ENDS is Jamaica’s Coronavirus E-commerce National Delivery System. It makes special provisions for restaurants and offers a digital-passport for delivery operators to function during lockdowns. In Latin America, North Africa, Europe and Asia, Delivery Hero, a Berlin based company, reported a 400% YoY growth in Q1, 2021. As the forerunner of q-commerce, Delivery Hero is leveraging its customer base to drive this new vertical – both as a principal and as a partner.
Delivery Hero partners with 80,000 vendors worldwide and operates 600 local warehouses built for ultra-fast delivery (“Dmarts”) in 35 countries. During the Coronavirus pandemic, the global surge in food delivery triggered clever business model disruptions, including virtual restaurants and ghost kitchens which, in turn, influenced embedded finance trends.
Virtual restaurants offer full backend restaurant infrastructure which they lease. They buildout infrastructure for third-party businesses that launch new brands. In some instances, they purchase real estate, install kitchen amenities and rent. The model sidesteps brick-and-mortar, and pain points associated with registration and permit applications. They build the value proposition instead of managing the value chain.
In parallel fashion, GreenSky and other Banking-as-a-Platform providers are the new cloud kitchens of finance. Goldman Sachs $2.2 billion acquisition of GreenSky positions David Solomon’s firm to do an old thing in a new way. GreenSky organises financing at the point of sale with no paperwork like Afterpay, which is being bought for $29 billion by Square. GreenSky’s biggest merchant partner is Home Depot.
Once clients are channelled through the retailer’s shutters, the $136 billion Goldman Sachs can then finance their purchases using “Marcus by Goldman Sachs”, which offers loans, credit cards and savings products.
New FinTech infrastructure corporations have made it possible for Software as a Service (SaaS) businesses to add financial services alongside their core software product. This wave is happening first in vertical markets where the vertical SaaS business that can best serve the needs of a specific industry becomes the dominant vertical solution and can sell both software and financial solutions to their core customer base.
Early vertical SaaS companies – Mindbody, Toast and Shopify –launched by reselling financial services, but are now embedding financial products beyond payments – including loans, cards and insurance by leafing them directly into their vertical software. “Shopify Capital” now offers finance to grow the businesses that supply them with merchandise. “Toast Capital” offers restaurant financing. In the past, companies wishing to incorporate financial services by way of whitelabel partners had to deal with tedious technological plumbing, high upfront costs, regulatory requirements, and integration catastrophes.
The new Cloud Kitchens of finance have lowered the entry barrier. By offering banking services as a platform, they take care of compliance, customer identity checks and anti-money-laundering services. Established providers like solarisBank and Railsbank, now enable digital challengers to launch Neobanks. They support companies like Penta or Niyah, that offer banking-related services as their core value proposition. These challengers build their own brand and frontend on top of the whitelabel banking stack, while their Banking-as-a-Platform provider remains in the background as ingredient brand.
a16z forecasts that, by embedding banking into existing offerings, software companies can grow revenue per user by up to 5 times. Consequently, new software verticals can be served profitably by using FinTech features as core monetisation drivers. New technologies, distribution and business models have created the foundation for a fundamental rethinking of how and where the key functions of finance are supplied.
The finance innovation is not in making an App. It is among non-banking players that embed banking into their existing offering. Hubuc’s API-driven platform empowers any brand, beyond the banking segment, to embed banking services as an adjacent capability to their existing core services.
Hubuc offers brands a plug-and-play modular platform for banking capabilities. Ross Republic is Hubuc’s go-to-market partner to offer next generation FinTech infrastructure. Any brand can effortlessly launch their own financial products. Clients can access financial services that are contextually relevant, natively embedded and decidedly personalized. Hubuc makes embedded financial services reachable and user-centric.
In the past, it was laborious to integrate own-labelled banking services into customer experiences. Hubuc lowers the entry barrier using modular API-enabled services that are elementary to integrate. The opportunity to add banking services is a new possibility for a wide range of companies of all sectors and sizes. European brands can now create virtual and physical payment cards, enable IBAN accounts to receive and send money, aggregate a user’s bank accounts and initiate payments on behalf of the user via the Second European Payment Directive.
Embedded finance is an artful efflorescence of innovations from Ghost Kitchens. In 2021, investors have poured $4.25 billion into embedded finance startups. Three times the amount in 2020. Klarna raised $1.9B. DriveWealth attracted $459M while investors put $229M into Solarisbank.
Shares in Affirm surged when it teamed up with Amazon to offer BNPL (“buy now, pay later”) products while Square announced that it intends to buy Afterpay for $29B. Square is now worth $113 billion, more than Europe’s most valuable bank, HSBC, on $105B. Global brands from Amazon to IKEA and Walmart are cutting out the traditional financial middleman and plugging in FinTech to provide their clients credit, banking and insurance.