The year 2024 marked a pivotal moment for Embedded Finance and Banking-as-a-Service (BaaS), with mainstream adoption and expansion into emerging markets setting the stage for significant disruption in 2025. As the market matured, key advancements in AI, data analytics, and regulatory strategies positioned companies for continued leadership in the next wave of innovation.
The global Embedded Finance market is expected to surpass USD 228 billion by 2028, growing at a compound annual growth rate (CAGR) of 23.8%. By 2024, the market had already expanded 25% over two years, reaching USD 185 billion, driven by favourable interest rates and an expanding pool of banking revenues. Despite this impressive growth, only 20% of the market has been addressed, leaving substantial opportunities for platforms willing to innovate and integrate financial solutions. As consumer trust in the technology grows, Embedded Finance is poised to become a significant segment of global financial services.
What started as a niche concept in previous years is now a mainstream feature across various industries, from retail to healthcare. Embedded Finance, which includes the integration of payments, lending, insurance, and other financial products into digital platforms, has evolved from a trend to the future of business operations. As industries continue to evolve, this seamless integration will be increasingly essential, blurring the lines between traditional banking and consumer experiences.
In 2024, key trends and developments in Embedded Finance and BaaS were highlighted by the Paypers. These included significant partnerships, regulatory updates, a shift toward B2B solutions, and evolving infrastructure among key players. Notably, the growing interest of non-financial brands in incorporating financial products into their offerings signalled broader market trends.
As 2024 concludes, Embedded Finance and BaaS continue to reshape industries and customer experiences globally. With new technological advancements, strategic partnerships, and regulatory shifts, these innovations are transforming how financial services are delivered, laying a strong foundation for the future of finance in 2025 and beyond.
Fintech is shifting from standalone solutions to embedding financial functionalities into apps users already rely on. This need-driven approach delivers what I like to call ‘financial services at your fingertips, anytime, anywhere,’ integrating banking seamlessly into daily routines.
Consumer apps now combine essential financial tools with everyday services, such as ride-hailing apps offering wallets or project management platforms enabling invoicing. By meeting customers where they are, Embedded Finance reduces friction, improves accessibility, and transforms financial services into a natural part of users’ activities.
In 2024, the Embedded Finance and Banking-as-a-Service (BaaS) sectors saw transformative developments driving their global expansion, particularly across Europe and the US. Innovations in embedded lending, payments, insurance, and B2B services played a pivotal role in reshaping financial experiences for both businesses and consumers.
Lending solutions provided more accessible capital to small businesses, while embedded payments gained traction as platforms enabled seamless transactions. Insurance offerings at points of sale grew significantly, giving customers greater convenience and flexibility. In the B2B sector, partnerships streamlined financial operations, integrating payments and lending services into marketplaces and SaaS platforms.
Leading companies continued to expand their Embedded Finance offerings, embedding payments, loans, and banking functionalities directly within their ecosystems. Both B2B and B2C use cases broadened, introducing solutions like BNPL for businesses, employee expense tools, and industry-specific enhancements.
This rapid growth also attracted increased regulatory attention, particularly in the US, where stricter compliance standards prompted a more cautious and deliberate approach from banks and fintechs.
Customer expectation for seamless experiences: consumers’ increasing demand for frictionless experiences in payments, credit access, and other financial services pushed companies to adopt Embedded Finance solutions, helping reduce churn and increase conversion rates.
Embedded Finance has emerged as a strategic key for SaaS providers, fostering customer loyalty, opening new revenue streams, and ensuring long-term platform success
The SaaS industry has embraced Embedded Finance, especially in vertical markets. Unlike general SaaS, vertical solutions address niche needs, offering tailored financial services often ignored by banks. These platforms foster strong client relationships, encouraging businesses to consolidate services with a single provider, driving growth and product expansion.
Vertical SaaS platforms, particularly in industries like construction, fitness, healthcare, and hospitality, have been early adopters of Embedded Finance, integrating services like payments and lending to fuel growth. Shopify’s success highlights the potential of this model, with companies leveraging Embedded Finance seeing revenues grow 3-4 times faster than relying on subscription income alone.
As SaaS markets mature, Embedded Finance has shifted from a nice-to-have to a strategic necessity. It is now crucial for driving growth, increasing average recurring revenue (ARR), attracting investors, and staying competitive in a dynamic marketplace. Embedded Finance has become a transformative force, reshaping both SaaS and financial services.
The SaaS market, projected to reach USD 1.2 trillion by 2032, is facing increased competition and rising customer acquisition costs. In response, Embedded Finance has emerged as a transformative strategy, seamlessly integrating financial services into SaaS platforms. This approach unlocks new revenue streams, strengthens customer relationships, and improves loyalty by offering personalised, frictionless experiences that reduce churn and drive innovation.
The impact of Embedded Finance is clear. In 2023, Shopify reported USD 1.1 billion in Embedded Finance revenue, a threefold increase with 31% year-over-year growth, far outpacing its software-only revenue growth of 11%. This success highlights the immense potential for SaaS companies to leverage financial services as a key driver of differentiation, growth, and long-term success.
Embedded fintech integrates services like payments, lending, and insurance into SaaS platforms, enhancing user experience and removing the need for external applications. Companies like Shopify and Toast have used Embedded Finance to boost growth and retention. Fintech offerings, from basic payment gateways to advanced solutions like payroll and lending, help SaaS providers meet customer needs more effectively. Balancing simplicity and complexity is vital; tailored fintech products aligned with a SaaS platform’s core focus, such as CRM or retail, ensure value and a natural fit.
This year, BaaS platforms underwent significant maturation, transforming how non-financial businesses can integrate financial services. Companies across a wide range of industries, from retail to healthcare, now can offer financial products like savings accounts, credit cards, and digital wallets. By collaborating with traditional banks, fintechs, and specialised BaaS providers, non-financial businesses can embed these services directly into their customer experiences, creating new revenue opportunities and fostering deeper customer relationships.
The evolution of BaaS reflects a shift from product-focused offerings to solutions designed around customer needs, prioritising real value for users. Early BaaS initiatives often missed the mark by failing to align with user expectations. Today, successful providers focus on embedding customized financial services directly into apps or user journeys, creating seamless, niche experiences.
The next phase, often called BaaS 3.0 by industry experts, emphasizes integrating financial features discreetly and responsibly, such as steering users toward cost-effective options. This era, shaped by regulations like the Payment Services Directive 3 (PSD3), requires providers to collaborate closely with regulators to address compliance challenges while maintaining innovation.
Success in this trust-centric era calls for a strong understanding of both banking and compliance, especially in the B2B space. Embedded financial services, such as lending and insurance, offer significant opportunities for growth while enabling businesses to better serve their customers.
The industry is also witnessing a convergence of traditional banks and fintech. Examples like UniCredit's acquisition of Aion Bank and Vodeno demonstrate how large banks are embracing the BaaS model to complement their offerings. Ultimately, BaaS 3.0 envisions a unified ecosystem meeting diverse consumer financial needs through a blend of traditional, neobank, and BaaS providers.
In 2024, BaaS is gaining traction as a key model for banks, with larger institutions recognising its potential to scale customer acquisition through a B2B2C (business-to-business-to-consumer) model. BaaS allows businesses to offer banking services directly to their customers, and banks are increasingly viewing this model as a cost-effective way to expand their reach.
One major development this year was UniCredit’s acquisition of Aion Bank and Vodeno for EUR 370 million, a move that highlights the growing importance of BaaS in the banking sector. This marks the first major European bank to embrace BaaS as a core growth opportunity, signaling a fundamental shift in the banking industry. Banks are now thinking of BaaS not as a separate entity but as a complementary model that operates in parallel with traditional banking. The shift is from a solution-led approach to a customer-led approach, where banks integrate their services into everyday business processes, offering banking products directly within non-financial applications.
As more banks recognize the potential of BaaS, further investment and innovation in this space are expected. This shift represents the future of banking, where traditional institutions and Embedded Finance coexist, leading to more accessible, scalable, and cost-effective financial services. The increased interest and investment in BaaS will likely lead to greater adoption across various sectors, accelerating the transformation of how banking services are delivered globally.
This year, the regulatory environment surrounding BaaS and Embedded Finance underwent significant changes as governments sought to strike a balance between fostering innovation and ensuring consumer protection. As more non-bank entities began offering financial products and handling sensitive financial data, regulatory bodies around the world took steps to introduce clearer oversight. The need for regulation became more pressing as Embedded Finance providers increasingly extended credit and processed consumer data. In Europe and the US, stricter frameworks were established to safeguard consumers while allowing the sector's continued growth.
The European Commission adopted the PSD3, marking a major update to its regulatory framework for payment services. The new regulations focused on improving data security, upgrading customer protection, and requiring more transparency from companies offering embedded financial services. These regulations resulted in over USD 400 million in fines across the EU for violations, underscoring the importance of compliance.
Despite the regulatory tightening, the landscape also saw signs of easing. For instance, the FCA lifted Modulr’s onboarding restrictions in the UK, while other companies, like Solaris, faced increased scrutiny. This shift reflects the ongoing challenges of managing compliance in the Embedded Finance sector. The 2024 bankruptcy of Synapse, a major fintech provider, highlighted these concerns when USD 160 million in customer deposits were frozen, disrupting payments for fintech partners like Juno and Yieldstreet. While this event raised questions about the security of consumer funds, it was largely seen as an isolated incident rather than a sign of systemic issues within BaaS.
At the same time, the regulatory environment presented challenges for smaller fintech companies. As banks imposed stricter compliance requirements, smaller players found it harder to secure partnerships. Larger banks, now more cautious due to high compliance costs and potential risks, were either exiting the space or offering tailored solutions to larger enterprises. While this trend benefits established players, it limits opportunities for smaller innovators and could reduce the disruptive potential of fintechs like Chime and Cash App.
Looking forward, the fintech industry faces a critical crossroads. To thrive in this more scrutinised environment, fintechs must align with banks that prioritise strong compliance and adopt common standards, particularly in fraud prevention and risk management. Though regulatory scrutiny may have deterred some smaller players, collective efforts across the industry to establish best practices can strengthen the market. By working together, the BaaS ecosystem can foster both sustainable growth and continued innovation, benefiting companies of all sizes while maintaining transparency and consumer protection.
In 2024, embedded payments and lending have become key drivers in the evolving world of Embedded Finance. BNPL solutions, which faced regulatory challenges in the past, made a strong comeback with more responsible lending practices and transparent terms.
These services are now reshaping how we pay, from seamless checkout experiences in ecommerce to embedded lending solutions for businesses.
Key trends:
Embedded Finance isn't just transforming consumer payments – it's also revolutionising B2B transactions. By integrating payment processing and financing directly into business platforms, Embedded Finance is helping businesses manage payments, procurement, and cash flow more easily.
In 2024, Embedded Finance became a driving force for financial inclusion, particularly in emerging markets. Mobile-first financial services helped millions of unbanked individuals and small businesses access digital financial tools, reshaping the financial landscape in Africa, Asia, and Latin America.
Mobile-first financial services
As we move into 2025, Embedded Finance and BaaS are poised for continued growth but face several challenges. While 2024 saw impressive progress, the industry must navigate hurdles such as increasing regulatory scrutiny, data privacy concerns, and growing competition. Here's a look at the key challenges and what we can expect in the coming year.
As industries continue to transform digitally, the role of Embedded Finance will only grow, offering businesses new ways to meet customer needs, retain clients, and unlock new revenue streams.
For a deeper dive into these trends, The Paypers` 2024 Embedded Finance and BaaS Report offers insights into how Embedded Finance is transforming industries. It covers why businesses adopt these solutions, successful real-world implementations, and how they drive revenue growth by addressing pain points. The report also explores the challenges of adoption, the role of AI and blockchain in fuelling growth, and the rise of B2B Embedded Finance. Additionally, it looks at the future of Embedded Finance, including expansion into new sectors like healthcare and real estate, as well as the continued growth of BNPL and virtual card offerings.
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