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  • Frank Tian

Embedded Finance - How Big?

How big is the opportunity?


Bain recently provided an estimate.


From 2021 to 2026, the revenue growth opportunity in the US: $29 billion.


🟦 The Scope


◼️ Bain focused on 2 roles in embedded finance in the US.


Platform: e-commerce sites and apps that host products and own distribution.


Enabler: technology infrastructure supporting product delivery to platforms.


◼️ Major products for embedded finance

  • Lending

  • Payment

  • Banking and card

◼️ Out of scope

  • Neobank/fintech directly interfacing with customers.

  • Closed-loop digital cards such as Starbucks.

  • Cobrand credit cards.

  • Mortgage.


🟦 The Breakdown


The $29 billion revenue growth opportunity by segment:


◼️ Consumer payment

Revenue opportunity: +9 billion.

Embedded penetration: 15% → 29%.


◼️ B2B payment

Revenue opportunity: +5 billion.

Embedded penetration: 3% → 8%.


◼️ BNPL

Revenue opportunity: +3 billion.

Embedded penetration: 4% → 11%.


◼️ POS lending

Revenue opportunity: +3 billion.

Embedded penetration: <1% → 1%


◼️ B2B lending

Revenue opportunity: +1 billion.


◼️ Banking and card issuing

Revenue opportunity: +9 billion.

Embedded penetration: 2% → 9%


🟦 Other Takeaways


◼️ The revenue share out of the retail volume (so-called “take rate” by Bain) is expected to drop for Enablers, due to the competition. Enablers have to seize up the market growth opportunity by scaling up.


◼️ Besides payment and lending, there are other growth opportunities such as insurance, tax, and accounting.


◼️ Incumbent financial institutions may find growth opportunities in specific vertical segments.


🟦 Forecast - Never Easy


One challenge is to define the embedded finance market - a reflection of the more disintegrated ecosystem and new business models.


◼️ For example, Apple Card is used as an example of the enabler while cobrand credit card is excluded.


Isn’t Apple Card a credit card just without Goldman Sach’s name on it?


◼️ BNPL’s take rate is estimated to be 150-180 bps - it’s unclear what this number exactly captures. The latest CFPB report shows a merchant discount of 250~ bps and overall revenue of 400~ bps.


Also not sure if the 4X revenue projection has factored in the persistently high rate environment and expected regulatory headwind.


◼️ Sizing a quickly evolving market is never easy. Now at least we have a quantified result as the guidance.


Bain Report for Embedded Finance


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