Hi Embedded Finance folks, I have changed the format of EF Review quite a bit and it is a lot more of a newsletter now. I would ask you click 'thumps up' or 'thumps down' at the end of this email to tell me if you new like the new format (and hit reply for any additional thoughts).

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Non-Financial Brand News

Non-Financial Brands are the 'Frontend' in Embedded Finance. By definition, these companies are not from the Financial Service industry but are offering financial products 'embedded' in their non-financial offering.

🇺🇸 Twitter is adding crypto trading in partnership with eToro. Is this the first of many steps from Elon Musk to turn Twitter into a Financial Superapp? If he succeeds, Twitter has the potential to be the new lighthouse of Embedded Finance.

🇫🇷 The French liquidity provider Agicap cooperates with Banxware to offer Embedded Lending. SME Lending is one of the biggest drivers of Embedded Finance and financing 'at the point of need' can be a game changer for all parties involved.

🇺🇸 Walmart sues Capital One to end card relationship. While this may sound like a blow for Embedded Finance, however, this is not a truly 'embedded' case but rather a co-branding offering, and it will be interesting to see if Walmart looks for an alternative partner.

🇧🇷 WhatsApp introduces payments for businesses in Brazil. WhatsApp is for many businesses an important channel to communicate with their customers - especially in countries like India and Brazil. Integrating payment options into its service was a no-brainer, the only questions remained were 'how' and 'when'.

🇺🇸 Construction software provider Handle adds Embedded Payments: Vertical SaaS is an area where Embedded Finance may hit the hardest in the coming months. It appears that the construction industry seems to be one of the fastest one do adopt.

Brand spotlight: Shopify

In this new section, I am sharing the story of a non-financial brand that is building and launching financial products. The first company? Of course EF's role model Shopify.

Shopify was founded in 2006 and is enabling any person to launch an online shop with minimal effort. Shopify's founder Tobias Luetke was building an online shop to sell snowboard gear when he realised that none of the existing providers were offering a great product. Fast forward, Shopify is one of the most successful technology companies out of Canada in the past decades and extended its service offering in many ways.

The Canadian tech provider launched Shopify Payments in 2013 to make it easier for merchants to accept payments. The service is available in 22 countries and it was Shopify's first step towards 'Embedded Finance'. In 2016, a lending product called Shopify Capital followed, which is now available in 4 countries. The most recent addition to their Financial Service offering was Shopify Balance, a banking product consisting of a bank account and debit card for Shopify's merchant to manage their daily financial activities.

Shopify is often used as an example when it comes to Embedded Finance. Why? Shopify might be known as a SaaS provider for e-commerce solutions, but the majority of their revenue comes from "merchant solutions". This is the revenue they generate from ancillary services like offering Financial Service products (but also other products like fulfilment services).

Three interesting facts about Shopify's Embedded Finance story:

• Not just the majority of revenue comes from 'merchant solutions' but this segment is also growing much faster than their SaaS product: 29% vs. 8% (Q4 2022 Financial Report)
• Shopify says they never wanted to offer lending or banking products. Banks often did not serve their customers, and thus, Shopify decided to offer financial products themselves. (Interview)
• Shopify didn't launch the banking product Shopify Balance to generate additional revenue, but to use it as a basis to introduce and centralise more financial products (Annual Report 2022)

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Infrastructure News

Infrastructure providers are the 'backend' of Embedded Finance and empower the non-financial brands to offer financial products. In this section, we cover pure technology companies, financial institutions or a combination of both.

🇺🇸 Unit Announce Strategic Partnership with another US bank. The US Embedded Banking provider Unit adds Pacific West Bank as another bank to their growing number of partnerships.

🇺🇸 Seattle Bank and LoanStar are partnering for an embedded banking offering. Powered by Finastra's consumer lending offering, the two companies offer financing options for high value transactions at the point of need.

🇫🇷 SocGen and Lemonway join forces to service corporate B2B marketplaces. Due to the growth of B2B marketplaces in the past few years, more providers are addressing this market segment. SocGen and Lemonway combine their unique skills for a joint offering.

🇮🇳 PwC India announces strategic alliance with Enterprise SaaS provider actyv.ai from Singapore. The goal of the partnership is to grow the development of Embedded Finance solutions in the Supply Chain Ecosystems.

During a discussion with the founder of a Vertical SaaS company, he asked me which Financial Product I would launch first if I was in his shoes. He expected that 'Fintech people' knew the answer immediately. But I pointed out to him, that there are various elements to take in consideration before answering this question. Yes, there are some elements on the Fintech side, most importantly (the following is simplified and shortened):

• The Effort required to build the financial product and
• The Revenue potential from offering the financial product

However, I told him that's just one side of the story. To be able to answer this question, you will have to look at some non-Fintech elements as well, most importantly:

• The Customer Value that the new offering can create (with an Embedded Finance you should aim for 1+1=3)
• The Goals the non-financial brand has in mind (spoiler: it's not always revenue)
• The Competitive Landscape that the brand is operating in

Embedded Finance is all about merging Financial Services with something non-financial. While there are financial products that are more fitting to one type of non-financial brands, you should always make sure to look at the whole picture before jumping to conclusions (Feel free to get in touch if you like to get the long and detailed answer to this question).

❓Do you have a question around Embedded Finance that you would like to see discussed in a future edition? Hit reply and let us know!

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Insightful reads

🧠 All you need to know about Embedded Banking, Payments, Lending: A great intro and EF primer from our friends at Ross Republic.

🫥 The embedded, invisible, intelligent bank: Fintech thought leader Chris Skinner describes in a short blog post how the future of banking could look like.

🌍 More global companies to offer embedded finance: According to Stripe's Insight Report, 75% of global brands want to offer Financial Services in 2023. The report also states the willingess for EF is higher in emerging markets.

🔁 Why Embedded Finance Represents a Much-Needed Partnership Between Financial Services and the Real Economy: Checkout.com recently launched their issuing product and in this post the company describes why the financial world needs to move closer to the real economy.

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