Agri-Finance: The next frontier in B2B embedded finance

Tech and regulatory advancements, such as APIs and open banking, underly the emergence of new financial services infrastructure-as-a-service models, which turn financial capabilities, such as payments, wallets, deposits, lending, insurance, into separate “building blocks” that can be embedded into practically any consumer-facing online business. Such Fintech infrastructure evolution paved the way to a vision famously formulated by Angela Strange from Andreessen Horowitz, according to which any company in the future will be able to derive significant revenues from financial services (“every company will be a Fintech company”). With this view, embedded finance has become somewhat of a macro-trend in the startup landscape and, based on investors` sentiment, is likely there to stay.

Consumer-facing big tech platforms were especially well-positioned to embed financial services into their core context for the first time, starting with payments (think Apple Card/Pay, Google Pay, cashless Uber payments, etc.). It simply made a lot of sense to leverage the existing various customer touchpoints and vast amounts of customer data, in order to add seamless and personalized financial services experience. More recently, a lot of attention from both investors and consumers has been drawn to consumer lending solutions, such as Buy Now Pay Later, embedded hassle-free right at the point of purchase, for example, offered by players like Klarna and Afterpay, as well as our portfolio company, Twisto (read more here). A few other interesting B2C focused embedded finance use cases include embedded insurance, embedded wealth management, embedded investment, etc.

As in many other Fintech areas, embedded finance emerged largely as a consumer phenomenon, however, the innovations have been increasingly mirrored in the B2B environment. Big platforms like Shopify are the embodiment of the embedded finance vision: launched as an e-commerce Software-as-a-Service (SaaS) infrastructure provider, Shopify is by now also solving most of the banking needs of its SME merchants through its natively embedded Fintech stack. For example, through Shopify Capital, SME merchants, who may even be unbankable outside of the platform, can get pre-approved instantaneously by AI-based models based on historical sales data and receive funding within days, without the need to apply for loans.

In the B2B space, beyond the big techs and e-commerce giants, embedded finance has a massive potential to scale in various other niche verticals, where online platforms and SaaS firms have already a foot in the door with their business customers finances through facilitating their transactions. With the development of embedded finance infrastructure players, practically any business can leverage proprietary user data and deep customer relationships to offer contextualized financial services. Our portfolio company, Agro.Club (read more about it here and here) is a great example of the possibilities of embedding financial services in the agricultural industry.

Agro.Club is, first and foremost, a digital agriculture ecosystem, which links key agri industry players, such as input suppliers, farmers, and grain buyers. Core to its ecosystem is the cloud-based commercial effectiveness SaaS platform, which helps input suppliers and grain companies manage sales, procurement, and marketing campaigns much more efficiently, while providing direct communications channel to farmers. Leveraging the wealth of data generated through the platform and profound customer understanding, Agro.Club supercharges the value proposition of the ecosystem to the clients, by offering bespoke embedded financial services.

Having found the right access to the agri market, there is a tremendous opportunity to introduce contextualized factoring, invoice financing, and other financial products and services structured to the needs of each client. At Elevator Ventures, we see a great opportunity for Agro.Club to become a complete one-stop-shop solution for agri businesses by consolidating their daily operations and their daily finances on the same platform.

To sum it up, embedded finance is driving the evolution of new Fintech-enabled business models in SaaS, marketplaces and platform-type businesses, across various industries, and is deeply transforming the financial services landscape. Leveraging a growing amount of data, new data sources, and AI-enabled models for underwriting of insurances or loans, embedded finance has the potential to provide more diverse opportunities to better serve customer needs and reach underserved customer groups. In the end, one of the main benefits lies in greater convenience for consumers – embedded finance creates faster, simpler, more seamless and personalized ways of purchasing financial services. As more adjacencies are realized between finance and other industries, we will likely see many new business models emerging in the coming years.