4 July 2022

The Rise of Embedded Finance

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Finch Capital recently collaborated with Stripe on the writing of a report on The Rise of Embedded Finance, which discusses the evolution, current state, and future of the embedded finance market from both a venture investor and a market leader perspective.

We predict that the embedded finance industry will become one of the most valuable sectors in fintech reaching $7 trillion globally over the next ten years. Embedded finance is a positive sum trend where banks can serve small businesses at scale, software platforms can diversify their revenue, and small businesses can grow more easily. While some of the early embedded finance models (e.g. payments and lending) are starting to mature, we still see significant growth potential in other verticals (e.g. payroll and wealth) and across underserved industries such as health, hospitality and travel.

Top findings include:

  • VC investments in embedded finance more than doubled from 2020 to 2021 in Europe and North America to reach a total of $6.7B.

  • The continental European market for embedded finance is finally picking up pace with $1B+ of VC investments in 2021 (and that’s excluding Klarna).

  • The market is maturing with the increasing share of larger rounds (Series A+) over the years while pre-seed and seed rounds have remained constant.

  • Industries from healthcare, to retail, to travel and tourism are buying in embeddable financial services to find new revenue streams, deepen customer relationships, and grow valuations

  • Marketplaces that embed financial services have a median EV/Sales of 6.7x, compared to 5.3x for the ones that do not.

Download the report here