You might have heard about the latest trend in fintech – embedded finance. Maybe you’ve used a “buy now, pay later” option when shopping online, or purchased insurance to protect your rental car trip. When we talk about embedded finance, we’re referring to two types of companies: platforms that provide financial products alongside their core offerings and API-based enablers that plug into existing companies and allow those partners to offer financial services to their customers.
At Accion Venture Lab, we see embedded finance as more than just a trend. It’s a means to responsibly and seamlessly provide credit, savings, insurance, and other financial tools to underserved customers around the world. When companies that are not financial institutions offer embedded finance products, they give customers who aren’t able to access traditional financial services a way to grow their businesses, protect their livelihoods, and save for their futures.
As embedded finance gains more traction, there’s been a lot of discussion about what it means to embed financial services and who stands to benefit the most. Here’s what we’ve learned so far from our work with embedded finance providers around the world:
1. Companies are thinking about embedded financial services from day one.
In the past, we used to see companies only begin to think about integrating financial services into their platforms after establishing their core offerings or raising later stages of funding. Now, more companies understand the importance of embedded finance – it allows companies to reach never-before-serviced customers and increases value of customers by decreasing acquisition costs and increasing revenue potential – and are offering financial services from the start as one of their core products.
For example, Accion Venture Lab portfolio company Field Intelligence helps pharmacies in Nigeria and Kenya digitize their supply chain operations and manage their inventory. However, Field Intelligence’s “pay as you sell” product, Shelf Life, which allows users to pay for their inventory as they sell it, has been a critical part of Field Intelligence’s business model since its earliest days. With Shelf Life, pharmacies can keep up with fluctuating customer needs without paying expensive upfront costs. Business owners can afford to stock their shelves and free up their working capital to instead invest in their businesses and expand their operations. By ensuring that pharmacies can continue to pay for products while they strengthen their businesses, the subscription aspect of the Shelf Life helps Field Intelligence retain customers long-term.
Another one of our portfolio companies, Capiter, is a platform that provides fast-moving consumer goods (FMCG) retailers in Egypt with access to a suite of products, including inventory procurement, business management, and credit. As an early-stage startup, Capiter not only provides financing to its customers but has also started to expand into offering a digital wallet, all prior to raising their Series A round. Capiter’s financial offerings have been key to its success. After connecting merchants to suppliers, they can then offer both cash and credit-based inventory financing options, addressing several customer needs at once.
2. Embedded finance isn’t just one product.
When you think of financial services, you might initially think of just credit. But embedded finance goes beyond credit and cuts across the full spectrum of financial services – lending, insurance, savings, and investments.
In the Accion Venture Lab portfolio, Lami partners with companies such as banks and telecommunications providers to offer customizable insurance to their customers in Africa, where only 3 percent of Africans outside of South Africa have access to insurance. Lami’s solution contextualizes the purchase of insurance by meeting customers where they are and addressing specific needs, resulting in greater long-term adoption of the product and retention of customers.
In India, our portfolio company Anthem provides administrative and financial solutions for schools in 300 cities across the country. Anthem’s digital platform helps educational institutions streamline their administrative activities – with tools to manage cashflows, expenses, and school fees all in one place.
3. Embedded finance is for everyone.
Embedded finance is democratizing financial services for underserved populations around the world by meeting people where they are and building on the trust that people have with existing platforms they already use.
Embedded financial services are fundamentally reshaping the distribution model of financial services. They allow companies to reach previously underlooked populations in more contextualized and inclusive ways. As these customers stick around longer for financial services, they drive up retention rates and increase a company’s revenue streams. As a result, the profitability and lifetime value of currently underserved customers increases.
Accion Venture Lab’s global portfolio companies are helping diverse populations access financial services that they otherwise wouldn’t be able to. In Indonesia, where 70 percent of small businesses are owned and managed by women, Fairbanc’s “buy now, pay later solution” helps small businesses stock their shelves and keep their shops open. In Latin America, Henry helps address high unemployment rates by offering virtual coding courses that students pay for via an income sharing agreement (ISA), where they only pay for their education once they have secured employment after graduation. In India, AgriM’s digital marketplace provides inventory procurement to the country’s more than one million agricultural retailers, who serve 130 million farmers.
Embedded finance is a powerful tool to provide the world’s financially underserved populations with seamless access to finance. But this trend will only succeed in enacting meaningful change if the offerings are responsible, affordable, and fair. Embedded products must not only offer better terms and pricing than other traditional counterparts, but all prices, terms, and data being used must be visible and understood by customers who may not have used any financial services before. When this happens, we ensure that people have products that meet their needs and are not left further behind.