Embedded Finance: What Do Merchants Want?

A tipping point for embedded finance is approaching, one that will deliver significant changes in how banks go to market, how consumers and small-business owners shop for financial services, and how software companies view their product stack. 

Just as bundled payments have come to market through a variety of business models, so is Banking-as-a-Service (BaaS). Most software companies began as simple referral sources for merchant account providers, delivering a disconnected user experience. This began to change with Visa’s creation of the payment facilitator (payfac) model with its investment in Square in 2012 and sparked the changes in card network rules that better aligned with the needs of merchants. We will also see the new crop of BaaS companies evolve to adopt to the needs of the market, both regulatory and commercial. Although 2024 will continue to be a building year as the market sorts out, beginning in 2025 we will see the first signs of a definitive tipping point.

Key questions discussed in this report: 

• How should banks compete with software companies that are offering embedded financial services or leverage this trend as a sales channel? 
• How can software companies add value to their platforms by embedding financial services? 
• How should merchants evaluate the value of embedded financial services vs. what they can get from their local bank?

Companies Mentioned: 

7Shifts, Apple, Bank of America, Block Inc., Blue Ridge Bank, Citibank, Evolve Bank & Trust, GreenDot, Helix, Lineage Bank, Mastercard, Piermont Bank, Solid, Square, Synapse, Synctera, Tabapay, Toast, Treasury Prime, Unit, Visa