While the digital transformation has waged its war of change across all industries, in few sectors are the effects of this trend more evident than in FinTech. To illustrate this point, consider this statistic: In 2010, US FinTechs garnered less than $1 billion in venture funding; by 2020, that number skyrocketed to $20.5 billion.
In this blog series, we’ll explore the meaning behind these numbers and shed light on the opportunities that await.
Embedded Finance Takes Center Stage
One of the more eye-opening trends in financial services can be shown simply by the following statistic: over the last thirty years, the number of commercial banks has steadily declined from 18,000 to below 5,800.
Banking, like so much else, has increasingly moved towards where most people now spend their lives: online.
App-based systems and embedded finance (integrating financial services of all types into third-party platforms through APIs) have been jostling for position with the traditional “trip to the bank” and now takes center stage.
With an increasing set of tools at its disposal, like photo capture for check cashing and peer-to-peer (P2P) payments, embedded finance offers the level of convenience and autonomy the modern consumer desires.
Capitalizing on this trend, companies like Square, Coupa, Shopify, and Wix have drastically altered their product lines to offer financial products within their very own software—and exponentially grew their total addressable market (TAM) in the process. Embedded finance allowed companies like these to evolve from companies that offered only software to those that offered software, issuing, payments, and lending. And more are following suit.
Of the 20,000+ software businesses in the U.S. that touch payments, most are mirroring a similar development to the aforementioned companies: expanding beyond just a core software solution to tap into additional lines of revenue.
As more and more consumers spend more and more time online, we expect the disruption of embedded finance on the traditional banking system only to increase.
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