Explainer: what is Embedded Finance?

Shona Sabah, Senior Manager - Strategic Growth Lead at KAE, explains Embedded Finance. 

Paying for a taxi through an app, splitting an online purchase into instalments at checkout, or accepting card payments through invoicing software are all examples of the same underlying trend. In each case, a financial service is integrated directly into a non-financial product or platform, making it a seamless part of the user experience rather than a separate activity. This is known as Embedded Finance, and it is increasingly becoming part of everyday consumer and business interactions.

So, what exactly is Embedded finance?

Embedded Finance is the integration of financial services (payments, lending, insurance, accounts) into the platforms and workflows where people already spend their time. The user reaches the financial service at the point of need, without leaving the journey they are on. Embedded payments are the most established layer of this, and the one most business meet first: the ability to pay, or to take up a payment method, exactly when and where it is needed.

Long before apps and APIs, financial services were already being woven into everyday transactions, for consumers and businesses alike. A department-store shopper offered store credit at the till, a car buyer arranging finance with the salesperson in the showroom, a business customer placing a bulk order with a wholesaler and receiving a 30-day trade credit. Each of these instances is an example of Embedded Finance in an analogue form, with the financing folded into the moment of purchase rather than handled through a separate trip to a bank.

For most of the past few decades, digital payments nonetheless stayed separate. A merchant signed up with an acquirer, a shopper was redirected to a gateway, and a finance team logged into a banking portal to move money. Software and finance ran on parallel tracks. What has changed is that the two have merged: payments, and increasingly credit and other services, now live inside the software, app, or checkout experience a business or consumer already uses, rather than alongside it.

Three traits tend to define a well-built embedded experience:

• Unified: the service feels native to the product, not a tool bolted on at the edge, so the user never senses a handoff.
• Contextual: it shows up right when the need arises, a payment at the point of purchase or a credit offer when a cash-flow gap appears, not in a separate menu.
• Seamless: just enough friction to be secure and compliant without slowing the user down.

This final characteristic is often misunderstood. Embedded payments are sometimes described as ‘invisible’, but the objective is not to eliminate friction entirely; it is to introduce the right level of friction at the right point in the journey. Appropriate prompts, disclosures and approval steps help users make informed decisions and retain control over financial activity.

For example, a consumer may need to review and confirm the terms of a Buy Now, Pay Later (BNPL) arrangement before completing a purchase, while a corporate buyer may require visibility of, and approval over, financing terms before they are applied. In both cases, and particularly in more complex B2B transactions, transparency and control can be more important than complete automation.

Where does Embedded Finance show up for people?

Embedded Finance takes different forms depending on the customer and the use case.

• For consumers, it appears as BNPL options, in-app purchases, super-apps, payments through wearables and connected devices, and point-of-sale (POS) built into booking or scheduling tools. As the checkout itself becomes multi-channel, the common thread is a checkout that no longer feels like a checkout.
• For mid-market and corporate users, it lives inside the operating system of the business itself. Large enterprises run sophisticated ERP systems (the central brain that holds their operational, financial, and logistical data) and historically ran payments through a separate system. Increasingly, providers embed payment capability directly into the ERP, so corporates can make, track, and receive payments inside the software where they already manage the business. The same pattern reaches into vertical SaaS, such as a construction platform handling project and field management, alongside accounts-payable and accounts-receivable automation, treasury and foreign exchange tools, and marketplace payouts.
• For small businesses, it tends to arrive through accountancy software, invoicing platforms, B2B marketplaces and selling portals, processor-provided POS, and gig-economy apps. The promise is a plain one: run the business, get paid, and reach financing in one place. The activity data these platforms accumulate also lets providers underwrite financing they could not otherwise offer.

How does Embedded Finance work?

Embedded Finance models typically involve three core participants. The platform, often a software provider, owns the customer relationship and integrates the financial service into the existing workflow. A regulated financial provider, such as a payment service provider, bank, or Banking-as-a-Service (BaaS) partner, provides the underlying infrastructure, licensing and compliance capabilities. The end user accesses the financial service directly within the platform, often as a seamless part of the broader experience.

In practice, a platform that already manages activities such as bookings, inventory, or invoicing can add capabilities such as payments, credit, or funds management directly within its software. The resulting financial activity creates an additional revenue stream, with the economics typically shared between the platform and the financial-services provider.

Do I need to know about Embedded Finance?

Yes, probably. The reason Embedded Finance has spread so quickly is straightforward: when it works, it tends to benefit everyone along the chain at the same time.

• The end user gets a faster, lower-friction experience, fewer abandoned journeys, access to credit at the point they need it, and clearer visibility of their finances.
• The platform or software provider gains a new revenue stream from payments, higher retention as the product becomes harder to leave, richer behavioural data to inform what it offers next, and a way to stand apart from competitors.
• The payment provider or bank gains distribution at scale through the platform’s existing customers, often hundreds of thousands or millions of users reached through a single partnership. It also gains transaction volume that grows as the platform grows, new BaaS revenue models, and a lower cost of acquiring customers than direct selling usually allows.

When all three benefit together, the effect compounds. Better payment experiences drive more use of the platform, which drives more payment volume, which in turn funds better infrastructure and better experiences. The customer journey sits at the centre of that loop. Strip away the jargon, and embedded payments is, at bottom, a volume and scale play: the model only works when the offering genuinely improves the experience and keeps users transacting inside it.

How mature is Embedded Finance adoption?

How far Embedded Finance has developed differs sharply depending on where you look.

• North America is the most mature market, helped by its interchange economics and high software adoption. Its strength is monetisation: for the leading platforms, payments has overtaken subscriptions as the larger revenue line. KAE's analysis of published annual reports shows that it is becoming common for major SaaS providers to draw ~70%+ of annual revenue from payments and related financial services. For example, Toast, Shopify, BILL, and Lightspeed all publicly report that payments constitute a significant portion of their revenue versus subscriptions. A key challenge is saturation and competition.
• Western Europe is maturing. Regulatory developments such as Open Banking have helped create both the infrastructure and market appetite for Embedded Finance. However, fragmentation across jurisdictions, languages, and regulatory frameworks can make it more difficult to achieve the scale required than in a large, more unified domestic market.
• Asia-Pacific is developing rapidly, helped by super-app ecosystems that have already normalised Embedded Finance at scale for both consumers and smaller businesses. Fragmentation and entrenched, dominant local players are the main obstacles.
• The Middle East and Africa is an emerging opportunity, with government-led digital acceleration, particularly in the Gulf, driving fast adoption. Structural constraints such as lower software penetration and bank-led ecosystems limit how widely services can be distributed.
• Latin America is also developing quickly, driven by high fintech adoption among large underbanked populations and strong demand for integrated financial services. Macroeconomic volatility and regulatory uncertainty raise the risk and complexity of operating there.

What is driving it, and what is holding it back?

Several forces are pushing Embedded Finance forward. API-first infrastructure from modern providers makes integration faster and more cost-effective than it used to be. Open Banking and real-time payment rails e.g. Pix in Brazil, as well as regulation such as PSD2 and PSD3 in Europe, are opening up the plumbing that embedded models rely on. Vertical software keeps spreading, and almost every niche platform becomes a potential payments channel as it does. Payment-facilitator and BaaS licensing continues to evolve, lowering the barrier for platforms to earn from payments in the first place. Embedded models can also generate richer and more contextual data than standalone providers typically have access to, supporting more effective fraud detection, underwriting, and personalisation.

Several structural challenges can limit the adoption and scalability of embedded payments. Regulatory complexity remains a key constraint, with licensing and compliance requirements varying across jurisdictions and creating significant burdens for platforms not originally designed to operate as financial-services providers. Questions around customer ownership, liability, and contracting can also be difficult to resolve and are often critical to the viability of a partnership.

Legacy technology presents a further challenge. Older ERP and accounting systems can be difficult to integrate with, particularly in large enterprises operating multiple, heavily customised instances across markets. As a result, integrations developed for one customer may not translate easily to another, which is a recurring issue in commercial-card and corporate-payment use cases.

Economics and pricing models can also be relatively complex, with margins compressing and decompressing along the maturity curve. Across all of these areas, providers must also determine which opportunities and partners are genuinely attractive, often with limited market data, benchmarks, and internal expertise to support those decisions.

Where do the strongest opportunities sit?

Embedded Finance does not spread evenly across sectors. The strongest opportunities tend to be where a payment or financing step is inseparable from the core workflow: gig-economy apps that both pay workers and collect customer payments, online marketplaces handling payouts to many sellers, travel platforms bundling booking and payment, and field-service or construction software where invoicing and payment are part of completing the job. Healthcare, hospitality, and property management show similar promise. In each, the enabler is a critical, high-frequency workflow; the blocker is usually integration complexity or a crowded field of incumbents.

A practical framework for payment providers and banks entering Embedded Finance

Payment providers and banks sometimes treat Embedded Finance as a switch they can simply turn on for easy incremental revenue. In practice, the value comes from building it around genuine workflows and genuine pain points, and from choosing partners with rigour rather than enthusiasm.

Because volume is what makes the economics work, it helps to judge each opportunity against a consistent set of criteria rather than assessing deals one at a time. The framework below sets out seven factors:

• Workflow criticality: how central the payment or financing is to the user’s task, ideally so integral that the job cannot be completed without it, since optional steps get skipped and volume suffers.
• Proposition fit: whether the service addresses a real customer need or set of pain points rather than a manufactured one, since a genuine need sustains usage while a manufactured one fades once the novelty wears off.
• Scalability: whether the model extends well beyond a small handful of customers, since a model that only fits one or two marquee clients never gets big enough to pay off.
• Partner leverage over user adoption: whether the partner will actively nudge users towards the embedded option, since even a well-built feature stalls if the partner does not actively surface and champion it.
• Volume potential and monetisation: the size of the immediate opportunity and the room to expand into other payment or financing products over time, such as layering lending or insurance onto an initial payments relationship.
• Strategic fit and alignment: how well the partnership matches wider goals, so that the embedded offering reinforces the core business rather than diverting scarce resources into a side venture.
• Regulatory and risk profile: the licensing, compliance, and risk implications, including whether the partner can be trusted to protect your brand once it is surfaced inside their experience.

Key takeaways

The implications vary depending on where an organisation sits in the ecosystem:

For payment providers and banks: assess opportunities across multiple dimensions, define clearly the value being created for both the business and the end customer, and select partners based on demonstrated capabilities and strategic fit.

For software and platform providers: payments can become a revenue generating, highly embedded part of the proposition, particularly when they are designed around customers’ existing workflows and operating needs.

Across both groups, the overarching principle is consistent: start with the customer journey, identify points of friction, and measure the impact of removing them. The most effective embedded payment experiences are often those that feel almost invisible to the customer because they work seamlessly within the broader product experience.

This article is part of The Paypers’ Explainers section. To access other educational materials from this section, click here. If you have suggestions about other topics that could be included in this section, we invite you to write to us at editor@thepaypers.com.

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About the author

Shona Sabah is a senior strategic insights leader with over extensive experience helping payments organisations across the globe use customer, market and competitor intelligence to make data-backed product, marketing, and strategy decisions. She has led projects spanning consumer and commercial payments, supporting international brands to identify new opportunities, shape product strategies, and optimise marketing and sales performance to drive acquisition, retention, and long-term value. Beyond her client work, Shona is an active and recognised voice in the payments industry. She has spoken at major industry events such as MPE and Commercial Payments International (CPI) Summit, moderated webinars and fireside discussions with industry leaders, and is host of KAE’s The People Making Payments Podcast.