Traction Podcast
00:50:37 · Roy Luo
[00:50:37] S1: I still believe in embedded finance. I think the trend that you might be referring to, there were a bunch of businesses that were built on a mission of scaled embedded finance, but in a box, and you can kind of power that. But I think the idea around putting it all into a single package and not providing choice to your customers, that isn't a thesis that I would say has really panned out in the masses. There's definitely pockets of success and value there. But the philosophy and the idea of embedded finance is absolutely still real, and I would say it will continue to be that way. It's existed for the past many decades, and it will continue to exist. Along that theme around how ultimately every company is a fintech company, even at Iconiq, we have so many vertical software businesses that have focused more on core system of record or core workflow orchestration for different end markets, whether it be in construction or investment in Procore or in field services management, like our investment in service tank. But once you've actually tapped the core workflow, then you can start layering in financial services offerings and financial services products. And that is what we're seeing across all sorts of different businesses. A lot of vertical, a lot of horizontal as well. And that's effectively embedding finance in core software products that we are actually offering and put AI on top of it or layer into your product. And so, yes, the... That was the long way of saying, I think embedded finance is absolutely critical today because it is a fundamental, I think, way that financial products are being brought to customers. And whether or not the category of embedded finance in a box, I think, is real or not. I think that there was a lot of hype around it. I don't think it's played out in the way that a lot of folks thought it would play out, but I think it's playing out in a different way. And a lot of people are looking to best of breed solutions at building their different products and finding different ways to actually offer those financial services products. But it's still happening, and there's a lot of demand for it.
00:52:42 · Lobo, Roy Luo
[00:52:42] S2: Honey was a one such product. Right? Would you say Honey was embedded finance? [00:52:46] S1: Yeah, I would say in a way. And again, these categories have different nomenclature and different definitions of [00:52:51] S2: their own as well. In rapid fire, then as we close out, embedded finance product that you believed in that didn't work out, and it doesn't matter whether you invested in it or not, and one that you really think is doing well?
00:53:09 · Roy Luo
[00:53:09] S1: It's a great question. I think the story is a little too early to play out, but I think some of these businesses that are offering effectively payment processing, card issuing, and all these fintech capabilities in a box to vertical software businesses, for example, they haven't gotten the same traction, I would say, as they were hoping to get. There have been pockets of value here and there, a little bit of purchasing here and there, but at the end of the day, the market for them isn't maybe as big as they would have thought. And so there's a few of those that kind of, I thought, emerged in, call it, that COVID time frame that saw some really good initial traction. And a combination of financial regulation, but also just the macro environment that they're in, it hasn't played out in the same way that I think one would have expected. I also think that there are businesses out there that have actually seen, like, a lot of really great success, but we see the ebbs and flows of businesses at the end of the day. We've... Or we were big investors in Marqeta, for example, once a podcast or infrastructure provider. I think, obviously, it's seen better days more recently from a trading perspective, but we were big believers in the vision and and the founding team and everything like that. And I think it really had a huge impact in the industry. As time goes on, like, there's some cyclicality. There's changes in cycles of talent and innovation, but the idea is very much relevant. Galileo was a great business and actually got acquired actually by SoFi. But there's a lot of these, I would say, infrastructure businesses that are really powering like the fintechs of today that are incredibly successful, incredibly important for the market that... Markets that we're seeing today. And we'll see how it all goes, but I believe it's really a good indicator that there's a sustaining and durable demand curve for these products.
00:54:55 · Lobo
[00:54:55] S2: Fantastic. One thing I'm really bullish on, and I'm not sure if it's played out, I... I'm really still a fan of embedded lending, and I don't know if it's been figured out yet, but I think there's something to be said. You're sitting on mounds of customer data, and can you effectively become a bank? Because it's so hard to get loans from the bank for a business. Can you effectively become a bank where you lend companies money on optimal business interest rates, and it helps them grow the business, and it spurs the economy. I really believe in that, but I just... I don't know. I haven't seen it played out or
00:55:28 · Roy Luo
[00:55:28] S1: There's big entire world. There's a bunch of businesses out there that have actually been able to... There's these themes like banking the unbanked or lending to the unlendable and things like that, And they've actually built really durable, I would say, real brands and real customer traction for sure. And there's the whole build a better mousetrap type of idea around I have a better underwriting engine. I can assess risk and reward better than the old school models out there. And I think the hard part to see quick success there is that it takes multiple cycles to show if your underwriting model really works. There are gonna be good times. There's gonna be bad times. There's going be low interest rate environments, high interest rate environments, recessions, and really withstanding the test of time and proving it out over cycles, it just takes time to really build that. But there are businesses out there that have really good books, and they're going through it even as we speak today. We went through COVID. We went through the post COVID. We're in a different era right now in 2025, and these cycles continue to prove. I think you build credibility there, and there will be. In the same way that I would say Nubank completely transformed the way banking has worked in Latin America, I would say lending and embedded lending and embedded credit is a real category. I very much believe in it, and it just takes a little time to prove out because there are... There's this side of it, which is like the loss side of it. Right? And as you continue to prove it out, I think that will build durable value.
00:56:54 · Lobo, Roy Luo
[00:56:54] S2: Certainly. As we close out, if you had to bet on one innovation in fintech that you're really bullish about and you feel will define the next five years, what would it be? [00:57:09] S1: We'll see if we get there, but I'm very much on this theme of identity and anti fraud right now and how AI will transform just the way we think about it, the way we manage it. But security and payments is a real problem still today. I think there's been a lot of really cool innovation for it, and I think AI will be a big driver and a big step function driver of how we might see a big paradigm shift in it. And, hopefully, there are some really great businesses and prospects that we can work with and build partnerships around this, but I believe that there's going to be something big that comes out of that. [00:57:47] S2: Fantastic. As we close out, any parting words of wisdom, maybe some piece of advice that have served your career really well that you'd like to share?