Embedded Finance is becoming a buzzword. What does it mean, why is it important and will it be successful?
Embedded Finance is when a software platform embeds a financial service like banking, payments or payment facilitation, lending, insurance, accounting or payroll into its core product. Payments and Payfacs are the most mature of these services with most business management platforms or B2B SaaS offering a native payment solution built into the platform’s workflow.
Software platforms are eager to embed financial solutions for two key reasons. One, the SaaS platform can create value for its users with improved workflow and/or economics. Two, the platform can monetize or create additional revenue streams from its user base.
Accenture predicts that in the next 3 years, $100B in revenue will shift from traditional financial institutions to SaaS platforms through the enablement of embedded finance. However, many of these embedded solutions are still in their infancy. Payment went through many iterations on its way to maturity and is still being improved upon despite being largely commoditized. Embedded finance will go through these phases. However, because of lessons learned by implementing payment and payment facilitation, we believe that embedded financial solutions will come to market in a significantly accelerated timeline.