Embedded Finance Outnumbers Fintechs

The real upside in BaaS sits outside pure fintech, because most software companies touch money somewhere in their workflow and can add a financial product without turning into a bank. A neobank is a company whose whole product is money. An embedded finance company might be a payroll app, sports management tool, marketplace, or vertical SaaS platform that adds cards, payouts, accounts, or lending to solve an existing job. That makes the addressable customer pool much larger than the set of venture backed fintech startups.

• Fintechs are a narrow slice. They sell financial services as the main product, so there are only so many Chime, Brex, or Cash App style companies to fund. Embedded finance can appear inside any software product that already manages payments, wages, invoices, vendor spend, or deposits.
  1 sacra 2 sacra
• The workflow is concrete. A sports platform can spread out team fees, hold funds safely, and issue payouts. A dealer finance platform can add checking, payroll, and expense cards for dealers. The software company already has distribution, user data, and a daily workflow, so finance becomes an add on, not a standalone startup.
  3 sacra 4 sacra
• That is why the market shifts from startup serving startup to infrastructure serving operating businesses. Recent BaaS discussion points to fewer undifferentiated neobanks, more consolidation, and stronger demand from larger vertical SaaS and enterprise customers embedding finance into an existing product surface.
  2 sacra 4 sacra

Going forward, the winners are likely to be platforms that help ordinary software companies add financial functions fast, safely, and in a way that fits an existing workflow. As more vertical SaaS companies realize they can make money on payments, cards, lending, and payouts inside their product, the long tail of embedded finance should keep widening beyond the traditional fintech category.