Breaking Barriers: How Embedded Finance Empowers Female Entrepreneurs in Fintech
Embedded finance is revolutionizing the financial technology landscape, particularly for female entrepreneurs who may not have traditional backgrounds in Wall Street or Silicon Valley. This innovative approach is creating a new wave of founders who previously felt excluded from the realms of finance and technology. As the fintech industry continues to grow, it holds the potential to democratize access to financial services, yet it still grapples with a lack of diverse perspectives.
The Current Landscape of Women in Fintech
Despite the promise of fintech to broaden access to financial services, the industry remains significantly underrepresented by women. According to research by FT Partners, women constitute only 30% of the workforce and a mere 12% of founders in the fintech space. Furthermore, data from PitchBook reveals that all-female founding teams received just 1.9% of venture capital funding in 2022, a decline from 2.4% in 2021. These statistics highlight the urgent need for change within the industry.
To address this disparity, venture capitalists must diversify their search for startup founders, while entrepreneurs are encouraged to explore opportunities to innovate within outdated industries. This shift is essential for breaking into the male-dominated world of fintech.
A Personal Journey: Katie Palencsar’s Awakening
Katie Palencsar, a fintech investor, recalls her first encounter with a female tech founder at the age of 29. This meeting was a pivotal moment for her, as it opened her eyes to the possibility of becoming a female founder herself. “I was like, ‘oh, wow, I can do something like this,’” she reflects. This realization led her to navigate the challenging landscape of fundraising and entrepreneurship.
After launching her own company and eventually selling it, Palencsar joined Anthemis Group, a venture capital firm founded and led by women, focused on investing in fintech solutions. In 2021, Anthemis raised over $700 million to support pre-seed through Series B embedded finance startups and early-stage fintechs. Palencsar noted that the firm had encountered over 2,000 female fintech founders from diverse backgrounds, showcasing the potential for innovation outside traditional finance.
Beyond Traditional Boundaries
Historically, venture capitalists have overlooked women and diverse founders due to the social and racial homogeneity of the industry. This has perpetuated a cycle where male founders receive the majority of funding. However, Palencsar asserts that embedded finance has unlocked a new cohort of founders with varied backgrounds, fostering a fresh cycle of female leaders who can bring more women into the fintech workforce.
For instance, Ami Kumordzie, the founder of Sika Health, recently raised $6.2 million as a Black female physician with no technical experience. Her fintech platform connects consumers with IRS-compliant merchants, demonstrating that innovation can stem from sectors outside traditional finance. In healthcare, a field predominantly occupied by women, Kumordzie’s success serves as an inspiration for other women to explore financial solutions within their industries.
The Network Effect
By opening up fintech to entrepreneurs from non-traditional backgrounds, investors can expand their pool of potential startup founders, increasing the likelihood of capital being raised by women. Palencsar emphasizes that founders with less conventional finance or tech backgrounds tend to hire more women, creating a beneficial network effect.
When women lead startups, they are more likely to attract female talent. Research indicates that businesses with female founders employ 2.5 times more women, and those with both female founders and executives hire six times more women than male-led companies. This trend is crucial for fostering a diverse workforce in fintech, which is essential for driving innovation.
Tapping into Greater Market Share
Embedded finance offers businesses a unique opportunity to differentiate their offerings and reach a broader customer base. In 2021, the embedded finance market generated $20 billion in revenue in the United States alone, according to McKinsey. This figure is projected to grow as more companies recognize the potential of embedded finance and consumers increasingly demand digital financial tools.
By leveraging embedded finance, companies can create innovative products and services that enhance customer convenience and value. However, to capitalize on this growth, businesses must prioritize workforce diversity. Research indicates that male-founded startups often have less diverse teams compared to those led by women, underscoring the need for female leadership in this evolving landscape.
A Call to Action for Investors and Entrepreneurs
The misconceptions surrounding fintech and biases within venture capital continue to perpetuate cycles of exclusion for both investors and female founders. To foster a more inclusive environment, venture capitalists must broaden their focus beyond traditional finance and technology, actively seeking to invest in women and diverse founders in adjacent industries.
By exploring solutions to financial service challenges across various sectors, female business leaders can play a pivotal role in advancing the fintech industry. With the right support and resources, more female entrepreneurs can emerge as formidable forces in the fintech space, driving innovation and inclusivity.
Listen to the Voices of Change
For those interested in learning more about the evolving landscape of female-led fintech, Katie Palencsar’s insights can be heard in her interview on the "Humans of Fintech" podcast. In this episode, she discusses the media’s impact on the future of female-led fintech, her investment strategies, and ways to debunk the “pipeline” problem myth.
This article is adapted from its original form, first published in Forbes, highlighting the critical role of embedded finance in unlocking opportunities for female founders in the fintech sector.