Swan's $317.6 Million Success Story: Redefining Embedded Finance in Europe

Rising interest rates and global recession fears effectuated a decline in startup investments, with venture capital firms scaling down their funding as the markets remained choppy. 

While the tech rout last year caused startups in this space to witness a significant decline in investments and operations, European tech startups seemed the worst impacted. Investment in European private tech startups saw a 22% decrease, dropping from $106 billion in 2021 to $83 billion. 

Fintech platforms are increasingly embracing embedded finance, which involves the integration of financial products across non-financial platforms. Data from ReportLinker suggests that the embedded finance sector is poised to reach a market size of $384.8 billion by 2029. 

The fintech space demonstrated remarkable growth despite the market headwinds, as embedded finance is slated to become the next significant development in the finance industry. Founded in 2019, French fintech startup Swan is making headway in the field of embedded finance and banking. 

The startup processes transactions amounting to approximately €300 million ($317.6 million) from over 100 companies across 10 European countries per month. 

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Latest Funding Round 

Lakestar, a prominent European venture capital firm, invested in Swan during its Series B funding round earlier this month. This follows Swan's series A funding round in 2021, which was led by venture capital firm Accel. Swan has raised €58 million in equity funding so far.  

Lakestar had been tracking Swan for about a year before investing in the fintech startup, said Georgia Watson, a principal at the venture capital firm. 

"We really like that they're giving their clients the ability to create new product lines, new revenue lines, with attention for their end users," Watson said. "[Clients] don't have to think about the regulatory aspects when they want to add on new products, which can be very time-consuming and create additional risk for the company."

Expansion Plans

When Swan Co-Founder and CEO Nicholas Benady first started, it was challenging to incorporate banking and additional financial services into preexisting platforms that lacked financial elements. Seeking to change that, Benady developed one of the most promising startups in the fintech space. 

"What we had in mind with our co-founders was that it shouldn't be that complex," Benady said. "If it's easy to accept payments — like the Stripes, the Adyens, the Mollies of this world enable — it should be as easy to set up banking."

Swan plans to use the funds raised in the latest funding round to finance the initial phase of expanding its operations within the Netherlands in the upcoming months. Subsequently, the company intends to extend its reach to the Italian market in 2024.

The Dutch market has characteristics that distinguish it from other European countries, making the introduction of digital banking and payment services more intricate for its clientele, according to Benady. 

Swan's ability to establish integrated financial solutions with businesses in as little as two weeks, a process that typically takes several months for its competitors, makes it stand out in the fintech industry.

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Swan intends to establish partnerships with additional large multinational corporations as part of its aggressive sales strategy. The company is collaborating with French retail chain Carrefour, leveraging its technology to implement a cashback project.

These expansion plans would allow Swan to expand its range of products to encompass additional payment collection options, including direct debit and card payments and new lending features. The fintech company is poised to leverage the new offerings to expand into various industries, including business-to-business (B2B) marketplaces, travel and insurance. 

Competitive Edge 

Luca Bocchio, a partner at Accel, noted that Swan has demonstrated superior scalability compared to embedded finance sector competitors, such as Railsr and Solarisbank. These competitors have encountered challenges in their efforts to integrate payment and other financial services into corporate platforms seamlessly. 

Swan's ability to handle high volumes of customers sets it apart.

"Banking-as-a-service providers usually need to take care of many of their customers, who piggyback on their licenses. They need to take care of anti-money laundering, KYC (know your customer) and compliance costs for their customers," Bocchio said. 

In addition, Lakestar's Watson stated that customers who have an account with Swan "don't have to think about the regulatory aspects when they want to add on new products, which can be very time-consuming and create additional risk for the company," making it one of the most appealing options. 

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