Embedded Finance: The Next Growth Frontier for Banks and Merchants

Embedded finance is becoming a fundamental aspect of consumer shopping, borrowing, and brand engagement. Banks and merchant acquirers must adapt to deliver secure, regulated, and seamlessly integrated solutions. Those who do can unlock new revenue channels and customer relationships, while those who don't risk being left behind by digital wallet and embedded alternatives. Traditional banks can regain ground by delivering embedded finance responsibly and keeping trust with consumers.

Embedded finance is no longer a niche technology but a fundamental aspect of modern consumer behavior, shaping how people shop, borrow, and engage with brands. According to Electronic Payments International, the shift towards digital wallets and embedded finance is transforming the financial landscape, presenting both risks and rewards for traditional banks and merchant acquirers [1].

The demand for flexible and secure financial solutions is growing, driven by the increasing adoption of digital wallets such as Apple Pay and Google Pay. Research by finder.com indicates that 45% of UK adults are comfortable leaving their homes without physical wallets, highlighting the convenience and trust consumers place in digital payment methods [1]. This trend is further supported by data from UK Finance, which shows that 32% of adults are now using mobile payments [1].

For banks and merchant acquirers, adapting to this shift is crucial. Those who can deliver secure, regulated, and seamlessly integrated embedded finance solutions stand to unlock new revenue channels and customer relationships. Conversely, those who fail to adapt risk being left behind by more convenient and brand-aligned digital alternatives [1].

The competitive advantage for banks lies in combining trust with innovation. Fintechs may be fast, but banks have the longevity and regulatory expertise to offer embedded finance that scales with confidence. Traditional banks can regain ground by delivering embedded finance responsibly, keeping trust with consumers, and ensuring compliance with regulations such as the Consumer Duty [1].

One of the key challenges is the need for orchestration rather than just aggregation. Merchants are increasingly seeking integrated solutions that include lending, payment routing, dispute management, and fraud protection, all within a regulated framework. This requires banks to move from being processors to being orchestrators, offering institutional-grade infrastructure that preserves merchant control over data, loyalty, and post-sale engagement [1].

The embedded payments market is expected to grow significantly, reaching USD 192.9 billion by 2032, driven by API integrations across digital platforms. The U.S. market alone is projected to reach USD 29.7 billion by 2032, growing at a CAGR of 31.14% [2]. This growth is fueled by advanced fintech infrastructure, rapid SaaS adoption, and the increasing demand for seamless digital transactions.

As the market evolves, banks must focus on delivering embedded finance that is not only functional but also fair. This includes real-time affordability logic, transparent disclosures, and live support to assist with any merchant or customer concerns. By doing so, banks can position themselves as trusted partners in the embedded finance ecosystem, rather than just product providers [1].

In conclusion, the rise of embedded finance presents both opportunities and challenges for banks and merchant acquirers. Those who can adapt and deliver secure, regulated, and seamlessly integrated solutions stand to gain significantly. Traditional banks have the trust and regulatory expertise to lead in this space, but they must also focus on innovation and collaboration to succeed.

References:
[1] Electronic Payments International. (n.d.). Embedded finance: The next growth frontier for banks and merchants. Retrieved from https://www.electronicpaymentsinternational.com/comment/embedded-finance-next-growth-frontier-for-banks-merchants/
[2] Globewire. (2025, July 15). Embedded Payments Market to Reach USD 192.9 Billion by 2032. Retrieved from https://www.globenewswire.com/news-release/2025/07/15/3115712/0/en/Embedded-Payments-Market-to-Reach-USD-192-9-Billion-by-2032-Driven-by-the-Surge-in-API-Integration-Across-Digital-Platforms-SNS-Insider.html