London-based startup Weavr has secured $40m in a Series A round, and will use the funding to expand its embedded finance offering to the States and across Europe. However, it is not the only startup vying for a slice of a market expected to be worth $138bn by 2026.
Venture capital giant Tiger Global led the round. It has been named as one of the three leading tech unicorn investors in the world by GlobalData and has previously invested in the likes of creator platform Patreon, UK challenger bank Revolut and British fintech decacorn Checkout.com.
Mubadala Capital, LocalGlobe, QED Investors, Anthemis and Seedcamp also backed Weavr’s Series A. The cash injection brings the grand total raised by the embedded finance startup to $55m.
Founded in 2018, Weavr launched its embedded finance product at the tail end of 2020. It claims the platform makes embedded financial services available to any business with a digital presence, suggesting that it “has experienced fast adoption of its payment and banking solutions among a range of businesses and industries.”
The Series A raise saw Weavr’s valuation jump to $250m. Despite being well short of the $1bn valuation unicorn mark, Alex Mifsud, co-founder and CEO of Weavr, is bullish about the startup’s achievements.
“Momentum matters more than size in an emerging sector like embedded finance, and as shown by our experience in the last 12 months – when we closed upwards of 50 deals from a standing start – we have a fairly strong wind in our sails,” Mifsud tells Verdict.
“We haven’t been sitting on our hands and are in discussion with a number of US banks to partner ahead of our US launch, and have kicked off the search for key hires in the market,” he says. “There are a few paths that will get us live in the US quickly, but it’s probably too early to make a definitive call on timing right now.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
Weavr will also focus on expanding its footprint in Europe. It is already operational in all Eurozone countries as well as in the UK. It will continue to strengthen its influence in the market by adding more capabilities to its platform and partnering with more companies.
However, Weavr won’t be alone in trying to get on the embedded finance gravy train: other startups also have their sights set on the market that Juniper Research estimates will be worth $138bn by 2026.
What is embedded finance
What is embedded finance? The concept is intimately linked to open banking, which forces big banks and financial institutions to share customer data with other firms, provided clients have consented for it to be shared.
The idea is that smaller startups, by plugging into the data feeds, will be better placed to compete against dominant incumbent players and provide better services as a result. This is usually done via an application programming interface (API).
While it’s hotly debated in the fintech sector how successful open banking has been and whether it was worth the cost of implementation, several startups have attempted to tap into this new market over the past five years.
Embedded finance takes this concept just one step further by expanding it to not just fintech players, but to any company.
“Put simply, embedded finance enables businesses to seamlessly integrate financial services into their business models through APIs,” Keith Grose, head of UK at Plaid, tells Verdict. “It’s reshaping the distribution of financial services, such as payment processing, and it will become ubiquitous in people’s lives as a result.”
It’s not as if companies haven’t provided tailored financial services to customers and workers in the past, but doing so has been expensive. Uber launched Uber Money in 2019 to provide bespoke financial services to its drivers. However, it had to build most of that offering from scratch.
This is not something small businesses, such as the local electric shop, can afford. Embedded finance solves this problem with APIs empowering businesses to meet customers where they are.
“Consumers are finding financial services exactly where they need them, whether that’s on their Peloton through its partnership with Klarna or allowing a gig economy worker to access a loan through their driver app when they need it,” Grose says.
In theory, this could boost customer retention, strengthen brands, bolster engagement and enhance life-time value. It could also enable businesses to open up new revenue streams.
“For example, if a brand can offer customers a card product as part of their journey, there’s an opportunity to make money on the interchange or other account fees,” Roy Zakka, CEO and founder of digital banking platform Layer, tells Verdict.
Challenges of embedded finance
While there certainly seems to be a wealth of benefits to reap from implementing embedded finances, there are also a several risks to consider.
The first one is that the concept is relatively new, meaning its still peripheral compared to open banking.
“[Many] ecommerce platforms and payment service providers – the key beneficiaries of embedded finance providers – may not know that this option exists,” Mikkel Velin, co-CEO of fintech startup YouLend, tells Verdict. “In order for embedded finance to truly take off, it has to go above and beyond compared to traditional, mainstream financial providers.”
Startups in this sector, such as Weavr, are bullish about their abilities to overcome these challenges with their technological skills. However, while they are capable of providing smoother services than traditional financial service providers, this could also result in a lack of trust from customers wondering what the catch is.
“They don’t always trust it – and that is a fair concern,” Velin says. “In order to overcome this challenge, it is particularly important for embedded lenders to prove their trustworthiness, as the industry does not yet have a reputation to fall back on. They can do this by, for example, working only with trusted, reputable partners, and ensuring that they earn ISO certifications.”
Another key consideration for fintech innovators is data security. Embedded finance should, in theory, enable companies to offer tailored service by analysing a treasure trove of customer data. But dealing with personal information means these companies must comply with data security laws.
“[Access] to sensitive customer data by malicious or even simply incompetent actors can lead to real damage,” Mifsud agrees, adding that Weavr overcomes this by adopting the tokenisation concept spearheaded by the payment card industry.
“Weavr extends the use of tokenisation to all manner of sensitive financial data including personal, account-based as well as card-based information, and provides simple tools for developers to safely enable financial services through their applications without the specialist skills and security certifications usually needed to ensure that customer data remain secure and properly used,” Mifsud explains.
Compliance is another key consideration for fintech companies. Smaller firms who couldn’t develop fintech solutions of their own are hardly eager to find themselves breaking risk management and compliance rules, incurring hefty fines as a consequence.
The Weavr CEO claims to have overcome this hurdle to the degree that it “is actually what sets us apart.” Mifsud argues that other companies may use a one-size-fits-all compliance approach adopted by many banking as a service APIs that creates both too many false negatives and false positives, meaning fraudsters may slip through the cracks and innocent customers would end up frustrated.
“Weavr’s unique approach – which we are calling ‘plug and play finance’ – is to deliver contextual risk and compliance management by modelling the intended behaviour of each embedded finance solutions built on its platform,” Mifsud says. “In doing so, Weavr is then able to manage risk and compliance on behalf of the application developer making it so much simpler for developers to adopt embedded finance within rapidly digitising sectors like education, employment, health, logistics and real estate.”
GlobalData is the parent company of Verdict and its sister publications.