Embedded finance: Why VCs are betting on it

Good morning, and welcome to Protocol Fintech. This Friday: the rise of embedded finance, the return of Seth Green’s Bored Ape, and Janet Yellen vs. Cardi B.

Off the chain

There is something called Unicorn House in San Francisco, looking for “Gen Z’s most hype technical builders.” Its organizers profess to value “inclusivity and diversity,” which must be why they feature the infamously all-male PayPal Mafia photo shoot on their homepage and inform applicants that they should be “college/drop out, recent grad, young professional.” Its investors are “best friends” with people like Jake Paul and Travis Kalanick, which makes me wonder about their professed commitment to “kindness.” Other values: “serendipity” and “blockchain.” The homepage’s background reads “DEFEAT CRYPTO WHALES.”

— Owen Thomas (email | twitter)

It’s time to get embedded

The lower fintech multiples tumble, the harder VC funding is for founders to find. But savvy investors are betting on a less-flashy type of financial infrastructure provider. Funders have coalesced around a label for these companies, one that startups are only now starting to adopt: embedded finance. Part distribution strategy and part product design, it’s proving to be a downturn-resistant blueprint.

Think of embedded finance as the picks and shovels of cutting-edge fintech. That includes lending, payments, open banking, banking-as-a-service, data aggregation and data transfer services, typically API-driven and deeply integrated into other products.

  • Companies like Stripe and Plaid are considered early exemplars of embedded finance, joined by newer ventures like Apiture and Yapily. And embedded plays are emerging in both traditional fintech and crypto.
  • Bain Capital Ventures is one of the firms that set the trend. “It’s easier now, because of innovation in financial infrastructure, to get fintech products up and running faster and more easily,” said partner Christina Melas-Kyriazi.
  • Melas-Kyriazi said the best embedded finance companies either leverage data collection or network effects so that “once someone starts using your product they’re going to use it again and again, and it’s going to be harder for them to switch.”

Startups serving up software to financial services companies and other business customers are also earning more investor dollars than other fintech sectors. According to Dealroom, embedded finance investing nearly tripled between 2020 and 2021, and investment in payments startups — a key sector within embedded finance — appears to have held steady in the first three months of 2022.

  • Catherine Birkett, CFO at GoCardless, said integrating financial services, like putting payments and accounting together, simplifies business operations in obvious ways. The open-banking company secured $312 million in late-stage funding in February. “This is easy to explain to investors, and from there it’s logical that fintechs that offer convenience and ease of use to merchants are more likely to acquire customers than those that don’t,” she said.
  • That’s part of the embedded finance pitch: It’s a more efficient and consumer-friendly route to reach other companies’ loyal customers as opposed to branding and launching a new financial product into often-crowded markets. Like other business-to-business models, that makes it dependent on other companies as a channel for growth, but embedded finance’s supporters argue that’s a feature, not a bug.

It’s not enough to just declare yourself an embedded finance company and start pitching investors. Martin Tantow of Pegasus Tech Ventures says companies must have strong financials to back up their pitch — preferably enough revenue to survive a looming downturn.

  • “I want to see what their distribution model is [and] which channels and strategic partnerships they are pursuing,” he added.
  • For investors now, the most exciting fintechs are ones with low overhead, a clearly defined strategy of marketing to businesses and a promise of infrastructure that will accelerate the transition to a fully digital financial ecosystem.

PitchBook recently warned of a “bifurcation of the market” in fintech: Those serving consumers and small businesses, the firm’s analysts wrote, “will be negatively impacted while enterprise and infrastructure companies will remain at strength.” Or as “Saturday Night Live’s” trend forecasters might put it: Get embedded, or go to bed.

— Veronica Irwin (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.


A resounding 96% of respondents claimed that there is work to do in digitizing their AR departments, yet 60% agreed that their AR departments haven’t been prioritized as much as other departments for digitization. At a time when the importance of securing cash flow is higher than ever, many businesses are not putting enough focus on it.

Learn more

On the money

On Protocol: Terraform Labs is facing investigations around the world. The SEC and South Korean authorities opened investigations into the company and its founders after the UST-luna collapse.

Ethereum successfully completed its rehearsal for the Merge. The Ropsten test network successfully merged its proof-of-work execution layer with the Beacon Chain proof-of-stake consensus chain on Wednesday, a process that the Ethereum network will attempt to undergo in its transition to proof of stake.

Jack Dorsey and Jay-Z teamed up for the Bitcoin Academy. Jay-Z’s Shawn Carter Foundation and Block’s Cash App are offering free bitcoin classes for residents of Marcy Houses, a public housing complex, in Brooklyn.

Last week’s Square outage was caused by … Square. In a post-mortem report, Square engineering teams said that routine exercises they were doing ended up rerouting database traffic to new server hosts, causing an interruption in services.

VeChain partnered with the UFC for a multiyear sponsorship. The agreement, reportedly valued around $100 million, will have the smart contract tool provider’s logo displayed prominently in the Octagon, debuting on “UFC 275: Teixeira vs. Prochazka” in Singapore.


Roshan Patel, founder and CEO of health care fintech care startup Walnut, got roasted by his mother after she asked what he was up to this weekend. “Not much, putting together our Q3 OKRs,” he responded, to which she said, “OKR U ever going to get married?” Some Twitter users suggested he delay that task to Q4.

Seth Green managed to get his stolen Bored Ape, named Fred Simian, back from its alleged abductor, Mr Cheese. Transactions records show Green got the ape back by shelling out more than $100,000 more than what Mr Cheese paid for it.

Janet Yellen doesn’t agree with Cardi B’s take on the inevitability of a recession, though it’s ultimately up to the National Bureau of Economic Research to make the call. Asked if she knew who Cardi B was, Yellen laid down this diss track: “I don’t have a lot of time for her, but, I mean, I am alive!” If only the Treasury Secretary had added an “Okurrr” — we’d stan.

The chart

Crypto adoption varies widely around the world, but some of the leading countries might surprise you. At the end of 2021, Ukraine had the highest per capita rate of crypto ownership, according to data from Triple A, while India had nearly four times as many cryptocurrency holders as the United States. El Salvador’s adoption of bitcoin as legal currency in 2021 doesn’t seem to have done much to boost crypto ownership.


A resounding 96% of respondents claimed that there is work to do in digitizing their AR departments, yet 60% agreed that their AR departments haven’t been prioritized as much as other departments for digitization. At a time when the importance of securing cash flow is higher than ever, many businesses are not putting enough focus on it.

Learn more

Thanks for reading — see you Monday!