Embedded #finance is a fairly simple concept that can however become quite complex when looking at it from a business model and an industry opportunity perspective. Let me try to simplify.

Embedded finance marks the shift of traditional financial services transitioning and integrating into the new economy, the so-called open economy. This transition is dominated by a few key drivers:

— It completely revamps the traditional value chain, redefining the role of existing actors and introducing new ones

— It drastically changes how customers consume financial services, across 3 axes: the how (new distribution channels), the when (24/7 vs specific time windows) and the what (vertical segmentation, bundling of inherently different products and services under one umbrella)

— It introduces #software as a key enabler and at the same time as a basic pillar of distribution and of the check-out process

— Its close relationship and interdependence with the other predominant model of the open #economy, platform economics

From a #businessmodel perspective, we talk about one underlying concept that branches out to different variations depending on the concept and on the actors involved. KPMG has done a good job in mapping these out in 6 categories:

1. B2C: The so-called retail business model with consumers at the receiving end and marketplaces, e-commerce platforms and other apps at the distribution side
2. B2B: Non-FS players offer financial services (e.g., payments, lending, inventory financing, working capital financing, insurance) to other businesses or merchant platforms
3. B2B2C: Here we have the introduction of an additional business layer in the value chain in the form of a fintech or technology provider. Example: an insurtech working with a furniture retailer to offer product insurance to the retailer’s customers
4. B2B2B: similar to the B2C side a #technology provider is integrated into the model
5. C2C: This model involves embedding financial services (i.e. payment options) into C2C marketplaces or P2P platforms
6. G2G: This involves embedding FS between government relationships, i.e. tax payments between levels of government One might note that there is practically no difference between variations 1-3 and 2-4, given that a provider is always in the loop. I would argue that the distinction depends on the level of integration. From an evolutionary perspective, we are already observing the model advancing and transitioning to the next maturity phase. This shift is playing play out at 3 levels: 1) geographies 2) regulatory environment 3) use cases. The first two require their own analysis, but when it comes to the third one, it is very likely that the next growth wave will come from the B2B side from sectors such as marketplaces, logistics, real estate, construction, energy and health. Opinions: my own, Graphic source and business model segmentation: KPMG

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