Benefits of an Embedded Banking Strategy

JAM Fintop recently presented the growth metrics driving the embedded banking market at the AF Spring conference.  Matt Kelley, Director of JAM Fintop Network, discussed the expansion of banks finding success in the embedded finance space beyond the mature/scaled players like Bancorp, Pathward, Coastal, CRB, etc.

Mature fintech sponsor banks (20) are:

• Growing loans and deposits 3-4x faster than the overall banking industry
• Have 8x the fee income
• Are 3x more profitable (as measured by pre-provision net revenue or PPNR)

He highlighted a group of new banks (“Scaling sponsor banks”) that are quickly improving overall profitability (PPNR 0.67% →1.27% over the last two years) and appear to have very solid momentum.

Matt discussed the emerging publicly traded leaders such as ESQ, GBFH, NEWT and TFIN that are focused on specific industry segments, are thriving and being well rewarded from a valuation perspective ( >2x TBV).

JAM Fintop is currently tracking ~130 fintech sponsor banks (at least one fintech partnership). In this group, there are 50 – 75 that are actively growing this business, hiring the right people, committing real resources ($), building the right tech stack and are out hunting for new fintech clients.  Matt believes this could grow to ~300 over the next decade. Based on historical M&A trends (~3% industry annual consolidation) we are likely on a glidepath down to ~3k banks (from 4,724 today). Fintech sponsor banks serving a new end customer set (beyond traditional consumer, SMB and commercial) are set to go from 1% of the US banking industry to 10% over the next decade.

Additional data points to assist banks in their bank leadership discussions on growth and strategy.