Product - Market Fit vs Product - Marketplace Fit
The Varied Fits of Embedding
We recently discussed the ‘4Ps of Embedded Products’. With that framework in hand, we can always come back and check whether the product we are building and embedding fits the mould or not.
However, let’s go a step further and explore what comes next in building an embedded lending product.
Traditionally, you can fit a credit product in one of the four quadrants in the credit product map below.
An example of each type is cited and these have been in place for ages. The product definitions have not largely varied. An online lender would create a product and refine to a degree till they achieve ‘Product Market’ fit. The optimised interface that the lender builds and iterates will eventually have lower marginal improvements, till a new application or platform comes into play to build the product on. However….
In the ‘embedded’ construct, for any entity that wants to provide embedded lending as a service, there is no one time ‘Product Market’ Fit.
Instead, what you have is :
Product - Marketplace Fit (for each embedding marketplace and each borrower type on it)
Platform - Market Fit (for an entity providing embedded lending as a service)
The Product they have to embed will vary as a function of :
contextualised credit need
constitution of the borrower
whether the use of credit is open or restricted and so on!
What we observe is that the degree of variation will be high in embedding the products across a range of marketplaces. Thus, the marketplace, the entity providing embedding service and the lenders would have to collaborate and iterate till the product fits in well with the need of the marketplace’s borrower.
We’ll deep dive in near future on measuring the Product - Marketplace Fit and Platform - Market Fit but before that, the critical question to ask as a marketplace / platform is :
Do our customers even need credit?
The marketplace should embed the credit offering :
If and only if they identify a strong credit need amongst their customers and
they can cater to it well as a marketplace
I recently got the opportunity to ask someone who knows the marketplace businesses very well (Alfred Lin of Sequoia) at an OnDeck event about the way he thinks about embedded finance for marketplaces. He presented a straight-forward framework for marketplaces to think about it.
We’ll cover that in the next post along with a deeper analysis framework for marketplaces to build and assess their ‘embedded credit’ business case.