Embedded finance firms are powering banking institutions to help them keep up pace with innovative fintech firms

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The emergence of fintech firms has disrupted the financial services market in India. The growing digitalization, coupled with increasing access to the internet, resulted in more consumers accessing financial services through online channels. This has led to the growing adoption of embedded financial services such as lending, payments, and insurance over the last two years. With these transactions taking place outside the traditional banking ecosystem, commercial banks have continued to lose growing market share to innovative fintech firms. Furthermore, the legacy system issues have limited commercial banks' capabilities to scale their digital services.

This has provided a big business opportunity for embedded finance firms, operating with a banking-as-a-service business model in India. Falcon and Lentra, for instance, are among the players that are looking to capitalize on the growing market. 

• In January 2023, Falcon and Yes Bank entered into a strategic collaboration to tap into the growing embedded finance market. For Yes Bank, one of the leading commercial banks in the country, the partnership with Falcon will enable the firm to provide its customers with different financial services by leveraging Falcon’s product suite.
• Lentra, another embedded finance firm, has forged many such strategic collaborations with some of the leading commercial banking institutions in India. HDFC Bank, Standard Chartered Bank, and Federal Bank are some of the key partnerships for Lentra. Through its loan-as-a-service business model, Lentra powers digital loan services for all of these commercial banks in the country.

With over 50 clients, Lentra has processed more than 13 billion transactions since its launch. Furthermore, with over US$21 billion worth of loans processed, the firm is disrupting the embedded finance space through its innovative business model. Unlike other fintech firms, which are competing for market share with banks, Lentra is seeking to power traditional financial providers, who have been unable to keep up pace with fast-moving, innovative fintech firms in India.

Commercial banks are at risk of increasing the bad debt load when they try to scale their offerings rapidly, to regain market share from fintech firms. This is where firms like Lentra are assisting commercial banks. The firm allows these banking institutions to vet borrowers more carefully through a variety of loan tools. With a multi-billion-dollar opportunity at stake, embedded finance firms have also defied the severe downturn in venture capital and private equity funding in the fintech space.

• In November 2022, Lentra announced that the firm had raised US$60 million in its Series B funding round, which values the firm at over US$400 million. Along with existing investors such as Bessemer Ventures Partners and SIG, Citi Ventures also participated in the capital round. HDFC Bank is also a strategic investor in Lentra, however, the commercial bank did not participate in the Series B round.
• The firm is planning to use the funding for improving its platform, add more features, and make it faster. Furthermore, the firm also plans to expand its geographical presence. From the short to medium-term perspective, Lentra is targeting expansion into more Asian countries. Indonesia, Vietnam, and the Philippines are some of the markets where Lentra plans to expand.

Beyond initial expansion, Lentra is also foreseeing expansion in the United States in the long term. In its first year of operations, in 2019, Lentra generated a revenue of US$1 million. As of November 2022, the firm recorded a revenue of US$10 million during the year. By 2024, the firm has projected the revenue to reach US$100 million.

With more and more banking institutions, globally, planning to capitalize on the growing embedded finance market, PayNXT360 expects firms like Lentra to keep recording strong growth momentum over the next three to four years. Furthermore, PayNXT360 also expects growth in venture capital and private equity funding in the embedded finance sector in 2023. The growing demand for credit, among consumers and businesses, will keep driving business growth for players like Lentra, thereby making the sector a lucrative growth opportunity for global venture capital and private equity players.

To know more and gain a deeper understanding of the embedded finance market in India, click here.