barriers to entry,and provide developers with the tools required to build,test,launch,and iterate single inte

25、gration card programmes across national boundaries.They also allow for programmable controls so businesses can set dynamic controls down to the card level.They can set spending limits,block or approve certain merchant categories,or create an advanced combination of rules for their needs.Market evolu

26、tionFlexible card programmes with enhanced developer experienceHighly customised card programmes with a few API calls:Custom brandSpending limitsSingle load/reloadableMulti/single currencyMerchant(MCC/MID)restrictedSource:Juniper Research,Virtual CardsThe Future B2B Solution7How it startedHow its go

27、ingWhat problems is embedded finance solving?124SMEs are struggling to obtain financial services via traditional means.Fixed costs of providing SMEs with financial services via traditional means are high.For instance,it costs the same to credit review a 100k turnover business as it does a 1M turnove

28、r business.Old lending models dont work for new digital companies.As the economy moves online,old financial models and long-winded loan application processes are inefficient and becoming less tolerated by users.For instance,the typical digital platform or marketplace has all the financial data requi

29、red to make instant lending decisions which can be leveraged by new embedded financial solutions.Financial services are limited for thin file workers.Today more than ever,consumers with low or no credit scores are in need of financial services such as lending,payments,and banking.The old financial s

30、ystem is typically not inclusive to thin file workers who suffer from high APR.3Data is siloed which leads to poor personalisation of products.Traditional financial institutions are not leveraging data to personalise the user experience and recommend relevant financial products to users at the right

31、 time in their journey.Embedded Finance is Serving underserved marketsDisrupting financial servicesProviding“one-stop”shop solutionsImproving CXIncreasing financial inclusion8Investor PerspectiveThe market is maturing with an increasing amount of growth roundsAll Swedish investments across 2018,2019

32、,2020,and 2021 were for the BNPL company(total$3B)VC investments in the embedded finance companies have more than doubled from 2020 to 2021 in Europe and North America to reach a total of$6.7B.The continental European market is finally picking up the pace with$1B+of VC investments in 2021(excluding

33、investments in Klarna).The market is maturing with the increasing share of larger rounds(Series A+)over the years while the amount pre-seed and seed rounds have remain constant.$660m Series D+IPOUS$600m Series D+EUK$335m Series D+ENetherlandsNotable 2021 growth deals across North America and EuropeS

34、ource:Dealroom,Pitchbook(April 2022)10VC investments in embedded finance companies(in USD)VC deals in embedded finance companies by growth stageEF:Embedded FinanceSource:Dealroom,Pitchbook(April 2022)The majority of EF deals in 2022 are B2B software solutions raising$4-15m$620M GrowthUS$400M GrowthU

35、K$229M Growth$213M Series B$180 Series CUKItalyUS$131M Growth$115M Series CUKFranceNotable 2022 growth dealsWarsaw-based raised$18.5M series A in Q2 2022PayrollBerlin-based raised$5M seed in Q1 2022Accounting and AdminBerlin-based raised$10.5M seed in Q1 2022LendingLondon-based raised$11M series A i

36、n Q1 2022InsuranceBarcelona-based raised$10M seed in Q1 2022Banking,PayrollSan Francisco-based raised$7M seed in Q1 2022BNPLVC investments in embedded finance in 2022-US&Europe(in USD)The market is diversifying as more and more large seed and series A deals are being made across European countries a

37、nd verticals.The share of series B and C rounds is healthy and reflects the growing maturity of the embedded finance industry.11Majority of deals are B2B software solutions raising$4-15mThe biggest exits are happening in the USWe might wait a while before we see a European IPO,*as many fintech playe

38、rs ruled out their plan to go public in 2022 amid the public market slowdown(e.g.,Revolut).This can be explained by the rising inflation,the global instability stemming from the Ukraine/Russia conflict,and the current pullback in valuations in the tech market.Embedded financial services seem to incr

39、ease valuationaccording to Dealroom,marketplaces that embed financial services have a median EV/Sales of 6.7x,compared to 5.3x for the ones that do not.DateLocationAcquirersBackersValuation(EV/Rev)Q3 2022Atlanta,US$2.2B(4x)Q4 2020Draper,USn/a$1.7B(1.4x)Q2 2020Salt Lake City,US$1.2B(12x)Q4 2020NYC,US

40、$450M(1.9x)Q4 2021NYC,US$440M(23.5x)Q4 2020Toronto,Canada$262M(6-9x)Q2 2021Prague,Czech Republic$140M(12x)VC exits by acquisitionsDateLocationBackersAmountValuation(EV/Rev)Q1 2021SF,US$1.2B$15B(32x)Q2 2021Oakland,US$360M$4B(19x)Q2 2021SF,US$1.2B$15B(29x)Q2 2018Atlanta,US$874M$4.4B(11x)VC exits by IP

41、OSource:Dealroom,Pitchbook(April 2022)*Adyen announced the launch of embedded financial products in March 2022 post-IPO in 2018.12Insights from experts on the market13“The retail and ecommerce market has the advantage for embedded finance due to its size,brand,and traffic power,making it easier to c

42、onvert at moments that are relevant for people.”“The bigger opportunity is in B2B versus B2B2C,as this allows the client to keep the relationship which is very important in general,but with more challenging markets even more so.”“Embedded finance is the infrastructure that is unlocking a new generat

43、ion of companies that are using financial services natively to create new solutions and better experiences for their users.It is fascinating to see what the next generation of founders is building leveraging embedded finance in markets as diverse as transportation,health tech,SaaS,climate tech,and m

44、any more.”Yann RancherePartner,Anthemis“The European tech ecosystem is younger than in the US,though it is rapidly maturing across multiple centres of innovationLondon,Paris,Stockholm,and Berlin to name a few.”“In fintech were seeing the strong,positive flywheel of repeat founders and experienced op

45、erators starting new companies.Much of this activity is focussed on the embedded finance space,given the favourable European regulatory landscape and scale and breadth of the opportunity set in embedded finance.”Ellen LoganInvestor,Augmentum Fintech“Embedded finance is all about bringing two large i

46、ndustriesfinancial services and digital applicationstogether to make the world work better.While delivering digital applications is permissionless,financial services is a highly regulated space,which makes this combination,despite its value-creation potential,very hard in practice.This barrier is no

47、w being removed.”Radboud VlaarManaging Partner,Finch CapitalAlex MifsudCo-founder and CEO,Weavr.ioWhat industries are buying embedded finance products?14MaturitySectors,amount raised*Financial services$13.4BHealthcare$1.1BRetail&ecommerce$6.7BTravel&hospitality$5.2BPlatforms&marketplaces$5.9BPayroll

48、LendingBankingInvesting&wealthInsurancePayments&cardsB2B2BB2B2B,B2B2CB2B2CDisclaimer:This graphic provides a high-level view of companies which have made strong inroads into certain industries.Its not an exhaustive representation,and many of the companies represented work across multiple industries.

49、*Estimated total amount raised per sector from the above logos and moreIndustry Deep DivesShaping the bank of the future,part 1financial services(BaaS)Primary bank account used by UK employees to receive salarySource:CFTE,2021Adopting BaaS is a way for traditional banks to stay relevant and increase

50、 market share notably in the consumer account and the business lending space.Cloud-native BaaS solutions enable traditional banks to bring digital products to market quicklyRise of digital-only and mobile-first approach to consumer bankingChallengeBaaS solutionCloud-based BaaS platforms power loans

51、and enable traditional banks to become pure capital providersRestrictive legacy systems for SME lending16BaaS=Banking as a ServiceTraditional banks are competing with challenger banks for market sharesHow we see banking evolving in the futureConsumersBaaSDistribution/Origination/ServicingShaping the

52、 bank of the future,part 2financial services(BaaS)CapitalProducts Technology Underwriting BaaS enables traditional banks to outsource tech and product capabilities.BanksBanks will remain guardians of capital and deploy their balance sheet and data advantage by leveraging historical data to underwrit

53、e.Third-party distribution and onboarding will become the dominant acquisition channel for banks.17TreasuryRadarStripe use casefinancial services(BaaS)Shopify Balance offers Shopify merchants a fast,simple,and integrated way to manage their funds.Built on Stripe Issuing and Treasury,Shopify Balance

54、gives users access to critical productsall within Shopify.Financial services are an essential part of running a business,but most banking services arent designed for the needs of independent business owners.ImpactProblemShopify is a leading global commerce company,providing trusted tools to start,gr

55、ow,market,and manage a retail business of any size.With Shopify Balance,merchants can manage their funds,pay bills,and track expenses.This gives them easier access to financial products and greater control over their business.“By building across Stripes payments and banking-as-a-service infrastructu

56、re,weve been able to give Shopify merchants access to critical financial products that meet their needs,such as faster access to funds and rewards,helping them further grow their businesses.”Tui AllenSenior Product Lead for Banking at ShopifyPaymentsConnectTerminalIssuingStripe Products18Problem:Ins

57、urers appetite for individual gig worker risks tends to be limited.Carriers prefer to provide group coverage to platforms and workers associations.Solution:Embed insurance product directly via platform.Through APIs,insurance products can be integrated at point of demand.Reducing the protection gapfi

58、nancial services(embedded insurance)A simple typology of gig worker protection gapEmbed insurance product into fintech(neobank)at the point of sale via PSP or directly via merchant or through platforms.Claims handling software and technologies like AI can decrease operational pressure and improve CX

59、.Lack of efficient distribution channelsOperational bottleneckimpacting margins and CXChallengeSolution19Embedded insurance is the future growth channelThe gig worker insurance exampleProduct features:Customer experience improvements like seamless account opening and integration into Lyfts driver ap

60、p provide a compelling product offering to Lyfts drivers.Creating more value for customersplatforms and marketplacesSource:LyftReal EstateEducationInsurance Escrow Financing Loans Payments PayrollHealthFreelancing New recurring and ancillary revenue streams Expanded market opportunity Improved unit

61、economics and lower CAC Enhanced CX with seamless user journeysBenefits of fintech-enabled marketplacesMotorFinancial services as a bundleStride Bank Lyft exampleLyft offers debit cards to its drivers powered by Stride Bank to give drivers instant access to their earnings.Stride Bank handles the reg

62、ulatory compliance requirements for providing the product.From marketplace to fintechFintech-enabled marketplacesThe wave of fintech across Europe over the past decade has seen the unbundling of financial services.A new ecosystem opportunity for platforms is emerging,Financial Services as a Bundle,w

63、ith neobanks in pole position to capitalise on this trend.From platform to ecosystemE.g.,Revolut is creating an ecosystem for its consumers where they can trade stocks,book a holiday,earn rewards/cashback,purchase insurance,and send gifts.Embedding financial services into marketplaces makes financia

64、l services accessible at the point of need in an innovative way for both buyers and sellers.This is creating significantly more value for the marketplace by making the user journey smoother and unlocking new revenue streams.20Compelling rewards programFaster payments Regulatory complianceBranded deb

65、it cardStripe use caseplatforms and marketplaces21Wayflyer chose to implement Stripe Issuing,which enables Wayflyer to issue virtual cards and gives its customers a convenient way to access their new funding.This enables them to share in interchange revenue from card spend,which it gives back to its

66、 customers as a discount on their loan terms.In turn,customers can leverage the additional capital they saved from reduced loan fees to reinvest in and grow their businesses.Wayflyer also utilises Stripe Identity to verify user identities and prevent fraud before offering and dispersing funds via th

67、eir virtual cards.Stripe ProductsToday,Wayflyer has been able to provide$700 million in total lending through over 2,100 merchant cash advances.Using Stripe Issuings virtual cards,Wayflyers customers are now able to get immediate access to the funding they need.Wayflyer wanted a partner that served

68、multiple international regions in order to have the ability to scale in the future.Wayflyer is confident that Stripes extensive international presence will help it expand quickly and easily as the company scales to new markets.IssuingIdentityPaymentsWayflyer is a great example of a platform using em

69、bedded finance.Wayflyer partners with ecommerce brands around the world to give them the funding they need to grow.As its client base grew,Wayflyer was looking for a way to lower the cost of providing funding to its customers so it could continue helping thousands of ecommerce startups scale.ImpactS

70、olutionImproving CX to increase loyaltytravel and hospitality22The travel and hospitality sectors are recoveringBNPLPayment&cardsInsuranceInc.car financeCustomers are twice as likely to try new brands and experiences as a result of COVID-19,and 75%of US consumers tried a different store,website,or b

71、rand during the pandemic.This is particularly important in the travel sector with its strong reliance on loyalty programs.As travel volumes are starting to return in many parts of the world,now is the time for companies to re-prioritize customer experience and personalisation to gain a strong compet

72、itive advantage.There is a huge potential for a wave of dissatisfied customers at a time when loyalty is up for grabs.The travel and hospitality sector has already started to see some disruption with BNPL,embedded insurance,payments,and card services tailored for the industry to improve customer exp

73、erience through affordability,rewards,and flexibility.Source:McKinsey,2021BankingStripe ProductsBy partnering with Stripe,TripActions was able to move quickly:The company turned their idea into an entirely new product line in just six months.Another benefit of using Stripe Issuing is having access t

74、o dynamic spending control and being able to have real-time authorisation over every charge,which has saved the company valuable time and resources.Through Stripe Issuing,TripActions customers are able to experience the same functionality and user experience in 20 countries across Europe,including F

75、rance,Germany,Spain,and the UK.They saw a 50%MoM adoption rate growth in the first three months and 599X growth in monthly expense volume in the first year.After launching a successful corporate travel management platform in 2015,TripActions looked to expand offerings for its existing customers and

76、new users.The company decided to create a modern alternative to manage employee spend across travel and non-travel categories and eliminate the concept of traditional expense reports.TripActions Liquid is a travel payments and spend management solution with real-time visibility;automated expense rec

77、onciliation and reporting;and smart physical and virtual cards with built-in controls.To power TripActions Liquid,they chose Stripe Issuing,which allows companies to create,manage,and distribute virtual and physical cards.ImpactConnectIssuing“Employees are no longer filing expense reports,managers a

78、rent looking at every transaction,and finance doesnt have to figure out the context of every transaction and whether its in policy.”Robin GandhiSVP for Product and Payments at TripActionsTripActions is a platform that helps businesses build,manage,and scale their corporate travel and expense program

79、mes.The company partnered with Stripe to launch TripActions Liquid,its virtual and physical card programme that helps manage travel payments and expenses.SolutionRadarStripe use casetravel and hospitality23Shaking up the traditional payment methodshealthcare24Source:Waystar,survey US 2021Payment inf

80、rastructures are brokenToday,it takes more than 30 days on average for a provider to receive payment for their services due to complexities inherent in todays reimbursement models.Source:OECD,2016Market challengers examplesProductMarketAll-in-one platform from processing payments,subscriptions to im

81、proved CXDentalUK,Netherlands,France,Italy,Spain,GermanyPractice management platform,including payments and insurance for patientsGeneral Practice,ClinicUSEmbedded payment,banking,and ecommerce services for better virtual careEmployersUSTransforming consumer behavioursretail and ecommerce 70s 80s 90

82、s 00s 10s 20s POS TerminalBrick&MortarHire PurchaseOnline PaymentsBNPLEmbedded LendingInsurance CheckoutCOVID-19 marked a lasting change in consumer behaviorB2B BNPLB2B paymentsRetail and ecommerce payment services timelineWhats next for embedded finance solutions?Sources:1)eMarketer,2020;2)Worldpay

83、(FIS)Global Payment Report,2021Strong growth in ecommerce led to the rise of BNPL and other payment methods1)Ecommerce market size(in$T)2)Global Ecommerce payment methodsSource:FT,2022A third of 1824 year olds who have used BNPL have been charged late payment fees(%of people surveyed)With the rise o

84、f inflation,default rates and bad debt are expected to increase further for BNPL providers globally.This new challenge for loan providers could prove to be an opportunity for embedded solutions focussed on debt management,collection,and recovery(see logos below).BNPL 3.025TerminalStripe use casereta

85、il and ecommerce26WooCommerce is one of the most popular ecommerce platforms in the world,enabling WordPress businesses to sell and manage orders directly from their websites.In 2021,WooCommerce expanded its partnership with Stripe to give businesses more featureslike subscriptions,in-person payment

86、s,and local payment methodsto help them grow.In just three months and with a team of fewer than 20 people,the company partnered with Stripe to launch WooCommerce Payments in 17 countriesfrom Canada to New Zealand and across Europe.Using a wide range of Stripe products,WooCommerce was able to quickly

87、 build and launch an integrated payments solution.This expanded financial platform helps WooCommerce capture a greater share of wallet for increased customer retention and allows its merchants to adapt to evolving customer expectations and habits.WooCommerce set out to expand its platform offering t

88、o match the rapidly evolving needs of its merchants.To do this,it decided to launch a brand-new platform,WooCommerce Payments,by integrating several different Stripe productsincluding Connect,Instant Payouts,Terminal,and Billing.ImpactSolutionPaymentsBillingConnectProductsFinch Capital featured port

89、folio companiesWebio powering embedded conversational self-service in credit and collections Webio has developed embedded conversational self-service for debt management and collections,helping to manage debt,payments,and repayment schedules right through the debt cycle from early-to late-stage debt

90、.Through omnichannel conversational AI a customer in arrears is directed to a branded digital debtor portal to set up payment schedules,make payments and notify the company(e.g.,lender,utility,telco,etc.)of their personal circumstances and promise to pay.In3-embedded interest-free loans,powered by p

91、ayment service providers(PSPs)In3 has developed a product that seamlessly integrates with the tech stack of payment service providers(PSPs).Through these integrations,In3 allows PSPs to push a buy now,pay later module to their merchant base.Merchants can in their turn add In3 to their checkout page

92、in a matter of seconds.This close collaboration with In3 allows PSPs to expand their product portfolio and increase their revenues per transaction significantly.The merchants see a steep increase in conversion rates and basket sizes,while returns are reduced.Symmetrical is building global payroll AP

93、I rails,allowing companies to scale payroll internally Symmetrical helps companies onboard and pay workers at scale.The solution is used by mid-to large-sized flexible workforce companies with high levels of complexity in the way they handle payroll.Facilitating payroll processes is a key goal for c

94、ompanies that hire internationally,grow internationally,and encounter the problem of paying employees abroad.Symmetrical.ai solves this issue,supporting a fast and uninterrupted pace of growth.The companys vision is to make payroll invisible and enable everyone to hire and pay anyone in the world th

95、rough just a few API calls.PayrollLendingCollections27Trends and the Future of Embedded FinanceWhy is the opportunity now?29Changing consumer behavioursVerticalization of financial servicesAs consumer habits are shifting from traditional purchasing methods at brick-and-mortar stores to shopping thro

96、ugh social media and online platforms,the finance product becomes ancillary to the underlying sale and no longer the main thing that buyers were looking for in the first place.B2B2CB2B2BSoftware providers are consolidating their product offering to one-stop shops that are tailored by vertical indust

97、ries.In doing so,software platforms add financial services to their solutions so they can accompany their clients during more and more steps while they run their businesses and get to maintain a close relationship with them.Virtuous product development cycleSoftware companies also use their clients

98、data to build better products overall and anticipate what the businesses need.Deeply embedded banking and other financial products usher in new levels of democratised access to financial services,help close the protection gap,and further the quest toward full financial inclusion.Quest toward full fi

99、nancial inclusionFor example,Grab widens access to financial services such as wealth management,digital payments,and lending throughout Southeast Asia for the most underserved.For example,a consumer visits the British Airways website to buy a flight ticket and they end up buying travel insurance alo

100、ngside the flight ticket.Banks and insurance companies traditionally have distribution networks that push products,while embedded finance relies on a pull logic where the consumer purchases the financial product at the point of need.For example,Stripe serves clients across use cases from platform an

101、d marketplaces,ecommerce,travel and hospitality,and crypto industries and helps them better serve their customers with tailored embedded financial services.For example,if clients have a card through the platform,the platform knows their business expenses and can tie that back to reporting.The softwa

102、re provider can also know the seasonality of a business and proactively offer lending when its needed.Embedded finance VC hype cycle30HypeVenture capital life cyclePayrollLendingBankingInvesting&WealthInsurancePayments&CardsAngel&seed stageEarly stage growthLater stage growthPre-exit stageM&A and IP

103、O stagePayroll APlInsurance comparison&distributionBNPLExpense managementPayment orchestrationAP/AR automationPayments infrastructureCore banking softwareClaims managementInvestment APIConsumer BaaSPayroll advanceModern cardissuingCommercial BaaSSustainability as a serviceBank connector APILending a

104、s a serviceBrokerage infrastructure APICredit&debt collectionCompliance API(e.g.,KYC)Fraud detection&automationFinancial identity as a serviceRobo advisorsFund as a servicePayroll API is the next big thingRecent times have increased the pressure on tech companies valuations.Platforms and marketplace

105、s will accelerate the adoption of embedded finance features as a way to monetise and generate more revenue;e.g.,Shopify makes significantly more revenue from its fintech services to merchants than from SaaS subscriptions(SaaStr,2021).Our predictionspart 1BNPL could become even more appealing to cust

106、omers with their low-to no-interest offering as credit cards increase their interest rates.This will be compounded by lowered barriers to running card issuance programmes as alternative lenders like BNPLs find other ways to extend their reach outside of merchant checkout page integrations.Payroll AP

107、Is will allow financial product providers almost guaranteed payments at lower interest rates on the basis of“writing”their deduction into the payroll.With the recent surge of the consumer price index,the need from employees for payday loans could also increase.Rising costs put businesses under press

108、ure which increases the risk of payment delays and defaults.Invoice finance and funding APIs could solve this problem and improve the resilience of businesses struggling to get paid and pay suppliers and workers in time.The neobanking industry was born in a low-interest-rate environment where challe

109、ngers could compete on customer-journey automation,personalisation,and predictive analytics.With rising interest rates,high-interest savings accounts offered by traditional banks coupled with BaaS features could look more attractive than ever to customers,and only the most feature-rich neobanks will

110、 win.The current macroeconomic climate will shape the future of embedded finance P&C insurers are suffering from margin squeeze from inflation,increasing claims costs ahead of premium growth,and this is exacerbated by the loss of revenue from a low-interest-rate environment.The knock-on effect is th

111、at this further increases the imperative of growing distribution scale and reducing marginal costs of distribution through less price-sensitive embedded channels(lowering acquisition costs).311The days of the credit card are numbered2Embedded finance as a way to fight valuation pressure3Fast invoice

112、 platforms could save businesses from insolvency45Embedded insurance is gaining momentum6Neobanks are entering uncharted territory With the stock market going down along with the digital asset market,retail investors and high-net-worths might increasingly turn to wealth-technology solutions to custo

113、mise their investing strategy and help recover their recent losses.Now is the time for investment algorithms APIs and embedded robo advisors to prove their value.Wealth techs resilience will be challenged by the bearish market732We expect fintechs and neobanks to double down on specific target verti

114、cals and user cohorts,since different markets have different financial needs.Embedded finance solutions will be the backbone to serve customers needs across segments.Today,open banking APIs vary considerably in quality and consistency.For now,there are discrepancies from bank to bank in the consumer

115、 experience of using payment initiation services(PIS)and account initiation services(AIS)which create friction.A world in which they were improved could increase adoption and create new product opportunities.Were already seeing platforms emerge that are targeting specific verticals(e.g.,gyms,beauty

116、salons,takeaways,etc.);these cross-functional systems are providing management tools and capability across:sales,marketing customer experience,and loyalty/retention.Once these platforms firmly become the OS for these businesses,it makes sense for these platforms to also be the place where finances a

117、re managed.Our predictionspart 2Long-term interest rates are increasing,total%per annumSource:OECD,2022Differentiation strategy will rely heavily on market segmentation8Open banking APIs will gain in quality and consistency 9Vertical software platforms could become the OS for SMEs10Product developme

118、nt will unearth new opportunitiesConclusionKey takeaways34While Europe is still early in the exit game compared to the US,the market for embedded financial services is maturing,and we expect growth to accelerate given the progression of the startup ecosystem and investment activity.The proliferation

119、 of APIs and platformification of businesses is at the heart of the evolution of the financial services industry.Banks are becoming more reliant on technology to stay competitive,and their intrinsic role is refocusing to being underwriters and liquidity providers.The ecommerce and retail industry we

120、re early adopters of embedding financial services at the POS including lending,insurance,and payment services.Other uses cases are now emerging across sectors including travel&hospitality and healthcare.Marketplaces and platforms are rebundling financial services to create frictionless and integrate

121、d ecosystems.The B2B2C and B2B2B business models both present significant opportunities across industries.Some of the most promising verticals include credit collection,embedded investing solutions,and Payroll API services.The current macroeconomic situation including increasing interest rates is go

122、ing to accelerate the use of embedded financial services,and we will see an explosion of use cases across industries.How Stripe can helpStripes banking-as-a-service APIs,along with our robust payments solution,let businessesfrom fintech startups to established platformsembed financial services direc

123、tly into their existing software.ConnectCapitalStripe Connect is a payments solution that allows businesses to embed multiparty payments and offer a variety of financial services to their customers,like collecting payments and paying third parties.Businesses earn revenue by collecting fees for the p

124、ayment services they provide.Stripe Connect is available in Europe,North America,and Asia.Stripe Capital is a financing solution that enables businesses to offer fast and flexible financing to help their customers grow their business.Many small businesses struggle to get competitive loans,especially

125、 if its difficult to underwrite their business.Stripe removes that barrier by allowing businesses to offer a complete lending program through a single integration.Stripe Capital is available in the US.TreasuryStripe Treasurys APIs allow businesses to create FDIC insuranceeligible accounts for custom

126、ers that can earn yield,send ACH or domestic wire transfers,and support check deposits(available soon).Stripe handles upfront negotiations with a network of banks,embeds KYC so businesses dont need to build a costly KYC program,and advises on remaining compliance requirements.Most businesses build S

127、tripe Treasury and Stripe Issuing together to offer their customers a way to store,spend,and manage money.Stripe Treasury is available in the US.IssuingStripe Issuing allows businesses to instantly build a card program to issue branded virtual and physical cards.Customers use the cards to make purch

128、ases while getting faster access to their sales earnings.Businesses get insight into how their customers spend their funds,while Stripe handles card production,fulfillment,and shipping.Businesses earn a share of interchange thats collected every time a card is used.Stripe Issuing is available in the

129、 UK,euro area,and the US.Scan the QR code to talk to a member of Stripes team to learn more about our banking-as-a-service products.35About Finch CapitalMike BrennanPLourens RuigrokInvestment MEugnie Colonna dIstriaBusiness Analyst Radboud VlaarManaging Partner Finch Capital is a Thematic Growth Inv

130、estor in technology companies in finance,real estate,and health run by exceptional entrepreneurs.Our mission is to fund and support the best entrepreneurs creating products that will shape the future of these themes.We leverage our international network and industry expertise to enable our portfolio

131、 companies to grow into leaders in their field.We have a strong preference for teams that have worked together in some form in the past and complement each other on skills and ways of working.We back companies that are solving a real problem.We want to understand what problem you are fixing,why this is a problem,and why your solution is better,more sustainable,and scalable.We are actively looking for investment opportunities and welcome suggestions and introductions that fit our strategy and criteria.Please dont hesitate to reach out!36About Finch Capital