Empowering businesses via embedded finance – interview with Weavr

Adrian Mizzi, Weavr's co-founder and CTO, shares the latest trends and applications of embedded finance (EF), with B2B EF taking centre stage in 2023

Weavr was launched in 2020 as the brainchild of Alex Mifsud, my co-founder, and me. We founded the company to make it easy for any business to offer financial services to their customers. We turn the current Banking-as-a-Service (BaaS) model on its head by making it possible for a digital business to be up in a matter of weeks, not months, through innovative and cost-effective embedded finance solutions.

Since 2020, Weavr has grown rapidly, securing a USD 40 mln Series A in February 2022, led by top VC Tiger Global. We currently have offices in London and Malta and employ just over 100 people across Europe. We launched in Portugal in June, and in early November we announced our expansion beyond Europe into Singapore.

Embedded finance is technology agnostic.  A merchant on a marketplace might be offered the option to be paid early for secured orders through embedded finance, which would not be possible in the traditional financial services (TradFi) approach. Web3 is enabling exciting new alternatives, by connecting via a smart contract the investors that provide the cash (typically in the form of stablecoin) with the merchant, who receives the cash by trading it with the future expected payments.

If the merchant is generally trading in fiat money, they could exchange the stablecoin for their preferred currency via an exchange. For any embedded finance example, it’s becoming possible to find a web3 (or decentralised finance - DeFi) way of delivering that solution. The exciting thing about web3 is that these DeFi instruments are embeddable from the start, removing the cost and friction of connecting legacy financial systems. The way Weavr specifies and delivers embedded finance solutions through Plug-and-Play Finance is technology agnostic, so we’re ready for the shift or the blending of TradFi and DeFi.

While the global percentage of unbanked individuals has improved markedly from 51% in 2011 to 75% in 2021, it’s not surprising that lesser developed countries are lagging in account ownership numbers.

In such economies, banking contributes massively to the wider economy, as 83% of adults in developing economies who received a digital payment also made a digital payment to a local business. Despite this benefit, there continues to be economic barriers in these countries, as acquiring a lower lifetime-value customer is often unaffordable for mainstream banks.

As embedded finance (EF) empowers businesses outside of the traditional financial services industry to launch their own financial services, it enables them to serve communities more cost-effectively. Why? Because they can combine banking and financial services with other service offerings, such as mobile phone contracts, thus generating more revenue from the customer. When done correctly, EF simplifies both the purchasing and consumption of financial services, whilst lowering the cost for the provider.

In remote regions where traditional banks are not available or located close by, individuals and small businesses access credit and loans within their own communities. It’s common for villages and communities to pool their financial resources together to support one another. Whilst many do not have access to traditional banks, they do have access to digital solutions, many of which may use EF. Hence, EF is a key driver of financial inclusion.

Importantly, EF is offered by a diverse set of businesses that cover a range of different market segments, addressing different customer needs in new and innovative ways. As a consequence of this, businesses are able to mould their offerings to suit the wider needs of currently unreached local communities and the wider society. 

EF has also been a game changer for green applications. For greener behaviour to become mainstream, innovators need to deliver three things: affordability, convenience, and incentive. By using EF, innovators now have a cost-effective way to include finance within their solution, which directly pulls on all three levers. That wasn't possible until EF significantly lowered the barrier to entry.

Primarily, it’s important to find the right idea. From this idea, you can build the right product for the problem it will solve. Possibly the most important factor is finding the right idea at the right time for the market.

As people with over 20 years of experience in payments technology, my co-founder and I have experienced the difficulties that come with creating a product for the financial services industry. Arguably, the most difficult part was the regulatory and compliance requirements of the financial services industry, which made it too hard to even get started. With these issues in mind, we started Weavr.

When founding Weavr, the timing was on our side. At the time, the world became aware of the potential for EF, a market worth USD 26 billion, predicted by Bain & Co to grow to USD 51 billion by 2026. This backdrop gave us the opportunity to grow quickly, as from launch we had a sudden surge in demand propelling the business forward.

B2B EF will take centre stage in 2023. At a time when businesses are under pressure to do more with less, EF will unlock new efficiencies. One way to do that is through delivering greater value to existing customer bases, helping businesses to enhance their offering through financial service provisions. By using the rich data that many businesses collect and process for their customers, they can offer relevant financial services at the point of need.

This gives businesses the opportunity to add new revenue streams, increasing their revenues without increasing marketing budgets.

Banks who have been early adopters in Banking-as-a-Service will start to see their first ‘challenges’ with BaaS, and card schemes, such as Visa and Mastercard, will publish their own strategies and roadmaps for EF. Regulators will be more demanding of standards in EF, which will force change in delivery from providers. Compliance-as-a-Service provision and adoption will increasingly displace the current BaaS model.

Software businesses, especially B2B SaaS, will be unable to avoid having an EF strategy, particularly as software is getting harder to monetise by increasing revenue per customer. Vertical platforms such as travel, insurance, and logistics will follow the script of Toast and MindBody to provide rich EF-led financial-services offerings. That said, the adoption of embedded finance by non-fintechs will require simpler and safer delivery models to embed finance than BaaS. As demand for EF picks up, particularly among B2B-software businesses and commerce platforms, Plug-and-Play Finance will become the approach of choice.

Plug-and-Play Finance is a new approach to embedded finance which addresses many, if not most, of the root causes of problems with BaaS. Increasing scrutiny of regulators into BaaS and EF will increase the burden of compliance and the complexity of operating an EF solution, further accelerating the move towards Plug-and-Play Finance.

About Adrian Mizzi

Adrian Mizzi is the co-founder and CTO at Weavr. Adrian has dedicated his career to supporting fintech startups with the development of innovative tech solutions which drive financial inclusion and innovation. Since its founding in 2020, he has been integral in building Weavr into the successful company it is today.