Financial facilitators are driving the expansion of built-in financial services

Embedded Finance: A New Era for Financial Services

Embedded finance, a trend that has gained significant traction in recent years, is transforming the financial landscape. This innovative approach allows non-bank providers and established brands to offer financial services seamlessly within their existing offerings.

Partnerships play a pivotal role in this evolution, enabling enhanced user experiences, reduced learning curves, and access to cutting-edge technology capabilities. White-label solutions and advanced infrastructure provided by top fintech companies can offer immediate access to the latest technology.

Klarna, the world's leading buy now, pay later (BNPL) platform, is a key player in this area. Other fintech enablers, such as Swedish open banking startup Tink, cloud-based banking technology specialists Thought Machine and Mambu, are also making significant strides.

The growth and popularity of fintech enablers are evident. In 2020, embedded finance generated $22.5 billion in revenue, and it is projected to increase tenfold, surging to an estimated $230 billion by 2025, according to Lightyear Capital. This year alone, investors have poured $4.25 billion into embedded finance startups, almost three times the amount of 2020.

Nium, a B2B payments platform, raised a US$200+ million Series D funding round and achieved unicorn status in July. Open, a neobanking platform focused on small and medium-sized enterprises (SMEs), raised $100 million as part of its Series C funding round. Consumer finance companies and digital banks like Trade Republic, Mynt, TMRW, and Open are also powered by fintech enablers.

The rise of embedded finance and banking-as-a-service (BaaS) trends can be attributed to the growth of fintech enablers. Partnerships are a significant driver for this growth, as they enable financial institutions, incumbents, and fintech startups to save time, resources, and improve product time to market.

The paper titled "Fintech partnerships and the technologies that enable them" explores the critical role of collaboration in the fast-evolving financial landscape. It suggests that partnerships are essential due to increasing competition in the financial services industry and the entry of bigtechs like Google, Apple, and Facebook. The paper also highlights that partnerships are crucial for saving time, resources, and improving product time to market.

The private equity firm projecting that embedded finance revenue would multiply from 2020 to 2025 is not explicitly named in the provided search results. However, it is clear that the future of finance is being shaped by these innovative partnerships and the technologies they enable.

As we move forward, it is expected that embedded finance will continue to revolutionise the financial services industry, offering a more seamless, user-friendly, and technologically advanced experience for consumers and businesses alike.