Embedded finance set for explosive growth

Embedded finance is set to redefine how consumers and businesses build and manage relationships with financial services, according to research which predicts that its transaction value will double in the US to $7 trillion by 2026.

The research, from Bain & Company and Bain Capital, forecasts huge revenue opportunities - up to $51 billion in 2026 - for software platforms and the enabling infrastructure providers that power these embedded offerings.

Payments and lending will continue to be the two biggest segments of embedded finance. Currently, consumer payments account for more than 60% of all embedded finance transactions and this is expected to reach $3.5 trillion by 2026.

Embedded finance-driven business lending, meanwhile, is projected to grow five-fold over the next five years, from $200 million in 2021 to $1.3 billion by 2026, thanks to the rise of a range of new specialist providers.

Disruptive digital first organisations, especially platform businesses, are best placed to take advantage of the embedded finance sector’s expansion. Their access to more sophisticated technology, algorithms and data provides them with an edge in finding and targeting the most creditworthy customers.

Embedded finance poses a major challenge to traditional financial institutions, threatening to separate banks from their customers and leave them with the low growth, low margin role of a regulated entity.

However, Bain argues, there is still a significant opportunity for these institutions to use embedded finance to rethink their core business and drive growth through new services.

Adam Davis, associate partner, Bain & Company fintech practice, says: "Embedded finance has quietly become a significant part of the way consumers and businesses make payments and access funding.

"In the years to come it will have a transformative effect on the relationship we have with our finances, removing friction from the sector and making financial services more contextual, accessible and helpful."

By on Wed, 14 Sep 2022 00:01:00 GMT
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