You pay for a ride without opening a banking app. A restaurant owner accepts a working capital offer inside the point-of-sale dashboard they already check every morning. In both cases the financial product lives inside software that is not a bank. That arrangement has a name: embedded finance.
This guide is written for software companies, agencies, brokers and advisors who want a clear picture of the model: who does what, what the market numbers actually measure, and where the risks sit. If your interest is lending specifically, our companion piece on how embedded lending works goes deeper on that product.
What is embedded finance?
Embedded finance is a financial product (payments, a business account, a card, a loan or insurance) offered inside a non-financial company's software, while a licensed institution provides the regulated product behind it. The platform owns the screen and the customer relationship. The bank, lender or insurer owns the license, the balance sheet and most of the regulatory duties.
A useful way to see it is through the product disclosures that real programs print in their fine print:
- Shopify says on its Shopify Capital page that "all loans through Shopify Capital are issued by WebBank in the United States."
- Toast's Toast Capital FAQ says "Toast Capital Loans are issued by WebBank."
- Stripe's Capital for platforms documentation names Celtic Bank or Lead Bank as the provider of its US loan products and YouLend as the provider of its US merchant cash advance.
The brand on the screen and the institution on the contract are often different companies. That split is the defining feature of embedded finance.
Key takeaway: In embedded finance the software company distributes the product and a licensed institution provides it. Knowing which party is which tells you who holds the money, who carries the credit risk and who answers to regulators.
How does embedded finance work behind the scenes?
Most embedded finance runs on a three-part chain: a licensed institution, a technology layer, and the platform the end user sees. Sometimes one company plays two of those roles.
- The licensed institution. A bank or licensed lender holds deposits or makes loans. In a "sponsor bank" or "partner bank" arrangement, the bank lends its charter to a program that someone else markets.
- The technology layer. APIs connect the platform to the bank. This layer is often called banking as a service (BaaS). It may be run by the bank itself, by a payments company, or by a separate middleware firm.
- The platform. The software company presents the offer, collects the application inside its own interface and, depending on the contract, may help with servicing.
Some large platforms collapse the chain by owning a bank. The FDIC's March 2020 approval of deposit insurance for Square Financial Services, a Salt Lake City industrial bank proposed by Square, said the bank would "originate commercial loans to merchants that process card transactions through Square, Inc.'s payments system." Block's January 2026 release says Square Loans are issued by Square Financial Services. Few companies take that route, because a charter brings capital, examination and compliance obligations of its own.
Why is embedded finance growing?
Embedded finance is growing because platforms already hold two things lenders and banks want: the customer's attention and the customer's transaction data. Business owners also appear more willing to get financing outside a bank branch.
The clearest public evidence on the borrower side comes from the Federal Reserve. The Fed's 2026 Report on Employer Firms, based on 6,525 employer firm responses collected from September to November 2025, found that the share of applicants who applied at online lenders rose from 17% in the 2020 survey to 29% in the 2025 survey. The report's definitions count "payments processing companies, fintech lenders, and finance companies" as financial companies that are not banks, and it lists PayPal Working Capital as an example of an online or fintech lender. A payments company lending to its own merchants is embedded lending in its plainest form.
The same report carries a warning worth repeating: 60% of firms that borrowed from online lenders said their actual borrowing costs were higher than expected. Convenience inside a dashboard does not make a product cheap. For a fuller comparison of channels, see our guide to online lenders vs banks.
On the platform side, the incentive is revenue. Adyen and Boston Consulting Group's October 2024 research, based on work with about 30 platforms and about 2,000 small and midsize businesses in North America, Europe and Australia, found that "top platforms are now generating more than 50% of their revenues from embedded payments and finance." Treat that as a description of the leaders, not an expectation for an average software company.
How big is the embedded finance market?
There is no single, agreed size for the embedded finance market, because each research firm measures something different. Some count revenue to platforms, some count transaction value, and some include insurance premiums. Compare the four most cited figures:
| Source and date | What it measures | Figure |
|---|---|---|
| Bain & Company, September 2022 | US revenue to software platforms and the infrastructure providers behind them | $21 billion in 2021, projected $51 billion in 2026 |
| Bain & Company, September 2022 (same release) | US transaction value through embedded finance | Projected $7 trillion in 2026, about 10% of US financial transactions |
| Juniper Research, July 2021 | Global "market value" including insurance premiums, transaction revenue and licensing costs | $43 billion in 2021, projected above $138 billion in 2026 |
| Mordor Intelligence, page updated February 9, 2026 | Global market size | $155.96 billion in 2026, projected $454.48 billion in 2031 (23.84% a year) |
| Adyen and BCG, October 2024 | Revenue opportunity for SaaS platforms in North America, Europe and Australia | $185 billion, with less than 20% currently addressed |
Three cautions before quoting any of these:
- Two of the 2026 numbers are projections made years ago. Bain's and Juniper's figures were forecasts published in 2022 and 2021. They are useful for direction, not as measured 2026 results.
- Revenue and transaction value are different things. Bain's $51 billion and $7 trillion come from the same release and describe different quantities. Mixing them overstates the opportunity by orders of magnitude.
- Paid market reports summarize their own methods. Mordor's public page even shows a 2025 figure ($155.98 billion) slightly above its 2026 figure. Cite these numbers with the publisher and date, not as settled fact.
For lending in particular, Bain's 2022 release projected that embedded business lending would "grow five-fold over the next five years," from $200 million in 2021 to $1.3 billion by 2026. That is small next to consumer payments, which Bain said made up more than 60% of embedded finance transactions in 2022. Lending is a smaller slice with higher stakes per transaction.
What are the main types of embedded finance?
The main types are embedded payments, embedded accounts and cards, embedded lending and embedded insurance. Adyen and BCG list "business accounts and issued cards" and loans among the products platforms can add. Bain's 2022 release named payments and lending as the two largest segments.
| Type | What the user sees | Who usually provides it |
|---|---|---|
| Embedded payments | Card acceptance and payouts inside the software | A payment processor and its acquiring bank |
| Embedded accounts and cards | A business account, balance or card inside the platform | A partner bank, often through a BaaS provider |
| Embedded lending | A loan, line of credit or cash advance offer in the dashboard | A partner bank, a licensed lender, or a platform-owned bank |
| Embedded insurance | Coverage offered at the point of purchase | A licensed insurer or agency |
Lending stands apart from the others because it involves credit decisions, repayment and, when a business cannot pay, collections. A payment that fails is an inconvenience. A loan that is mispriced or poorly disclosed can damage the platform's relationship with its customer. Our embedded lending explainer covers how those programs split underwriting, funding and compliance.
What are the risks of embedded finance?
The biggest risk is not the software. It is unclear recordkeeping and unclear responsibility between the platform, the middleware firm and the bank. The 2024 Synapse failure made that concrete.
Synapse Financial Technologies, in the CFPB's words, "provided proprietary technology and software that acted as a bridge between nonbank fintech platforms" and partner banks. After Synapse filed for bankruptcy on April 22, 2024, the partner banks found they held less money than Synapse's records showed, which the CFPB's enforcement page describes as "a shortfall of between $60 and $90 million." Consumers could not reach their money for weeks or months. The CFPB filed suit on August 21, 2025, alleging Synapse failed "to maintain adequate records of the location of consumers' funds," and the court entered a stipulated judgment on September 12, 2025.
Banks that sponsor these programs are also under scrutiny:
- On June 7, 2023, the Federal Reserve, FDIC and OCC issued Interagency Guidance on Third-Party Relationships. It states that a banking organization's use of third parties "does not diminish its responsibility" to operate safely and soundly and comply with the law, including consumer protection law.
- On June 14, 2024, the Federal Reserve announced an enforcement action against Evolve Bancorp and Evolve Bank & Trust, a Synapse partner bank, after 2023 examinations found it lacked an effective risk management framework for its fintech partnerships.
- On July 25, 2024, the banking agencies requested information on "a broad range of bank-fintech arrangements," including deposit, payments and lending products.
Synapse was a deposits story, not a lending story. The lesson still carries over to lending: whoever keeps the system of record and holds the bank relationship holds your risk. Our build vs partner vs white-label guide turns that lesson into questions to ask a vendor.
Key takeaway: Ask every embedded finance provider three questions in writing: which licensed institution provides the product, who keeps the authoritative ledger, and what happens to your users if the provider fails.
Is embedded finance right for your platform?
Embedded finance fits when your users already run money through your software and regularly need a financial product you could reasonably offer. It fits poorly when your users are occasional visitors or when the product would be bolted on with no link to their workflow.
A short test before any vendor call:
- Do you see the money? Platforms that process payments or hold invoices have the data lenders use. Stripe, for example, prequalifies connected accounts from their payment activity and requires at least three months of processing history on the platform, according to its Capital for platforms documentation.
- Is the need recurring? A product users need once a year earns less trust and revenue than one they use every week.
- Can you explain the cost honestly? If the product is a cash advance with a flat fee, your users will need help comparing it with a loan. Our guide to merchant cash advances is a fair starting point.
- Do you know your regulatory role? In the US, a platform that only refers or presents offers may have lighter duties than the provider, but several states regulate commercial financing brokers and disclosures. The embedded lending guide lists the main rules.
Loanistry is owned by Trulli, which runs a lending platform for brokers, agencies and software companies: trulli.ai.
Sources
- Shopify: Shopify Capital, checked November 2026
- Toast: Toast Capital Loan FAQ, checked November 2026
- Stripe: How Capital for platforms works, checked November 2026
- FDIC: Deposit insurance approval for Square Financial Services, March 2020, checked November 2026
- Block, Inc. via Business Wire: Block surpasses $200 billion in credit provided to customers, January 2026, checked November 2026
- Federal Reserve Banks: 2026 Report on Employer Firms, checked November 2026
- Adyen: Adyen and BCG research finds embedded payments and finance now a $185 billion opportunity, October 2024, checked November 2026
- Bain & Company: Embedded finance transaction value to more than double to $7 trillion in US by 2026, September 2022, checked November 2026
- Juniper Research via Business Wire: Embedded finance market value to exceed $138 billion in 2026, July 2021, checked November 2026
- Mordor Intelligence: Embedded Finance Market Size and Share, checked November 2026
- CFPB: Synapse Financial Technologies, Inc. enforcement action, checked November 2026
- Federal Reserve: SR 23-4, Interagency Guidance on Third-Party Relationships: Risk Management, checked November 2026
- Federal Reserve: Enforcement action against Evolve Bancorp and Evolve Bank & Trust, June 2024, checked November 2026
- Federal Reserve: Agencies request information on bank-fintech arrangements, July 2024, checked November 2026