Exploring the Expansive Opportunities with Embedded FinTech

Video transcript

Jamie Hamilton: In 2011 Marc Andreessen wrote an essay on how software was "Eating the world." And 11 years later, as Marc predicted, both consumers and businesses alike use software applications on a daily basis to streamline their lives and or their operations. But I'm here today to explain, perhaps not as well as Marc did, on why FinTech is now eating the software world. The premise of this idea said differently is what is known as embedded FinTech. And I'm here to try to explain what that means and bring to life some of the trends we are seeing at the convergence between software companies and FinTech companies. So the concept of embedded FinTech really is born from two fundamental realities. The first, which is a newer phenomenon, is the fact that both businesses and consumers alike are now more trusting of getting their financial services from non financial services firms. Or said better, places other than a bank, a payment processor, or even an insurance company.

The second reality is, generally the life blood of any business is its ability to collect revenue and pay its employees and vendors. If a business can't pay its employees and vendors or can't collect revenue from its customers, then its product market fit won't matter for very long. Given these two truths, FinTech companies have now begun to embed financial services offerings from payment acceptance to payment disbursement and bill pay to payroll, to even business and consumer loans directly inside or embedded in the software that businesses already use to run their operations. This exists in all facets of the economy and virtually every vertical market we encounter, from healthcare, to real estate, to construction, to education, to legal, to government, to hospitality, to retail. I could keep going, but you get the point. The software companies that serve these vertical markets own scarce assets, which is notably one, a large and trusting customer base, and two, unique insights to the needs of their specific vertical market.

But generally, these software companies don't understand financial services. That being said, by capitalizing on the assets they do have, which again is trusting customers and vertical market knowledge, these software companies can offer financial products and services to their customers natively inside of their software workflow and capture some additional revenue along the way. Let's perhaps bring this concept to life in a real world example. Take a field service management software company, who specializes in providing workflow software to the HVAC repair end market. Their end customer, the HVAC repairer uses the software for numerous mission critical aspects of their operations, including scheduling and dispatching, customer management, marketing automation, all the way through quoting customers.

So why isn't this software also offering financial services? Think for a second about the financial services that are needed along the daily journey of an HVAC repair professional. First, the HVAC repair company has a fleet of trucks that need fleet specific credit cards to refill their tanks. Second, the HVAC repairer in the field may have to procure certain parts for a job that need to be tracked in order to bill a customer properly for a job with time and materials. Third, once that job is complete, a payment must be collected or an invoice needs to be sent, and the end consumer would like to make a payment for that repair in the way in which they prefer. But wait for number four, let's maybe say that uh oh, that faulty HVAC unit is beyond repair and the consumer instead needs an entirely new HVAC system and he or she needs to be approved for a personal loan to finance that HVAC system on the spot. And fifth, let's not forget about the HVAC business' employee who did the repairs. At the end of the long day, he or she may want access to his or her wages instantly. In this rolling example, there were five opportunities where financial services could have been the click of a button inside of that HVAC software. Again, from receiving payments coming in for a job completed, to tracking payments going out for fuel or for parts, to payroll to employees at the end of the day, to that consumer loan being offered to that end customer. And I didn't even talk about business loans or insurance.

This example is just one of many, but hopefully contextualizes the opportunity of embedded FinTech. Clearly this is easier said than done, and there's a lot more nuance than I am describing now.