How big is the opportunity?
Bain recently provided an estimate.
From 2021 to 2026, the revenue growth opportunity in the US: $29 billion.
š¦ The Scope
ā¼ļø 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.
ā¼ļø Major products for embedded finance
Lending
Payment
Banking and card
ā¼ļø Out of scope
Neobank/fintech directly interfacing with customers.
Closed-loop digital cards such as Starbucks.
Cobrand credit cards.
Mortgage.
š¦ The Breakdown
The $29 billion revenue growth opportunity by segment:
ā¼ļø Consumer payment
Revenue opportunity: +9 billion.
Embedded penetration: 15% ā 29%.
ā¼ļø B2B payment
Revenue opportunity: +5 billion.
Embedded penetration: 3% ā 8%.
ā¼ļø BNPL
Revenue opportunity: +3 billion.
Embedded penetration: 4% ā 11%.
ā¼ļø POS lending
Revenue opportunity: +3 billion.
Embedded penetration: <1% ā 1%
ā¼ļø B2B lending
Revenue opportunity: +1 billion.
ā¼ļø Banking and card issuing
Revenue opportunity: +9 billion.
Embedded penetration: 2% ā 9%
š¦ Other Takeaways
ā¼ļø The revenue share out of the retail volume (so-called ātake rateā by Bain) is expected to drop for Enablers, due to the competition. Enablers have to seize up the market growth opportunity by scaling up.
ā¼ļø Besides payment and lending, there are other growth opportunities such as insurance, tax, and accounting.
ā¼ļø Incumbent financial institutions may find growth opportunities in specific vertical segments.
š¦ Forecast - Never Easy
One challenge is to define the embedded finance market - a reflection of the more disintegrated ecosystem and new business models.
ā¼ļø For example, Apple Card is used as an example of the enabler while cobrand credit card is excluded.
Isnāt Apple Card a credit card just without Goldman Sachās name on it?
ā¼ļø BNPLās take rate is estimated to be 150-180 bps - itās 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.
ā¼ļø 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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