Three Predictions for Embedded Fintech’s Breakout in 2021

By Jim Shook, Chief Marketing Officer, Payability

Over the last 20 years, a wave of technological innovation has changed the fabric of human culture, forever impacting the way we live, travel, communicate, and consume. In many instances, the rise of cloud services has been a critical innovation agent. The rise of the sharing economy, data, digital delivery, and commerce has been ushered in by innovators like DoorDash, Airbnb, Snowflake, Palantir, and Amazon. All of them examples of how the demand for convenience and access has proliferated and changed the world. The common thread? These companies have perfected a nearly frictionless value exchange between platforms and customers. It is this intersection where if you look closely, a common thread emerges: Embedded Fintech. 

Embedded fintech has enabled the shift. 

Imagine a rain and fog-filled San Francisco morning in January 2009, just months before Uber’s launch. To traverse the city without a car means hailing a cab as you avoid the rain, hoping for a taxi to drive by just at the right time. After a debate on the ideal route through morning traffic comes a cash payment and a printed receipt. Today, your Uber meets you when and where needed, route optimized, fare predetermined, and payment squared away. Would you like a mint? You arrive on time and dry.

At the heart of this life-altering innovation? Embedded fintech. Sure, Uber is so much more, as is DoorDash, Airbnb, and Amazon, but the nearly frictionless value exchange between platforms and customers is enabled by embedded financial solutions. Your Uber driver financed their vehicle through Uber Finance, and every mile they drive pays back their obligation. Your fare, easily routed from your bank account to theirs, pays off the vehicle. Without that friction-free value exchange, the system doesn’t work.

Today, launching financial solutions and changing the fabric of society is only an API call away. 

The race to innovate and create friction-free solutions is also the race to own the customer. By creating platforms that meet all the functional needs of the platform’s participants: partners and customers, none of them ever need to leave. As the race to own the customer accelerates, the race to embed financial solutions accelerates with it. 

Nowhere is this more apparent than in the eCommerce industry. Amazon, now the second most valuable company in the world, relies on the products and services provided by third-party sellers. Providing financial services to these sellers is a critical step in meeting their needs and keeping them in the marketplace and scaling their ability to produce revenue. Shopify, increasingly a competitor to the Amazon hegemony, has also rolled out its own financial products both for sellers and for buyers, to grease the wheels of commerce through its platform. 

As these technologies have exploded, traditional banks and financial systems haven’t been able to keep pace, paving the way for innovators such as Marqeta, Stripe, and Payability to fill the gap. So, what’s next for embedded fintech? 

1. More platforms will embed fintech into their services

Amazon, Shopify, and Uber are examples of how frictionless embedded fintech solutions allow companies to better serve their buyers and sellers. To compete, smaller SaaS companies and challenger marketplaces will embed fintech on their platforms to meet their customers’ needs. The recent productization of financial services APIs enables these challengers to quickly and easily embed financial services into their solutions. As these solutions mature, expect to see a dramatic rise in the number of platforms offering ‘checking accounts’ or ‘insurance’ or ‘loans’ under their banner. 

2. Competition will create breakout products in 2021

With the increase in interest in embedded financial services and the rising number of companies that can provide them, expect to see substantially better service, better solutions, and more competitive pricing and revenue shares. Expect the customer to have their needs met with continuous innovation. These platform customers will demand high-quality APIs, simple contracts, top-end security protocols, excellent customer service, and integration speeds measured in weeks, not months. These demands will bring on a new wave of innovation from embedded fintech products in 2021. 

3. Platform customers will demand interoperability

To meet the new needs of multi-channel operators, like a small business that sells their product on Amazon and Shopify, a delivery operator who works for DoorDash and Postmates, or a driver for Uber and Lyft, platforms need their financial services to play well with others. These providers will demand interoperability. Companies that provide multi-channel, agnostic financial solutions, like Payability, that work across all of the platforms they use will win the lion's share of customers. 

There’s no question that ‘software is eating the world,’ as Marc Andreesen put it in 2011. As software underpins almost every aspect of daily life, more financial services will make their way into our lives, seamlessly within the platforms and services that we use. Embedded fintech is here to stay, and the platforms that bring the most innovative and friction-free fintech solutions to the table will continue to power economic growth, creating a win-win-win for themselves, their sellers and suppliers, and all of their millions of customers across the globe. 

Jim Shook is Chief Marketing Officer ofPayability, the leading provider of friction-free cash flow and working capital solutions for eCommerce sellers on marketplaces, including Amazon, Shopify, Walmart, eBay, and Newegg.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics