
Trading Tomorrow - Navigating Trends in Capital Markets
Welcome to the fascinating world of 'Trading Tomorrow - Navigating Trends in Capital Markets,' where finance, cutting-edge technology, and foresight intersect. In each episode, we embark on a journey to unravel the latest trends propelling the finance industry into the future. Join us as we dissect how technological advancements and market trends unite, shaping the strategies that businesses, investors, and financial experts rely on.
From the inner workings of AI and ML to the transformative power of blockchain technology, our host, James Jockle of Numerix, will guide you through captivating conversations with visionaries who are not only observing the future but actively shaping it.
Trading Tomorrow - Navigating Trends in Capital Markets
The Evolution of Embedded Finance
This episode explores the growing role of embedded finance in capital markets and beyond. We discuss how companies are approaching payments, lending, insurance, and investments, and examine the factors driving adoption across sectors and geographies. Guest Lars Markull, embedded finance consultant and founder of Embedded Finance Review, shares case studies, examples of both successes and failures, and considerations for infrastructure choices, leadership backing, and long-term sustainability.
Welcome to Trading Tomorrow Navigating Trends in Capital Markets the podcast where we deep dive into technologies reshaping the world of capital markets. I'm your host, jim Jockle, a veteran of the finance industry with a passion for the complexities of financial technologies and market trends. In each episode, we'll explore the cutting-edge trends, tools and strategies driving today's financial landscapes and paving the way for the future. With the finance industry at a pivotal point, influenced by groundbreaking innovations, it's more crucial than ever to understand how these technological advancements interact with market dynamics. Embedded finance isn't the future, it's the now.
Speaker 1:In 2Q 2025, earnings call companies, from PayPal to Block to Visa, called embedded lending and payments growth engines, not side projects. Globally, the market is projected to climb from $83 billion in 2023 to over $570 billion by 2033. From Shopify to Walmart, embedded Finance is redefining how financial services reach users and how non-financial platforms become banks without calling themselves one. Enter Lars Molkel, embedded Finance consultant and founder of the Embedded Finance Review. With over a decade in fintech, lars helps startups and scallops navigate the payments, banking and lending infrastructure maze. Known for his hands-on market research, providing matchmaking and real-world practicality, he delivers context that moves the needle. Lars, thank you so much for joining us today.
Speaker 2:Yeah, jim. Thanks for having me Looking forward to the discussion, lars thank you so much for joining us today.
Speaker 1:Yeah, jim, thanks for having me Looking forward to the discussion. Yeah, well, you know it feels like embedded finance went from pilot to product like almost overnight. What's driving the acceleration in 2025, especially around embedded lending and payments?
Speaker 2:no-transcript. I think they're being like very, very honest and the first embedded finance implementation has been many decades ago. The usual kind of like car loan at the car dealership is very often referred, like in the 60s or 70s, as the very first like embedded finance implementation. But yes, you're right, especially in the last. I think maybe from my personal view, the last five years like since COVID, since 2020, things have been accelerating quite a bit. I think a lot of factors go into that.
Speaker 2:I would always stress the most important factor is that we are seeing now positive success stories in the market. So my story is always that I think Shopify has been kind of celebrated as a fintech company. When was it? 2020, 2021, something around. That was the first time. Yeah, they launched Shopify Capital in 2016. So it took them a handful of years or something like this to get to that point. So I think, in general, what we're seeing in fintech overall, it's a lot more often evolution than revolution. In fintech overall, it's a lot more often evolution than revolution, and these positive success stories of companies who are doing it successfully the role models for others is really, really important to move forward as an industry as a whole.
Speaker 1:Well, we've heard embedded finance revenues climbing and growth referred to as a business engine across sectors. What's changed? Is this genuinely sustainable or hyper-coasting on trends?
Speaker 2:Probably both in a bit, right. So I'm obviously like super biased when it comes to embedded finance, right. This is basically the topic I chose for a couple of years now to kind of go all in, I have to agree. So sometimes the hype is in some moments a bit too much and people, let's say, celebrate certain announcement a bit too much without seeing the proper validation. But on the other hand, we're seeing some of these companies being extremely, extremely successful, right. And we're seeing also, very often, companies who sometimes at certain points even go a little bit, let's say quiet on the embedded finance front, not because they're not doing it anymore, but they're realizing what impact it has on the business and realizing maybe that's not the thing I should be talking about too much in the public, so my competitors understand what I'm doing and why I'm doing it.
Speaker 1:So the embedded finance market is expected to hit $570 billion by 2033. I mean, that's pretty big. You know what sectors and regions do you see leading that growth and why?
Speaker 2:So like, first of all, I mean I think now I've been focusing exclusively on embedded finance now for something like five to six years and I think I've seen like a lot of different numbers putting towards like this is a market size of embedded finance, very often in the trillions, very, very high numbers. I personally, taking a bit of a step away sometimes, I'm like really, really, really large numbers. I think I mean just to give my view on these numbers is I focus a lot on when I work with companies, on the impact for them. So it's not really about, let's say, how big the market overall is. It doesn't really matter. What really matters is how financial services are helping you as a business to grow, to make more revenue from embedded finance, but very often also to improve the core products. So it's not just the pure embedded finance case. But coming back to your question, obviously embedded finance, the definition of embedded finance is that we're talking here about non-financial brands, companies who are not really fintechs, offering financial products. So that kind of like sets the scenery. Like where do we see embedded finance adoption growing? Quite a lot, right, if I'm looking from a geographical angle, then obviously the US is as often the leading market here. I think we have here a strong advantage of a very, very mature tech ecosystem of very, very large companies being very, very successful.
Speaker 2:I'm based in Europe and in Germany, definitely a bit behind in embedded finance adoption compared to the US, still nevertheless, especially in the last couple of years, also seeing a broad adoption, and I think we're seeing the same in Asia as well. That's from a geographical angle. I think it's a company type level where we're seeing the strongest adoption. I think it has been for quite some time already vertical SaaS platforms and marketplaces who tend to have the biggest success stories so far in embedded finance. I think a few things go into that. There are a few factors that help these companies actually building these financial products and within these, let's say, type of companies. Maybe it's a little bit biased towards what I'm doing right now, but I'm seeing quite a bit in professional services, in healthcare, in construction. Those are the industries that very often pop up in these different type of companies, in these geographic resources, the geography type of companies and also industry. And yeah, it can get very complex and very depending on what area you are in.
Speaker 1:But now we're starting to see movement beyond payments and starting to move into lending and insurance and even investments. What pillars are emerging as the most strategic, and where should founders be placing their bets?
Speaker 2:I mean, I get the question and I think that this is in some cases also relevant for founders to understand what's really like hot and growing and what's changing. I, for once, very often tell, when the companies I'm working with are really really core focused Okay, what is your core product? How is financial services going to be helpful for you? So obviously it's interesting to see other kinds of companies, maybe in the same market, maybe in other countries, maybe in completely other industry, how they're adopting financial services. But at the end, this is not like copy-paste, right. It's not like okay, this company has now launched embedded investment and is extremely successful with it. I should be doing the same thing. It might be, on paper, a very similar company, but the whole let's say, foundation or customers might be very, very different, right. So I get that.
Speaker 2:The let's say new trends upcoming is a way of inspiration, and you can argue with my newsletter focus on embedded finance, and I'm doing exactly that highlighting these stories to make it a little bit more understandable for the people out there.
Speaker 2:But that doesn't mean company x is doing this. I should also be doing this. What's really really for any company, for any non-financial brand, as I call them, the companies who, basically, is embedding the financial product needs to understand why me, why am I the right company to offer this financial product to my customer, and that, often or not often, this always requires a lot of customer research, customer understanding, understanding the jobs to be done, understand how financial services are helping. So, yeah, maybe we can start with a news piece sometime as a piece of inspiration and use that, but this should then not lead to launching this product, but more about OK, let's do some customer research around this, if this is an angle we maybe have missed before. But even without proper announcement of other companies, I think financial services in specific industry can be extremely helpful, not just to generate own revenue, but also to improve the core product, and that's obviously any company should be focusing on.
Speaker 1:So what infrastructure choices matter most, and what red flags should teams watch for early on?
Speaker 2:I would argue there's not like a one-size-fits-all right, so I wouldn't really say there is, let's say, this one playbook and any company just like follows it, and it's always like that right. I think there are a couple of things, and obviously we're talking about embedded finance. We're talking here about non-financial brands, and especially when they're launching the very first financial product, they most likely have not the experience in the financial service industry right. Some of them might be in a lucky situation that they have hired or are able to hire, a certain kind of like profile, maybe a fintech veteran, to basically buy a lot of this knowledge and get it in-house right. Even then, there are a lot of mistakes that companies can make and typically they are doing it more so with their first partnership, the first product, than once they have done a couple of them and have understood certain things.
Speaker 2:And I think the typical kind of like yeah, like red flags is, especially when it comes to provider setup, is that these non-financial brands sometimes tend to jump a little bit too fast and trying to make that the life a little bit too easy. So what I mean by that is I've seen many, many, many companies, just as an example, jump very, very, very quickly to price and go down to a price comparison of different providers. I get it, it's an important vehicle. But what the mistake here is that companies that's very easy to compare. Anybody can compare numbers and anybody knows the lesser I pay for the same product, the better it is. But very often certain aspects of the provider, of the setup, get ignored and not on purpose ignored. Sometimes they don't even know about certain requirements, so they very, very quickly jump to the price comparison and use that as a deciding factor. Comparison and use that as a deciding factor.
Speaker 2:And then, on another note, very often these companies, also from a personal experience and this might be, of course, a little bit based on or biased on, my personal activities as an advisor in this space but I feel like they often rely too much on their infrastructure provider as a sole source of input and inspiration. So I think it's obviously the infrastructure providers are extremely helpful and they can be extremely knowledgeable in certain aspects. But only you know your business inside out, only you know your customers, their behavior, or at least you should know. So I think there is a certain way you can take input from your potential infrastructure provider as a source of, let's say, maybe not inspiration, but like a as a, as a source of knowledge and digest it. But this should not be something like without critical thinking, just being like copy pastepaste and adopted. So there's a lot that has to go into that, maybe including legal advice to make sure the advice that I'm getting here is the really relevant one.
Speaker 1:You mentioned Shopify. I think you know it's a well-known brand, we all know it. Any examples of non-success stories that perhaps you know you can share with us, maybe not name names, but just to make things a little bit more accessible.
Speaker 2:For sure. For sure I mean because I work here in Europe. Right now nothing really from the US market jumps to my mind. But there are a couple of cases which the names I can also very easily share because I've not really worked with them. I've just covered them in my newsletter. For example, there was a Swiss retail chain called Coop. That's like C-O-O-P I think. It's the second biggest one in Switzerland, so quite sizable.
Speaker 2:Back in the day it was a typical retail chain. They even had their own bank license. Many, many decades ago they separated from them, I think in the 90s or maybe early 2000s. But then, I think last year or the year before, they announced a new product, a new banking finance product for their, for their customers, for the consumer. So it was a consumer banking product initially, card, an account. But the announcement already, the launch announcement already mentioned also insurance, investment products and a lot more to be followed. They have literally stopped that offering nine months after the launch, which is for anybody who kind of looks in the market and does this kind of thing extremely, extremely fast. So a little bit too fast. Personally I would say fast. So a little bit too fast. Personally, I would say.
Speaker 2:Their explanation arguers were that they didn't really get the demand for the product that they really wanted to, and I think that maybe I mean I'm an external view so I can't really say for sure but from my perspective one I think a retail chain in general applies to all companies, but a general retail chain, grocery chain really really hard sometimes to build what I call the embedded finance magic, which I mean like combining the financial product with a non-financial product, no-transcript product from you. What I say is like when, when a customer, when a company I'm working with, like if, if you're offering, if you're embedded finance offering as a non-financial brand, can it easily come from a fintech or from a bank? You have not really built an embedded finance offering. You have basically built like a normal fintech offering. What you're trying to do is like embed it really well and that's obviously pretty hard for an offline business. I would argue, not impossible. I mean, starbucks and other retailers have maybe shown that this is possible, but definitely hard.
Speaker 2:And the second one what I'm guessing for co that they've not really ensured leadership support for it, or at least maybe they had leadership support. But what are my doubts is that this was really based on proper research and data and fundamentals, and maybe there was more of a vibe going on saying, yeah, let's do this and everybody were behind it, but the people building it kind of missed a little bit to have a proper foundation on it. So they had the support without the foundation but when the first blow came, it all folded like very, very, very, very quickly. So Co-op is definitely one here. In Germany also, metro Financial Services, a wholesaler that had a similar journey that took a couple of years to build the product but then with the CEO change. So again, leadership support changed, didn't really believe in it, went away because the team couldn't really justify that you should stay. Just a couple of examples.
Speaker 1:You know, and I'm just going to pick on this because you mentioned Starbucks, and it is the morning and I could use another cup of coffee, but you know I trust Starbucks for a good cup of coffee, but I don't necessarily trust them for a variable annuity.
Speaker 1:You know what are some of the barriers for these brands. Moving into non-financial products, I mean, it would make sense in certain areas you know you mentioned like construction If I had to deal with payments or lending through a trusted construction company. That makes sense to me, but a grocery store, I don't know, I don't get it.
Speaker 2:I guess it depends on a couple of factors here, right? So I think one factor is definitely the brand and the trust you have in it, and I guess also this is a little bit like generational differences as well, and obviously I think FinTech has to be honest, fintech has helped that with a lot as well that people nowadays are, even even my. When I, when I grew up, there were not really any fintechs, it was just like traditional banks and this was basically where people trusted their money. The generation who grows up now is basically already interacting with fintechs, not the traditional, like high street banks. There might be a little bit different mindset. So I think, like trust in general with certain brands and obviously people who have a very, very strong connection to a certain brand and this is very much on an individual level makes a lot of sense or is really, really important.
Speaker 2:But then it also depends, I guess, on like, what kind of financial products are you using from them, right? I mean, I'm guessing even from your point of view like Starbucks, topping up your wallet with like 50 bucks for a couple of benefits I guess that's a risk to be taken. Would I now trust Starbucks with my investment portfolio for my pension and manage it through that? Probably not. Probably, even I would argue there. This is the wrong place to do something like this, right?
Speaker 2:So I guess for and this comes back to to the question or the like from a general view point of view is, uh, the trust level in general. But also then, what is the connection between the non-financial and the financial product, right? And what story can companies tell here, right? So, obviously, uh, this might be for some companies a lot easier. And if you're interacting with payments already construction business if you're interacting with payments already, if your customers are taking loans already today to pay for services and products that go to your platform, probably you can also offer them a loan because you're not really re-educating them. And the same is also for for investment, right? If there is already an angle of, let's say, investment, investment, hr software tools that now basically promote investment products to new employees joining the company, this is not completely out of place, right? Compared to the Starbucks example with investment products.
Speaker 1:Perhaps coffee futures for Starbucks that would make a little bit more sense. So if we look at the industry of embedded finance you know, let's take a perspective of five years from now, you know what do you think will distinguish the real winners and losers, and how should teams plant those seeds today? I?
Speaker 2:think it goes a little bit back to like what I said before, right? So I think it's an evolution, it's not a revolution. So somebody and I wouldn't I mean I wouldn't even argue somebody, there should be somebody out there who says, like I want to, um, like my company, I work at a non-financial brand and, just for the sake of it, I want them to succeed in embedded finance. At the end of it again comes back to the customer value. Right, I use a company. You need to figure out which is which value you can bring to your customers. I would argue that for a lot of companies have a massive embedded finance opportunity, but it's not for all of them there, right? So, just doing embedded finance just for the sake of it, but it's probably, it's not probably, it's definitely the wrong move, uh, and many companies will also fail if they're just doing for the sake of it, right, and um, other companies like this. This goes along the. The thing that I said before is you need to embed the financial product like really, really, really well, it needs to be like a natural part of your offering, and then you have created like what I call the embedded finance magic. Like I sometimes use this incorrect mathematical equation of like one plus one equals three, like representing the customer value Like one is a non-financial brand, the value from the non-financial services, one is the value of the financial services. And if you, as a non-financial brand, put them both together, the customer actually has a value of three. So it's an example.
Speaker 2:Let's say, do like an embedded lending product. As a marketplace, you know already a lot about your customers. Technically. Your customers in some cases might not even need to apply for it. You know already if this customer is good enough for, maybe, a working capital financing of $50,000 or $100,000. Why not tell them in advance or give them the information that they are good for that amount?
Speaker 2:Because very often also, companies maybe don't take a loan, don't take a working capital financing, because they are not really willing to go through the hassle of applying for it and most likely maybe also assuming nothing will come out of it. But if you're making it easier, that's a game changer. So embedding the product like really, really well is important and obviously we've had before like customer research, customer research, customer research, right. So understand what are the jobs to be done and how can financial services help with that. So I think companies who want to succeed and maybe consider embedded finance today as one of the opportunities where they can grow is, they should definitely keep these things on their radar. But I would also not say any company should go, or a lot of companies should just go all in just for the sake of it. I think this would be quite risky.
Speaker 1:As we look ahead, what are some of the changes that have occurred in the market over the past couple of years that can give us some lessons about the sector in general as we move into that five-year trend window.
Speaker 2:I think what we're seeing, I think where embedded finance can learn a lot from, is from the fintech ecosystem or from the fintech development. I think there's also a good reason that. I mean, there's a very logical reason that embedded finance is. The embedded finance wave started after the fintech wave because at the end of it, it was, let's say, the fintech nerds. At the end of it, it was, let's say, they're the fintech nerds who, who build this like standalone products and test the customer adoption, made certain kind of validations. Now the, the brands, the companies who have something to lose as well. I mean, they have an existing business right and we all know if you're doing you're doing financial products badly, you can ruin your company right, and not just if you're. If you're a fintech, you can maybe ruin company. But if you're an existing B2B software as a service provider and you're doing financial products badly, you're not just ruining the unit of offering financial products, you might also ruin your core product and this is extremely, extremely dangerous for any company out there. So I think there's a lot to be learned from the fintech development and also a lot of the failures. I think there's definitely a benefit for that be learned from from the fintech development, uh, and also a lot, of, a lot of the failures. I think it's definitely a benefit for that.
Speaker 2:But yeah, again, little repeating the same thing, what I said before right like, solve, solve real customer problems, and you're fine. Right like, if you, if you understand what your customers really, really want, uh, and how they're doing it today and how you can improve it, uh, you are, you are, you're going to be fine and moving in the right direction and, in a way, you as a company can be also a little bit more independent of, let's say, the trends that are happening out there and what people tell you about. What not, I mean, is somebody talking negatively about embedded finance. Does it matter for you if you have figured out how it works for your company and your customers are buying it for you, right? It's not like you need to become an advocate of embedded finance and do it everywhere. If it works for your company, perfectly, perfectly fine, then you are a winner of the group.
Speaker 1:So, lars, we made it to the final question of the podcast. We call it the trend drop. It's like a desert island question. So if you could only watch or track one trend in embedded finance over the next few years, what would that be?
Speaker 2:I guess my first challenge is like, or like my first. I'm thinking about okay, there are five financial products in embedded finance there's payment, there's banking, there's lending, there's investment, there's insurance, and then on the other hand, you have, like these dozens or unlimited number of industries, right? So I think generally where I'm focusing on a lot and there's like Europe is a little bit behind the US, so it's like picking up now for some time already, but it's like growing quite a lot. It's like the whole vertical SaaS and vertical B2B SaaS and adopting a mix of different financial products, because I think there are a lot of companies who maybe in the world of embedded investment, embedded insurance, can create really, really nice value with these products, but very often I know it's a rental, a car rental place. Doing insurance can be really, really powerful for them.
Speaker 2:Very often they're limited to one financial product. So for me, from my perspective, looking at the broader embedded finance world, I'm really interested in companies who can do more than one financial product and kind of become this like all in one player for certain companies. So like vertical SaaS, professional service industry specifically, but also I'm doing quite a bit in healthcare right now, so really, really into that, and ideally, companies who have a potential to not just do payments but also banking and lending or maybe others. So I think the answer is like vertical SaaS around those financial services. That's where I would be on the desert island and only do that.
Speaker 1:Well, lars, I want to thank you so much for your insights on the embedded finance industry. I think there's a lot to watch here and especially you know, as you mentioned, that generational shift and mindset. You know where people have had more relationships with their phones and less fear of moving away from the mainstream. So, lars, thank you so much for your insights today.
Speaker 2:Thank you, Jim, for having me.
Speaker 1:Thanks so much for listening to today's episode and if you're enjoying Trading Tomorrow, Navigating Trends and Capital Mark markets, be sure to like, subscribe and share and we'll see you next time.