The Second Wave of Embedded Finance: Vertical Operating Systems
Banking-as-a-Service was just the infrastructure. The real value is being captured by vertical-specific operating systems embedding financial products natively.
For the last five years, the narrative in fintech was "every company will be a fintech company." That was half right.
The infrastructure layer (BaaS) became highly commoditized. Plaid, Stripe, and Unit made it trivial to issue a card or spin up a ledger. But infrastructure is a race to the bottom on margins.
The Vertical OS Thesis We believe the outsized returns in the next decade will go to vertically integrated Operating Systems.
Take a software tool built specifically for HVAC contractors. Originally, it was just CRM and scheduling software.
By integrating embedded finance, that software now handles: - Instant financing approvals for homeowners at the point of sale. - Automated payroll for subcontractors based on job completion. - Commercial card issuance for fleet fuel and materials.
What We Look For When evaluating Vertical OS startups, we look for: - Workflow Dominance: Are you the screen the user looks at 8 hours a day? - Proprietary Data: Do you have underwriting data that traditional banks don't? - High Switching Costs: Does removing your software physically break their business operations?
If you are building in this space, our doors are open.
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