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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