Payment fintechs are increasingly turning to embedded finance to reach a larger customer base and capture more payment volume in a trend that's likely to only pick up steam in the coming years despite regulatory pressure.
Embedded finance is the process of integrating a financial service, such as payment processing, insurance or lending into a platform or application of a company that is not a financial institution.
Green Dot, Marqeta and Brex have all made recent moves to expand their embedded finance offerings in the last couple of months. Green Dot, which is the banking-as-a-service
Corporate card issuer and spend management platform Brex in mid-September also launched an embedded finance business line that allows platform partners, such as business spend management and procurement company Coupa and global travel technology company Sabre, to integrate Brex's payment capabilities into their platform so that the platform providers' clients can use it. And workforce management platform Rippling in September launched a Marqeta-issued
"Historically, finance is the purview of the bank," said Todd Pollak, chief risk officer at Marqeta. "At the end of the day, the bank makes the decision on the program, whether that's the rewards, how the program gets marketed, how frequently you can change the program, what you're willing to underwrite in terms of risk. "
"Embedded finance is really about giving that control to the brand and making the bank responsible for what it's really good at, which is making decisions about how to underwrite risk," he said. "Your favorite consumer brand is much more suited to have a relationship with their customer than that bank is."
For consumers, that means access to financial services without having to visit a financial institution's application or website. For banks and payment companies, that means wider access to more potential customers, which drives down customer acquisition costs. And for platform providers, that means additional revenue through payment streams.
In fact, embedded payment solutions are a win-win for both the financial institution and the platforms that integrate them, said Eric Grover, principal at Intrepid Ventures.
"Software providers and marketplaces integrating payments can be a powerful origination channel, generating additional payments," Grover said. "For the platform integrating payments and/or finance offerings, they're providing additional value and usually will share in the payments and/or finance revenues."
Still, embedded finance and banking-as-a-service is not without its headwinds. Increased calls for
Marqeta declined to comment further on its earnings report.
Despite the challenges, interest in embedded fintech solutions into corporate-facing products is "very high globally," said Colin Kerr, principal advisor for corporate banking at Celent. "It is good for customer acquisition cost and also long term client stickiness," he said.
Almost half of banks surveyed in the 2024 Celent Dimensions Survey, which polled 200 banks worldwide, said they had embedded accounts receivable on their product roadmap in 2024/2025 and were exploring use cases and proof of concept in that area. Forty-four percent of banks said they were looking into embedded invoice finance, while 17% said they had embedded accounts payable on their roadmap, and 16% said they were exploring embedded virtual accounts and cards.
Enterprises are also interested in building out embedded finance opportunities into their platforms to build out indirect revenue, according to a 2024 Airwallex embedded finance survey of 200 decision makers. Seventy-eight percent see embedded payments as a tool for enhancing the customer experience and reducing friction, and 71% see it as a customer retention tool.
Embedded finance has allowed Brex to partner with other organizations that have traditionally been considered the fintech's competitors, said Karandeep Anand, president and chief product officer at Brex.
"We are obviously a bill-pay solution of our own, but being a native card first company, we can power card and payments in other companies as well," Anand said, noting that the company was nearing $1 billion in process volume at launch.
Brex doubled down on its embedded finance move in October with a partnership with Navan, a travel, corporate card, and expense management solution that has also been traditionally viewed as a competitor to Brex.
The solution, called BrexPay for Navan, allows Navan's clients to spin up virtual, Brex-issued corporate travel cards that fully integrate with Navan's travel management platform and control spending parameters, said Michael Sindicich, CEO of Navan.
"[Clients] can control the card, so if you set a travel policy that says, 'I don't want you booking first class,' and [an employee] goes to swipe a Brex card to book first class, that would actually get declined," he said.
Rippling allows its clients similar controls over its Marqeta-issued credit cards.
All in, Ernst & Young estimates that the global embedded finance market will grow to $606 billion by 2025, an increase from $264 billion in 2021.
But embedded finance has traditionally been difficult for banks to implement, Kerr said. "There is only so much value one bank can embed into corporate business workflows – because the corporate client will typically work with several banks."
Embedded finance also requires a significant technology investment from financial institutions, said Debbie Buckland, a director analyst in Gartner's financial services division.
"You have to have the [application program interfaces] available in order to leverage embedded payments. You have to have a development center, you have to be API-driven, you have to have a way to control and package all these APIs and present them to the fintechs that need to code to your APIs to be able to offer embedded payments and finance," she said.
That's opened the door for payment firms and other fintechs to step in to offer embedded payment solutions to corporate clients, especially in credit card issuance, Buckland said.
