Page 30 - GS210601
P. 30
Education
StreetSmarts SM
Embedded Finance: The Time Is NowThe Time Is Now
Embedded Finance:
WITH JOHN TUCKER WITH JOHN TUCKER
The promising scope of embedded finance
By John Tucker you will see they are raising a lot of equity rounds for
TreviPay innovative technologies they're developing.
or this article, I will continue to explore embed- This article contains a high-level overview of some of the
ded finance by examining some product cat- products that would fall under embedded finance/BaaS
egories that fall under the embedded finance for the commercial side of things, along with some of
F umbrella. Embedded finance is basically bank- the players within those sectors that are causing serious
ing-as-a-service (BaaS), a concept that's been in develop- disruption. Note that there are many embedded finance
ment since at least 2017—but the COVID 19 pandemic products and players in the market, but I will focus now
accelerated development of various BaaS products. on products more in relation to the commercial sector.
Payfacs
The BaaS movement involves technology companies,
media platforms and other non-finance companies that, In two prior Street SmartsSM articles, "The payfacs are
in a sense, become financial services companies because coming – Parts 1 and 2, published May 10 and 24, 2021, in
they embed financial services into the already existing issues 21:05:01 and 21:05:02, respectively, I highlighted the
daily experiences of their customers. These services rise of payment facilitators (payfacs) and how they could
are embedded at the point of need, and the companies become a major challenge in the bankcard processing
derive a portion of their revenues or growth from having industry.
embedded said financial services.
BaaS on the rise Today, for example, Infinicept estimates there are about
1,000 payfacs globally, managing around $1 trillion
By embedding at the point of need, the companies in processing volume. However, by 2025 we could see
provide end users with a better user experience and more over 4,000 global payfacs managing over $4 trillion in
convenience, both of which lead to more loyalty and processing volume.
revenue growth.
Of the 1,000 payfacs today, three companies dominate
Fintech researchers Simon Torrance, author and presenter the market: PayPal, Stripe and Square. These companies
at New Growth Playbook, and Matt Harris, a partner at pioneered the payfac model and operation, helping lay
Bain Capital Ventures, estimate that by 2030, BaaS-related the foundation for other prospective payfacs.
products and services will be a $7.2 trillion global market BNPL
opportunity, with $3.6 trillion of such coming from the
United States alone. CBInsights projects that by 2025, buy now/pay later
(BNPL) products could grow to $1 trillion in processing
So a significant amount of money is at stake, and if you volumes in the United States alone. BNPL products allow
follow fintech companies on Owler, Crunchbase, and buyers (consumers and businesses) to purchase items
other sources that are creating solutions in this area,
30
