Embedded Finance Powers Vertical Software
Matt Brown, partner at Matrix Partners, on emerging trends in fintech and AI
The real moat in vertical software is shifting from workflow screens to control over money movement. If AI makes it cheap to spin up custom scheduling, CRM, or record keeping tools, the harder thing to copy is the bank and payments layer underneath, where a platform can accept customer payments, hold balances, issue cards, advance cash, or underwrite loans inside the daily workflow. That is where revenue gets larger, switching costs get higher, and the software becomes harder to replace.
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Embedded finance changes the product from a tool into an operating system. A restaurant using Toast, a freelancer using HoneyBook, or a contractor platform using Deel is not just tracking work, it is taking payment, moving payouts, storing money, and sometimes borrowing, all without leaving the software.
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The money matters because the economics are better. BaaS and issuer processing let software companies monetize interchange, account fees, subscriptions, float, FX, and lending. In practice, that means a company that once charged only SaaS fees can add transaction revenue every time customers get paid, spend, or borrow.
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This is also why pure fintech gets squeezed. Once card issuing, accounts, and payroll APIs are easy to plug in, generic fintech products become easier to clone. The winners specialize around a vertical workflow, or solve a harder regulated problem, then use financial products as the monetization layer on top.
The next phase is vertical ERP, where software companies own both the work and the wallet. As AI lowers the cost of building the front end, more value will concentrate in platforms that can turn workflow data into payments volume, underwriting, faster payouts, and banking products that feel native to the job being done.