Embedded Finance Executive Summary

Embedded finance — the practice of integrating financial services (payments, lending, insurance, deposits, cards) directly into non-financial platforms and apps — is transforming how consumers and businesses access money and credit. In the United States this trend has matured rapidly.

marketplaces, software platforms, retailers, and even device makers embed payments, credit, and deposit-like services to increase conversion, lifetime value and stickiness. Market estimates for embedded finance vary, but major research houses put the U.S. market in the tens to hundreds of billions of dollars today with expectations for rapid growth in the next five years.

1. What is embedded finance? — definition and components

Embedded finance is the seamless integration of financial products (payments, lending, deposits, insurance, investing, cards) directly into the user experience of non-financial digital products and services. Instead of sending people to a bank or separate finance app, platforms place the financial flow inside the workflow where users already are — for example, offering loans at checkout, branded debit cards for gig workers, or in-app insurance for bookings. The goal is to remove friction and increase conversion and lifetime value.

Core embedded finance components

• Embedded payments - built-in checkout, wallets, instant settlement.

• Embedded lending / BNPL - short-term credit offered at point-of-sale.

• Embedded deposits/banking - wallets, program accounts, embedded checking-like services (often using partner banks).

• Card issuance & processing - physical and virtual cards issued to users on behalf of the platform.

• Embedded insurance -cdS micro-insurance or trip/rental coverage at point-of-purchase.

• Data & connectivity - account aggregation, KYC/identity, transaction processing via APIs.

2. Market size & growth outlook (U.S.)

• Estimates vary depending on definitions (do you include only revenues from embedded products or total transaction value routed through embedded flows?), but the market is unquestionably large and growing fast.

• Estimates vary depending on definitions (do you include only revenues from embedded products or total transaction value routed through embedded flows?), but the market is unquestionably large and growing fast.

Why the variance?Different providers and analysts measure different things: transaction volume vs. revenue capture vs. enablement value. Still, across sources the trendline is consistent: embedded finance is one of the fastest-growing segments in fintech.

3. Why platforms embed financial services — business case & benefits

Non-financial platforms embed finance for several strategic reasons:

1. Improve conversion and cart size. Offering instant payment or credit at checkout reduces cart abandonment and increases average order value (AOV).

2. Increase revenue & take rates. Platforms earn interchange, interchange-like fees, interest income (in BNPL/lending), and referral fees from financial partners.

3. Customer retention and engagement. Financial features create stickiness (wallets, cards, loyalty through spending).

4. Differentiation and ecosystem control. Vertical platforms (marketplaces, SaaS) can tightly integrate financial features that suit their specific workflows (e.g., payouts for gig workers).

5. Data monetization. Platforms owning transaction data can build risk models and cross-sell relevant financial products.

These benefits have pushed a wide range of companies — e-commerce marketplaces, vertical SaaS platforms, logistics providers, and even point-of-sale hardware firms — to pursue embedded finance strategies.

4. Core embedded finance products and use cases

Below are the most common embedded finance patterns, with practical examples.

4.1 Embedded payments & wallets

• What: In-app payments, stored value wallets, and single-click checkout flows.

• Why: Reduce friction and accelerate repeat purchases.

• Examples: Marketplaces, travel booking apps, food delivery platforms.

4.2 Buy-Now-Pay-Later (BNPL) and point-of-sale lending

• What: Instant short-term credit at checkout split into multiple payments.

• Why: Increase conversion and AOV for merchants.

P- layers: Affirm, Klarna, Afterpay; many embedded through partners or direct integrations.

• Notes: BNPL has regulatory attention due to consumer debt concerns

4.3 Banking-as-a-Service (BaaS) & embedded banking

• What: Platforms offer deposit-like accounts, program accounts, and card services via a licensed bank partner.

• Why: Provides full-featured account experiences without owning a bank charter.

• Examples: Neo-banks, gig economy platforms offering pay-on-demand and instant payouts. Stripe

4.4 Card issuing & processing

• What: Virtual and physical cards issued for customers, suppliers, or employees via API.

• Why: Control over spend flows, marketing via co-branded cards, and revenue from interchange.

• Players: Marqeta, Galileo (now part of SoFi), Stripe Issuing. FinTech Magazine +1

4.5 Embedded insurance & protection

• What: Micro-insurance and product protection offered at purchase time (e.g., travel/trip insurance at booking).

• Why: High attach rates and incremental revenue for merchants.

4.6 Embedded investments & savings

• What: Round-ups, automatic savings, fractional investing integrated into platforms.

• Why: Build engagement and long-term product relationships (e.g., fintechs offering rewards into investment accounts).

5. Major providers and the ecosystem in the USA

• Embedded finance requires an ecosystem: bank sponsors, BaaS platforms, card processors, identity/KYC providers, and data aggregators. Several vendors dominate or play foundational roles:

• Stripe: Beyond payments, Stripe’s Treasury and Issuing products enable platforms to offer bank-like services and cards. Stripe is a central actor enabling embedded banking use cases. Stripe

• Marqeta: Card issuing platform powering many modern virtual/physical card programs. FinTech Magazine

• Galileo (SoFi): A BaaS and card issuing platform used by platforms to launch accounts and cards; Galileo is now a core part of SoFi’s embedded finance strategy. FinTech Magazine

• Plaid: Data connectivity and account aggregation used widely to link bank accounts for underwriting, KYC, and payments. FinTech Magazine

• Adyen, Affirm, OpenPayd, Solaris, Synapse, Railsr and many others provide either full-stack or specialized components in the stack. Industry lists and “top providers” articles are continually refreshed as new entrants and consolidations occur

• Bank partners and sponsors are equally crucial: many embedded finance solutions depend on regulated banks for deposit custody, FDIC pass-through protections, or regulatory safe harbor.

6. Regulatory landscape and policy developments (what companies must watch)

Regulation is one of the most load-bearing aspects of embedded finance. Because embedded finance blends banking functions with nonbank platforms, regulators pay close attention to consumer protection, data privacy, anti-money laundering (AML), and the responsibilities of bank sponsors and fintechs.

Key U.S. regulatory stakeholders:

• CFPB (Consumer Financial Protection Bureau): Focuses on consumer protection rules for lending and data rights. The CFPB’s open banking/data portability rulemaking has been consequential for fintech access to consumer data. Recent developments include announcements about interim final rules on open banking/data rights. Reuters

• OCC (Office of the Comptroller of the Currency): Supervises national banks and publishes guidance on bank-fintech arrangements and financial technology supervision. The OCC’s interest in fintech and BaaS arrangements has driven guidance for bank sponsors. The OCC has also recently conditionally approved new national trust bank charters for crypto firms — a sign of regulatory movement on nontraditional players. occ.gov +1

• State banking regulators & state licensing authorities: Nonbank lenders and some payment providers must comply with state lending, money transmitter and licensing regimes (money transmitter licenses, lending licenses).

• Federal Reserve & FDIC: When deposit-like features are offered, questions about custody, pass-through FDIC insurance, and settlement emerge.

Notable regulatory themes (2024–2025):

• Bank-fintech request for information & guidance: OCC has published RFI and supervisory materials about bank-fintech arrangements and BaaS programs. These aim to clarify responsibilities between banks and fintech partners. OCC.gov +1

• Open banking / consumer data rights: CFPB forward movement on open banking rules affects how platforms access consumer account information and build products. Interim rules and legal disputes over implementation are ongoing (late 2025 developments signal active regulatory attention). Reuters

• Consumer protections for BNPL & nonbank credit: Regulators increasingly scrutinize BNPL and point-of-sale lending for clarity on disclosures and fair lending compliance. This area remains dynamic.

Implication for platforms: Embedded finance initiatives must be designed with regulatory compliance at the center, using strong legal counsel, clear contract terms with bank partners, tight consumer disclosures, and robust KYC/AML controls.

7. Risk, compliance and operational challenges

Embedded finance brings complex risks:

• Regulatory and licensing risk: Platforms can inadvertently engage in regulated activity requiring licenses (lending, money transmission, deposit taking).

• Operational risk & vendor management: Relying on third-party BaaS providers requires careful vendor oversight and contingency planning. OCC guidance specifically highlights risk management for bank-fintech arrangements. OCC.gov +1

• Compliance (KYC/AML) & fraud: Onboarding users for financial services brings KYC requirements and elevated fraud risk. Robust identity verification and transaction monitoring are essential. Alloy’s 2024 embedded finance report emphasized risk management attention among operator banks. Alloy

Data privacy & consumer consent: Handling account data (through aggregators like Plaid) requires explicit consumer consent and secure data practices. CFPB open banking rules further complicate obligations. Reuters +1

• Reputational risk: If a platform’s embedded finance product causes consumer harm (e.g., unaffordable credit), the brand can suffer.

Best practices: Clear contract allocation with bank sponsors, robust vendor due diligence, layered fraud controls, clear disclosures, and product design focused on consumer protection.

8. Technical architecture: how embedded finance is built

1. At a high level, embedded finance stacks share common building blocks:

2. API layer & orchestration: The platform calls modular APIs (payments, cards, accounts).

3. Card issuing & processing: Providers like Marqeta or Galileo issue cards and handle transaction processing.

4. Bank sponsor / custodial accounts: Deposits and settlement often flow through a sponsoring bank with regulatory responsibility.

5. KYC / identity & fraud systems: Third-party providers (ID verification vendors) and transaction monitoring tools.

6. Data aggregation & connectivity: Plaid-like connectors or screen scraping to access account balances and transaction history. FinTech Magazine

7. Underwriting & risk models: Internal or vendor-provided decisioning engines for credit decisions (BNPL/lending).

8. Compliance & reporting: AML, suspicious activity reporting, and regulatory reporting pipelines.

9. UI/UX integration: Embedded flows inside the app — offering loans at checkout, instant payouts, or wallet experiences.

Integration patterns: Platforms either (a) integrate multiple specialized vendors (best-of-breed), or (b) use full-stack BaaS providers that bundle account issuance, card programs, and compliance tooling.

9. Monetization strategies and unit economics

Platforms capture value from embedded finance in multiple ways:

• Interchange revenue: When issuing cards, platforms share interchange with issuing partners.

• Transaction fees / take rates: Fees on payments or marketplace transactions.

• Interest & loan revenue: For BNPL and direct lending, interest or late fees (subject to regulation).

• Subscription & SaaS fees: Charging merchants or partners for access to embedded finance tools (common for vertical SaaS).

• Data & referral revenue: Commission for referring customers to financial products (must comply with disclosure rules).

Unit economics considerations: Cost of capital for lending products, charge-off rates, fraud loss, KYB/KYC operational costs, and compliance overhead can materially affect margins. Many successful embedded finance use cases require scale to amortize fixed compliance and tech costs.

10. Impact on banks, fintechs and end consumers

Banks: Some banks view BaaS as a growth channel (sponsoring fintechs) while others are wary of reputational and compliance exposures. OCC guidance and bank supervision emphasize that banks retain responsibility for compliance even when partnering with fintechs.

Fintechs / vendors: Embedded finance vendors flourish by providing modular, API-first services. Consolidation is common as large firms acquire BaaS providers (e.g., SoFi’s acquisition of Galileo historically) to own more of the stack. FinTech Magazine

Consumers & SMBs: Potential benefits include better access to credit, faster payouts, and contextual financial products. But regulators and consumer advocates warn about risk of over-extension (BNPL) and clarity of disclosures.

11. Embedded finance Case studies

Below are concise case studies illustrating different embedded finance approaches.

11.1 Stripe — payments to banking features

Stripe began as a payments processor and expanded into Stripe Treasury (banking features) and Stripe Issuing (card programs), enabling platforms to offer account-like features and cards. This reflects the broader shift from pure payments to embedded banking capabilities.

11.2 SoFi & Galileo (BaaS & card issuing)

Galileo provided card issuing and processing to multiple platforms and was later integrated with SoFi’s strategy. Card issuing vendors enable rapid launch of virtual/physical cards and programmability.

11.3 BNPL integration (Affirm, Klarna)

BNPL players integrate at checkout and partner with large merchants; some embed directly into platforms, while others operate via integration partners. BNPL’s growth triggered increased regulatory focus on disclosure and fairness.

12. Conclusion

Embedded finance is no longer an experiment — it’s a mainstream strategy that changes how value is captured across retail, marketplaces, SaaS, and platform businesses. The U.S. market offers significant opportunity, but success requires careful attention to regulatory constraints, operational risk, and product economics. By starting small, choosing the right partners, and building compliance into the product roadmap, platforms can unlock new revenue streams and deliver more seamless experiences for users.