How vertical can win against embedded | Why brands shouldn't build fintech products

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This is weird for both of us. Embedded Finance Review on a Sunday? I have been sending this newsletter out on Tuesdays for the past few months, but I wanted to test other dates. Therefore, I will be sending the newsletter out on Sundays for the rest of the year. I will decide then how to continue in 2024. If you have any preference for a specific day, let me know in the feedback at the end of the newsletter!

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Vertical or embedded—who will win the market for medical professionals?

Fleming, a German financing provider for doctors and other medical professions, has launched a bank account and debit card product in cooperation with embedded banking provider Swan. And before you wonder, yes, this is not a true embedded finance product, since we cannot classify Fleming as a non-financial brand. Fleming launched its original financing product in 2021 when it partnered with embedded lending provider Banxware. Doctors could apply digitally for a loan for example, to take over a medical practice or for other expenses up to five million euros. The banking product is likely aiming to increase touch points with their customers and might enable Fleming to launch other adjacent products in the future.

But coming to the question, why do I cover this story in the newsletter if it’s not truly embedded finance? You might remember that I have blogged about vertical vs. embedded banking in the past and I believe that vertical fintech solutions can succeed in certain areas. It doesn’t have to always be a non-financial company that is winning by combining financial activities with non-financial activities. It can be the other way around as well.

Especially in Germany, we have seen a number of startups launched in the past few years that are aimed at medical professionals, from startups that offer banking products (Cure Finance) and invoices and payments providers (Nelly) to treatment planning tools (Roger) and, of course, financing (Fleming). All of them are new tools for a doctor in addition to their medical practice management software, the main software a doctor is using. This software is old-school and, for us digital natives, probably very hard to use; nevertheless, it contains all the necessary features and functionalities a doctor’s practice needs. Startups will have a hard time winning against these software providers since they cannot offer all the functionality from day one (and some startups don’t even want to compete with these providers for other reasons). Thus, they need to start somewhere else and likely integrate this practice management software in order to succeed. They have to pick their wedge (click here to understand this better) before broadening their scope.

I am not an expert when it comes to medical professionals. But if it’s true that practice management software is impossible to replace but already covers many of the non-financial activities, then a vertical fintech product might be the best way into the market before extending into non-financial activities.

Why Brands should(n’t) build fintech products

If you haven’t read Matt Brown’s piece “B2B payments aren’t payments, they’re workflows”, you should really do so. He makes a great point that companies that want to win B2B payments shouldn’t aim for that in the first move but rather create “an overall 10x better product” while focusing on adjacent needs around payments.

The post made me think. And I realized something about a number of non-financial brands I interacted with over the past few months. Some of these non-financial companies should build fintech products, but they also shouldn’t build fintech products. This sounds confusing, doesn’t it? When I say they should build a fintech product, I mean that they should go down the road of embedded finance and offer financial products (no surprise here). When I say they shouldn’t build fintech products, I mean that they shouldn’t build a separate fintech venture but rather a truly embedded experience.

Some of these non-financial companies decided to build and launch a fintech product, and many of them aimed to build a superior fintech product. But they did spend very little or no time at all building the bridge between their non-financial product and their fintech product. While doing so, they are likely running into the same problems that pure fintech companies have faced before. So if you are embarking on the journey of building a fintech product at your non-financial company, please make sure that both worlds are linked and supporting each other’s growth.