Embedded Finance Market Surges to US$185B with Vast Untapped Potential

The market for embedded finance is experiencing significant growth, with the total addressable market (TAM) reaching US$185 billion in 2024, marking a 25% increase from US$150 billion in 2022.

According a new report by Dutch payment firm Adyen and Boston Consulting Group (BCG), this rise is being fueled by the favorable interest rate environment and an expansion of banking revenue pools.

The report, released on October 28, explores the state of embedded finance for software-as-a-service (SaaS) platforms in 2024, drawing on quantitative and qualitative research involving approximately 30 leading platforms and about 2,000 small and medium-sized enterprises (SMEs) across North America, Europe and Australia.

Untapped opportunities for SaaS platforms

The report emphasizes that embedded finance is poised to unlock substantial opportunities, driven by SME demand. Results of the SME survey reveal that 50% of the businesses polled are interested in utilizing a full suite of embedded finance products in the near future.

Embedded capital solutions, in particular, represent a critical need for SMEs, as only 20% of small business loan applications are approved by US banks.

The report identifies three key features that businesses prioritize: faster access to funds (53%), flexible repayment terms (50%), and automated repayment options (47%).

The uplift in embedded finance TAM is also being fueled by the current high-interest rate environment, which is providing tailwinds for financial products including loans and accounts. This is offering significant revenue potential for SaaS platforms with some capable of tripling or quadrupling their current revenues by integrating these services, the report estimates.

Revenue-potential-with-embedded-payments-and-embedded-finance-Source-Adyen-and-Boston-Consulting-Gro — Revenue potential with embedded payments and embedded finance, Source: Adyen and Boston Consulting Group, Oct 2024

Early pioneers in the space are already achieving substantial success: Lightspeed, a Canadian e-commerce software provider, now makes 60% of its revenues from financial services; Toast, a restaurant point-of-sale (POS) and management system, earns 83% of its revenue from financial services, including integrated payments processing and other fintech products; and Shopify, a Canadian e-commerce firm, derives 74% of its revenue from its merchant solutions, primarily Shopify Payments.

Despite the lucrative potential, only a handful of leading platforms are capturing the embedded finance opportunity, with an adoption rate below 20%.

Market potential and growth projections

Embedded finance remains a largely untapped opportunity. Out of the US$185 billion TAM, only US$32 billion has so far been captured, leaving 83% of the market up for grabs.

The payment vertical currently dominates the embedded finance landscape, recording the highest adoption rate with 54% of the US$47 billion already captured. The vertical still however holds considerable untapped potential.

The account vertical has the largest TAM of US$75 billion and represents the biggest opportunity. Currently, only 4% of that market has been captured, or US$3 billion. Similarly, the capital vertical holds considerable potential with a TAM size of US$48 billion and yet a mere 7% penetration rate, or US$3 billion.

Embedded finance total addressable market and market size per product, Source: Adyen and Boston Consulting Group, Oct 2024

Momentum for embedded finance is accelerating, with the market expected to double through 2030 and achieve an annual growth rate of 10-15%, the report says. North America and Europe will be leading this growth, with embedded finance in these regions projected to reach a combined US$61.5 billion.

Emerging verticals including capital, accounts, and issuing, are forecasted to grow at a faster rate of around 20% annually, outpacing the more mature payments.