Embedded Finance & the future of Digital Monetization

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Issue #09

Embedded finance is everywhere

You have probably used embedded finance in your daily life as a consumer — paying for an Uber ride with your connected bank account, making an online purchase with Apple Pay, checkout using an e-wallet, or sending money to your friends using Venmo.

Today, more and more non-bank companies are providing banking services such as payment (WeChat Pay), insurance (Airbnb Host Protection Insurance), lending (Amazon Lending), and wealth management (Chime). As a business, you can easily integrate embedded finance solutions, e.g. offer customers checkout using Stripe, “pay later” options using Affirm, or build your own digital wallets using Solarisbank — as an in-app, in-browser, and native banking feature.

Angela Strange, General Partner at a16z captures this trend perfectly — every company will be a fintech company and encourage companies to adopt embedded finance as a monetization lever. There are more exciting opportunities to deploy, and how you can expand revenue streams as a business. Let’s dive deeper.

Key players in the ecosystem

  • Non-bank companies offering financial services: Apple Pay, Google Pay, WeChat Pay, Alipay, Amazon Pay
  • Buy now, pay later (BNPL) solutions: Affirm, Afterpay, Klarna, Sezzle
  • Embedded insurance solutions: Trov, Cover Genius, Clyde, Boost Insurance, Tint, Extend
  • Banking-as-a-service (BaaS providers), help companies integrate financial stack: solarisBank, Synapse, Galileo, BBVA
  • (🔒 Full version) +5 more business categories in the embedded finance space
  • (🔒 Full version) +70 more company examples across different segments. You can use this list to discover:
  • 💡What are the profitable niches in embedded finance?
  • 💡How to differentiate FinTech products by comparing landing page headlines?
  • 💡How to create a compelling one-liner by reading value propositions from other companies?

What problems do they solve?

  • Payment processing without going through a third party. According to a16z, a native digital payment experience can boost 2x ~ 5x revenue per customer. Stripe lets you embed checkout and payment methods on your website or mobile app. Square helps you create your own point-of-sale on any iOS or Android device. Finix helps companies accept payments, manage payouts, and onboard merchants.
  • (🔒 Full version) +4 more valid problems existing players are solving. Understanding these problem statements will help you build something people want. You’ll also learn:
  • 💡Problem definition 1: What problems does Affirm solve?
  • 💡Problem definition 2: How to differentiate low-code fintech solutions…so that any business can become a fintech company?
  • 💡Problem definition 3: What problems do Plaid solve that made the company valued at $13 Billion dollars?
  • 💡Problem definition 4: How does Shopify expand its revenue streams by getting into Embedded Finance?

Business models

There are different ways to create multiple revenue streams and monetize in the embedded finance space — either as a provider, enabler, or facilitator. For example,

  • Payment transaction fees. Most common in payment processing solutions. For example, Stripe charges 2.9% + $0.30 per transaction in the United States to accept card payments online; and different rates for international transactions. Square charges a flat rate of 2.75% for in-store transactions; 2.9% + $0.30 per transaction for online transactions. Affirm charges merchants a fee whenever shoppers utilize the “pay later” option at the checkout.
  • (🔒 Full version) +3 more strategies to help you layer different revenue streams and build a profitable fintech. You’ll also learn:
  • 💡Strategy 1: How to monetize financial services on top of my core business (and how top companies do it?)
  • 💡Strategy 2: If you’re an online marketplace and want to monetize embedded finance, here are 2 great examples implemented by top companies.
  • 💡Strategy 3: Clever way to charge users for a fintech solution on top of transaction/payment processing fees.

Why now?

There are massive opportunities for building in the embedded finance space. This section explores the market evidence, what the future of fintech will look like, and answer the “why now” question for your investors:

  • Increasing demand for fintech solutions among the millennials and Gen Zers. By the number: 37.5% of Gen Zers would only choose a digital bank. They represent $3 trillion in spending, are digital natives, and are familiar with the mobile-first experience, on-demand, and peer-to-peer transactions experience.
  • (🔒 Full version) +5 more market evidence to prove the demand for embedded finance. You’ll also learn:
  • 💡Evidence 1: New problems that are emerged from the future of eCommerce and why new solutions are needed?
  • 💡Evidence 2: Why this technological shift will give rise to new fintech solutions?
  • 💡Evidence 3: Why Amazon recent’s (smart) move is an indicator for new demand?
  • 💡Evidence 4: Why new consumer payment habit shifts will drive the demand for new solutions?
  • 💡Evidence 5: Who is most likely to adopt embedded finance in digitization (and how easy it has become to acquire customers?)

Business opportunities

  • (🔒 Full version) 4 specific product ideas and business opportunities that are solving problems. You’ll unlock:
  • 💡Opportunity 1: Decentralized finance (DeFi) product idea
  • 💡Opportunity 2: Creators economy meets FinTech product idea
  • 💡Opportunity 3: Online marketplace meets FinTech product idea
  • 💡Opportunity 4: How to use embedded finance in my existing business?

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