How Embedded Finance Is Quietly Transforming Startup Business Models
The rise of embedded finance is a direct response to what consumers have been demanding for years: simplicity and speed. With the arrival of the iPhone and the explosion of internet service came a new standard — the ability to access and pay for almost anything from a single device.
Embedded finance is the natural evolution of that shift, which meets users exactly where they are and turns everyday platforms into financial ecosystems. It has already evolved from just a niche innovation to a fundamental pillar in the digital economy — especially for startups. It’s now not only about payments or banking integrations, but reimagining entire business models and creating new revenue streams that didn’t exist before.
However, for traditional banks, it’s difficult to keep up with this trend. Why? What are consumers truly expecting?
What’s driving adoption?
At the heart of embedded finance’s explosive growth is one simple factor: convenience. If you think back to the pre-digital era, paying bills meant standing in lines, dealing with paperwork and visiting physical branches. It was slow and frustrating. The digital revolution changed all that. Now, consumers want to pay, borrow, invest and insure directly within the apps they already use. You tap a screen and it’s done — that’s the benchmark.
The numbers speak volumes. According to Bain & Co. and Bain Capital, revenue from embedded finance platforms and infrastructure providers is expected to grow from $21 billion in 2021 to $51 billion in 2026. Transaction volume? Forecast to hit $7 trillion, representing 10% of all U.S. financial transactions.
Another major driver is the technological leap. Ten years ago, integrating with banks required massive IT teams and multimonth roadmaps. Today, startups can plug into financial services via Open APIs in days as there are platforms such as Stripe and Revolut. These tools dramatically lower both the cost and complexity of integrating financial features.
But perhaps the biggest motivation? Revenue. For nonfinancial companies, embedded finance is more than just a value-added feature — it’s also a key monetization mechanism. Platforms can now earn a percentage of every transaction while boosting customer stickiness. Take Shopify: nearly half its revenue comes not from subscriptions but from financial services like payments and loans. It’s a win-win that startups are eager to tap into.
Are traditional banks keeping up?
Here’s where the picture becomes more complicated. Most traditional banks still operate on legacy systems from the 1980s. Migrating to modern, API-friendly infrastructure is not only extremely costly but also operationally painful. Just imagine that you have 30,000 employees, or even 10,000, and you need to migrate everything to a new platform. Also, your entire database infrastructure is legacy, your processes are legacy — it’s difficult to digitalize all these.
To compete, some, let’s say, “Tier 1” banks are pouring billions into implementing Open API. But many “Tier 2” and long-established banks are simply falling behind. Leadership is often aging, regulatory requirements are rigid, and cybersecurity standards (as there are many to adhere to) make innovation harder. Many still require in-person visits for simple tasks or run core services on outdated systems like voice trading. This leaves them struggling to keep pace with fintech players that offer a smoother and smarter experience by design.
Changing customer expectations
It’s no longer enough to offer a checking account or a credit card. Users now need “super apps” — platforms that combine multiple financial (and nonfinancial) services in one seamless interface. With modern digital banks you can clearly see where your money is, how much you’ve earned or lost, and the exact exchange rates applied. Then you log into a traditional bank (this is a real-world example) and they tell you, “We’ll get back to you with the FX rate for converting dollars to euros.” You wait for an email, and it feels like you’ve stepped into a time machine.
Banks don’t necessarily have to build everything themselves; partnerships are a viable path. But the key is ensuring that the entire experience happens within a single application. So, those who will manage to create a marketplace inside their application or on the website will go ahead, the rest will not, losing both market share and revenue.
Arthur Azizov is founder and investor at B2 Ventures, a private fintech alliance encompassing a portfolio of financial and technology projects, including B2Broker and B2BinPay. A serial entrepreneur with over a decade of experience, he has been at the forefront of financial technology innovation, transforming liquidity, trading and payment services.
Illustration: Dom Guzman
Read More
3 Charts Show The State Of Startup M&A Right Now
The SPAC Is Back
How Embedded Finance Is Quietly Transforming Startup Business Models
The rise of embedded finance is a direct response to what consumers have been demanding for years: simplicity and speed. With the arrival of the iPhone and the explosion of internet service came a new standard — the ability to access and pay for almost anything from a single device.
Embedded finance is the natural evolution of that shift, which meets users exactly where they are and turns everyday platforms into financial ecosystems. It has already evolved from just a niche innovation to a fundamental pillar in the digital economy — especially for startups. It’s now not only about payments or banking integrations, but reimagining entire business models and creating new revenue streams that didn’t exist before.
However, for traditional banks, it’s difficult to keep up with this trend. Why? What are consumers truly expecting?
What’s driving adoption?
At the heart of embedded finance’s explosive growth is one simple factor: convenience. If you think back to the pre-digital era, paying bills meant standing in lines, dealing with paperwork and visiting physical branches. It was slow and frustrating. The digital revolution changed all that. Now, consumers want to pay, borrow, invest and insure directly within the apps they already use. You tap a screen and it’s done — that’s the benchmark.
The numbers speak volumes. According to Bain & Co. and Bain Capital, revenue from embedded finance platforms and infrastructure providers is expected to grow from $21 billion in 2021 to $51 billion in 2026. Transaction volume? Forecast to hit $7 trillion, representing 10% of all U.S. financial transactions.
Another major driver is the technological leap. Ten years ago, integrating with banks required massive IT teams and multimonth roadmaps. Today, startups can plug into financial services via Open APIs in days as there are platforms such as Stripe and Revolut. These tools dramatically lower both the cost and complexity of integrating financial features.
But perhaps the biggest motivation? Revenue. For nonfinancial companies, embedded finance is more than just a value-added feature — it’s also a key monetization mechanism. Platforms can now earn a percentage of every transaction while boosting customer stickiness. Take Shopify: nearly half its revenue comes not from subscriptions but from financial services like payments and loans. It’s a win-win that startups are eager to tap into.
Are traditional banks keeping up?
Here’s where the picture becomes more complicated. Most traditional banks still operate on legacy systems from the 1980s. Migrating to modern, API-friendly infrastructure is not only extremely costly but also operationally painful. Just imagine that you have 30,000 employees, or even 10,000, and you need to migrate everything to a new platform. Also, your entire database infrastructure is legacy, your processes are legacy — it’s difficult to digitalize all these.
To compete, some, let’s say, “Tier 1” banks are pouring billions into implementing Open API. But many “Tier 2” and long-established banks are simply falling behind. Leadership is often aging, regulatory requirements are rigid, and cybersecurity standards (as there are many to adhere to) make innovation harder. Many still require in-person visits for simple tasks or run core services on outdated systems like voice trading. This leaves them struggling to keep pace with fintech players that offer a smoother and smarter experience by design.
Changing customer expectations
It’s no longer enough to offer a checking account or a credit card. Users now need “super apps” — platforms that combine multiple financial (and nonfinancial) services in one seamless interface. With modern digital banks you can clearly see where your money is, how much you’ve earned or lost, and the exact exchange rates applied. Then you log into a traditional bank (this is a real-world example) and they tell you, “We’ll get back to you with the FX rate for converting dollars to euros.” You wait for an email, and it feels like you’ve stepped into a time machine.
Banks don’t necessarily have to build everything themselves; partnerships are a viable path. But the key is ensuring that the entire experience happens within a single application. So, those who will manage to create a marketplace inside their application or on the website will go ahead, the rest will not, losing both market share and revenue.
Arthur Azizov is founder and investor at B2 Ventures, a private fintech alliance encompassing a portfolio of financial and technology projects, including B2Broker and B2BinPay. A serial entrepreneur with over a decade of experience, he has been at the forefront of financial technology innovation, transforming liquidity, trading and payment services.
Illustration: Dom Guzman
Read More
3 Charts Show The State Of Startup M&A Right Now