The integration of financial services into non-financial interactions is poised for explosive growth, with the embedded finance market projected to reach over $320 billion in revenue by 2030, said a report by the Boston Consulting Group (BCG).
Currently, the primary applications of embedded finance are payments, lending, and insurance in both B2B and B2C contexts. The consumer segment, already vibrant with activity in payments, insurance, and lending, is anticipated to generate $120 billion in revenue by 2030, BCG’s report titled Global Fintech 2024: Prudence, Profits, and Growth, said.
The proliferation of APIs and the integration of financial ecosystems have fuelled growth. Two of the leading firms in embedded finance—Stripe and Adyen—surpassed the trillion-dollar mark in overall payments volume in 2023, expanding use cases to include pay-by-bank, cryptocurrency payments, and digital assets.
Although not as mature as other fintech segments, embedded lending—particularly buy now, pay later (BNPL)—experienced significant growth, with Klarna and Affirm accounting for $90 billion and $20 billion in transaction volumes, respectively. Embedded insurance is also on an upward trajectory, with strong adoption in Europe resulting in roughly $8 billion in premiums in 2023.
The enterprise segment of embedded finance is expected to grow to a $50 billion revenue market, with horizontal software increasingly integrating payments, lending, and trade to address persistent issues in accounts payable and receivable. Financial services are being embedded into B2B platforms and supplier networks, incorporating value-added services like cash flow forecasting and spending management tools.
Despite these advancements, global fintech valuations have plummeted from 20 times revenue to four times on average, with funding down 70%, and nearly 50% in the past year, according to the Boston Consulting Group. The decline has been more pronounced in late-stage investments, which have dropped by up to 89%, compared to a decline in the range of 54% to 73% in early-stage funding rounds.
Overall, fintech funding has decreased by at least half across all segments, except for insurance and payments. Nonetheless, global fintech revenue has continued to grow by around 14% over the past two years.
“With an annual global profit pool of $3.2 trillion on a base of $14 trillion in total revenue, the financial services industry is both massive and ripe for innovation,” said Nigel Morris, Managing Partner at QED Investors.
“Fintechs are growing faster than incumbents, and while the $320 billion in fintech revenue represents less than 3% today, the exponential advances in generative AI and continued growth in embedded finance indicate that we are still in the early stages of fintech’s journey. The separation of winners and losers is becoming apparent,” he said.
Despite current challenges, BCG maintains that global fintech revenue will reach $1.5 trillion by 2030.
