As embedded finance matures, questions around the durability of its use cases, sustainable economics and culture are defining the next phase.
By Grant Gibson
At FinovateFall wrapped up in New York last week, one thing that struck me was how far embedded finance has come in a relatively short time. A decade ago, giving ride-share drivers access to their earnings inside a workforce app seemed new. Now, an app that sends you somewhere else to pay feels antiquated! Embedded finance is now a baseline customer expectation, even if users don’t know it.
This year’s FinovoteFall also gave us a reason to celebrate: Great North Ventures embedded lending portfolio company LendAPI was named Emerging FinTech of the Year, a year after earning a Best of Show award at the same conference.
To understand how we got here, let’s rewind to a decade ago, when the concept of embedded finance generally meant putting a financial product inside a nonfinancial brand experience. Today, depending on whom you ask, the term can also include adding fintech capabilities such as faster access to wages or automated investing to an existing financial product. The discussion at Finovate suggested that the market is moving past definitional questions to something more fundamental: What makes an embedded product valuable, sustainable and built to last?
Speaking on a FinovateFall panel, Atif Siddiqi, founder and CEO of Great North Ventures portfolio company Branch, said a successful embedded-finance tie-up has to deliver for both sides.
“It comes down to specialization,” Siddiqi said. “If [the partner is] specialized in an area that can deliver a 10x better experience than you can, it’s worth partnering.”
The panel highlighted three tests for embedded finance as the category matures: Does the product solve a real customer problem? Do the economics hold up after launch? And are both sides prepared to treat it as a long-term product partnership?
1. Solve the right problem
Embedded finance partnerships only work when they solve a real problem. Siddiqi said Branch has generally seen better results when the bank or workforce platform keeps its brand front and center: it already knows the end user and has their trust.
“When the partner’s brand is front and center, it leads to better outcomes and better adoption, since [the partner] already has that relationship with the end user,” he said.
A credit union leader on the panel offered a useful counterexample. She said her institution tested earned wage access, but found little demand among its membership.
“It’s not because that solution is not right,” she said. “It’s because my audience doesn’t need that.” The lesson for the credit union leader was that even a strong product can miss when it’s aimed at the wrong customers.
2. The economics have to hold up
“It’s not just launching the product,” Siddiqi said. “It’s ongoing maintenance, and how does that product perform over time? Make sure that you’re invested for the long term.”
A banker on the panel said a successful program can require additional staff across several normally siloed departments. A failed partnership can become expensive enough to wipe out years of profits.
“You can’t just open up your front door and the profits start pouring in,” said Phil Goldfeder, CEO of the American FinTech Council. “There are steps that need to be followed … You’re playing the long game.”
Customer adoption also has to be sustainable. A credit union leader said limiting promotional spending during pilots can give a more realistic read on adoption because an unusually flashy campaign can distort the results.
“The reality is, I will run out of disco balls eventually,” she said.
The revenue model depends on the type of partnership. Some payments partnerships can be a volume play, with the economics shaped by expected transaction volumes. For earlier-stage partnerships, contract terms and minimum commitments provide downside protection.
Institutions should also look beyond direct fees. The return might come through revenue sharing or returns on fintech investments. It could also come from reducing fraud, lowering costs or keeping funds from leaving the institution.
Siddiqi made a similar point. Embedded products, he said, can help banks retain deposits that might otherwise move to neobanks, brokerage accounts or other competing providers.
3. Not another vendor contract
Even the right product with attractive economics can falter if the two sides stop doing the work post-launch. Siddiqi said institutions should consider whether the entire program, not only the technology, can scale securely.
“They should probably walk away when they’re viewing this as a vendor contract rather than a product partnership they’re investing in over time,” he said.
Goldfeder offered another warning: If either side has to sell too hard, it’s probably not the right fit. Once that becomes clear, the time and money already invested should not keep a bad partnership alive.
At Great North Ventures, we’ve seen this model broaden across our portfolio. Our Fund I investments in Branch and IRALOGIX reflected our early view that specialized financial capabilities would become integral to products people already use. Micruity extended that idea into retirement income, while Benji applied it to loyalty rewards. CapitalOS and Sunlight API brought financial capabilities into business software and B2B card payments, while LendAPI provides the infrastructure to build and launch lending products.
As embedded finance matures, the bar for success keeps getting higher. A product must solve a demonstrated customer need. It needs to produce sustainable economics and be supported by partners committed to investing in it over time. We’re excited to keep backing the infrastructure behind embedded financial products that meet those tests.
