Embedded finance is transforming how startups deliver financial services. By integrating tools like payments, lending, and banking directly into their platforms, startups are creating smoother user experiences while opening new revenue streams. The global embedded finance market, valued at $82.32 billion in 2023, is expected to reach $7.2 trillion by 2030. With 64% of businesses planning to adopt these solutions by 2025, startups have a huge opportunity to act now.
Key takeaways:
- Core tools for embedded payments: Payment APIs, Banking-as-a-Service (BaaS), and Buy Now, Pay Later (BNPL) options.
- Benefits: Higher customer lifetime value (2–5×), reduced acquisition costs (30%), and increased revenue per customer (up to $70 annually).
- Challenges: Compliance with regulations (KYC, AML, PCI DSS) and managing scalability and security risks.
- Implementation steps: Focus on risk management, choose reliable tech partners, and monitor performance through analytics.
Startups like Lili are already leading the way, embedding financial tools into platforms their users already trust. By prioritizing compliance, seamless integration, and user-friendly design, startups can tap into this booming market and strengthen customer relationships.
Why Embedded Finance Is Exploding: Every Business Is Becoming a Bank
Core Components of Embedded Payment Solutions
Creating effective embedded payment systems involves mastering three essential components that work together to deliver smooth financial experiences. These elements allow startups to introduce advanced payment features without having to build complex systems from the ground up.
Payment Gateways and APIs
Payment gateways and APIs serve as the bridge between customers, merchants, and financial institutions. Payment APIs, in particular, integrate payment processing directly into your software, ensuring users stay on your platform throughout the transaction. Austin Kelsch, Lead Software Engineer at Stax, simplifies it:
"Most simply put, an API is a way for computers to talk to computers. From the computer’s perspective, it’s an easy way to make those conversations happen."
By connecting processors, gateways, and your platform, payment APIs enable your app to accept payments seamlessly. This approach keeps users engaged on your site, reducing the risk of shopping cart abandonment and improving the overall experience.
When considering payment APIs, focus on factors like transaction volume, budget, and international capabilities. Look for APIs that are quick to implement, have a straightforward structure, and provide clear error messaging. Comprehensive documentation is key – it should include sample code and easy navigation to help your developers integrate efficiently.
The potential market is enormous. U.S. retail e-commerce revenue reached $768 billion in 2021 and is expected to surpass $1.3 trillion by 2025. A reliable payment API is essential to tap into this growing market.
Before launching, always test your payment API in a sandbox environment to ensure it works as expected. This allows you to address any issues early, ensuring a smooth rollout.
Once payment APIs are in place, startups can expand their financial offerings by incorporating Banking-as-a-Service (BaaS) platforms.
Banking-as-a-Service (BaaS) Platforms
BaaS platforms allow businesses to embed financial tools like account creation, card issuance, and money transfers into their apps, all while managing compliance. These platforms handle the regulatory complexities, letting you focus on your core product.
The BaaS market, valued at nearly $16 billion in 2023, is growing rapidly. Revenue is projected to rise from $1.7 billion in 2021 to over $17.3 billion by 2026, according to Juniper Research.
This surge in adoption is evident: a Finastra survey found that 85% of senior executives across banks, fintechs, and other brands are either using BaaS or planning to adopt it. BaaS allows you to offer financial services under your brand while the provider manages the backend operations. Many platforms also integrate advanced technologies like machine learning for risk management and blockchain for secure transactions.
When choosing a BaaS provider, prioritize security measures to protect sensitive data. Ensure the provider has strong uptime performance and contingency plans for technical issues. Clear communication and defined responsibilities for customer support are also critical for smooth operations.
BaaS platforms strengthen your platform’s financial ecosystem, making it more comprehensive for users.
Buy Now, Pay Later (BNPL) Options
Beyond standard payment processing, BNPL options provide an alternative financing solution at checkout. These services allow customers to pay in installments, often interest-free, increasing conversion rates and average order values.
BNPL is gaining traction globally. In Australia, nearly 10% of e-commerce transactions use BNPL services, and by 2025, BNPL is expected to account for 12% of global e-commerce spending on physical goods. Businesses using Stripe have reported up to a 14% revenue increase on BNPL-eligible sessions, while merchants accepting BNPL have seen a 27% rise in sales volume and an 87% increase in average order value.
This payment option is particularly popular with younger shoppers. Over 26% of millennials and nearly 11% of Gen Z consumers have used BNPL for recent online purchases. A PYMNTS study revealed that 40% of respondents might delay or cancel a purchase if BNPL isn’t offered.
David Sykes, Head of Klarna North America, highlights BNPL’s appeal:
"We usually ask our retail clients not to think of us as a payment option, but as a new customer acquisition channel."
BNPL providers typically charge merchants fees ranging from 1.5% to 7% of the purchase total. At checkout, BNPL appears alongside credit cards, with providers handling underwriting, installment management, and payment collection.
To implement BNPL effectively, choose a provider that aligns with your business needs. Consider factors like fees, user experience, and customer support. Analyze customer behavior to gauge demand and promote BNPL options to increase awareness. Regularly review performance metrics to make adjustments as needed.
How to Implement Embedded Payment Solutions
To successfully bring embedded payment solutions to life, you need a solid strategy that combines preparation, technical know-how, and ongoing analysis. This involves three main phases: preparation and compliance, technical integration, and tracking with analytics.
Preparation and Compliance
Before diving into the technical side, it’s crucial to start with a plan that prioritizes risk management and regulatory compliance. Begin by conducting a thorough risk assessment to identify weak points like data security risks, transaction processing inefficiencies, and compliance gaps.
Compliance isn’t optional – it’s baked into every part of a financial product, from onboarding new users to shutting down accounts. In the U.S., this means adhering to requirements like Know Your Customer (KYC), Know Your Business (KYB), Anti-Money Laundering (AML) rules, and Payment Card Industry Data Security Standards (PCI DSS). You’ll also need to follow laws such as the Electronic Fund Transfer Act (EFTA), Regulation E, and the Equal Credit Opportunity Act (ECOA) [23, 25, 26]. Failing to meet these standards can result in hefty fines or even force your business to shut down.
Strong compliance measures don’t just protect you legally – they also build trust and make your product more reliable. Many startups handle compliance in-house, but others work with third-party advisors or use Banking-as-a-Service (BaaS) platforms to simplify the process. Make sure you establish clear policies, implement robust security protocols, and set up systems to monitor regulatory changes consistently.
Once compliance is under control, it’s time to weave these measures into your payment system during the integration phase.
Integration Process
With compliance as your foundation, the next step is technical integration. This is where you transform your plans into a fully functional payment system, focusing on APIs, user experience, and rigorous testing.
Choosing the right payment processing partner is critical. Evaluate their technical capabilities and the support they offer for integration. For example, PayPal and Stripe charge 2.9% + $0.30 per domestic transaction, while Square offers 2.6% + $0.10 for in-person payments and 2.9% + $0.30 for online transactions. Venmo for Business provides rates around 1.9% + $0.10 per transaction.
Look for providers with developer-friendly APIs and pre-built integrations to save time. Sean Maney of BookedBy, the company behind Salon Ultimate, highlights the importance of this:
"With Fiserv, everything is ready to go for our users. They get payments, hardware, and BookedBy software all-in-one to run their business. That’s an experience that we couldn’t get with anybody else. Fiserv also has so many other functionalities that help us add additional revenue".
The scale of payment processing is massive. For instance, Elavon handles over 6.2 billion transactions annually, worth nearly $500 billion. Similarly, NMI processes more than 2.3 billion transactions across 237,000 devices. Johan Snygg, Chief Software Engineer at Instant Systems Sweden AB, shares his experience:
"NMI does business in both Europe and the US, and of course accepting payments is easy and reliable. It always works".
During integration, prioritize security by using encryption and tokenization to protect payment data [28, 30]. Design a user-friendly interface to keep customers engaged and reduce cart abandonment. Finally, test extensively in sandbox environments to ensure the system can handle various scenarios, from processing errors to high transaction volumes.
Once the system is live, continuous monitoring and analytics will ensure it performs seamlessly.
Tracking and Analytics
After launching your embedded payment solution, tracking and analyzing its performance is key to optimizing results. Focus on metrics like transaction volumes, revenue growth, and user adoption rates. Analyze conversion rates at each stage of the payment process to spot and fix friction points. Keep an eye on metrics like average transaction value and frequency to understand customer behavior better.
Compare fees from providers like PayPal and Stripe with alternatives such as Venmo for Business or Wise, which typically charges between 0.4% and 1.5%, depending on the currency and transaction size.
Real-time monitoring of payment statuses and transaction histories helps you quickly address issues. Set up automated alerts for failed transactions, unusual activity, or potential fraud to prevent small problems from escalating.
Todd Forgan, owner of Modern Media, notes:
"D-Tools payments completely helps us streamline and collect customer payments more efficiently and accurately".
Advanced reporting tools can offer deeper insights into customer preferences, peak transaction times, and seasonal trends. This data can guide strategic decisions to improve your payment system.
To refine your payment process, track customer satisfaction metrics like checkout completion rates, preferred payment methods, and support inquiries. Use A/B testing to experiment with different payment flows, button placements, and checkout designs. Even minor improvements in these areas can lead to significant revenue growth when applied across a large volume of transactions.
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Common Challenges and Regulatory Requirements
After integrating and tracking insights, startups venturing into embedded finance must tackle the challenges and regulatory demands that come with scaling these solutions. Embedded finance presents immense potential, with the U.S. market projected to grow from $2.6 trillion in 2021 to $7 trillion by 2026, accounting for over 10% of all financial transactions. However, this rapid growth introduces complexities in managing scale, security, and compliance.
Managing Scalability and Security
As your startup expands, your payment system must handle increased transaction volumes without faltering. Over 60% of operational failures in payment systems result in losses exceeding $1 million. The challenge lies not only in processing higher volumes but also in maintaining performance while safeguarding sensitive financial data shared across multiple parties.
Security risks grow alongside scale. A staggering 98% of organizations work with at least one third-party vendor that has experienced a breach, and over half report direct breaches – often involving compromised credentials. A Verizon study revealed a 68% rise in breaches caused by third-party vendors, with such incidents accounting for 15% of all data breaches.
To manage scalability, automated systems are key. These systems can handle growing transaction volumes without requiring constant manual oversight. Legacy identity and access management (IAM) systems often struggle to keep up, particularly with third-party relationships. A modern approach, such as adopting a zero-trust architecture, can help. This involves conducting thorough due diligence with partners and performing regular security audits.
On the security front, multiple layers of protection are essential. Use end-to-end encryption for all data transfers and enforce multi-factor authentication at every access point. Security Information and Event Management (SIEM) systems can consolidate and analyze data to detect potential threats early. Regular penetration testing and vulnerability scans should also become standard practice.
Looking ahead, the global embedded finance market is set to hit $348.8 billion by 2029, growing at an annual rate of 30%. Your security framework must be strong enough from the outset to support this level of expansion.
Beyond technical safeguards, staying compliant with regulatory standards becomes increasingly critical as your transaction volumes grow.
US Regulatory Requirements
In the U.S., fintech startups must navigate a complex web of state and federal regulations that influence every aspect of product development.
"Fintech compliance refers to the obligation of financial service institutions to adhere to applicable regulations on data privacy, consumer security, and the use of financial technology." – InnReg
Compliance impacts everything from marketing to account closures. Partnering with banks brings additional layers of responsibility, including adherence to KYC (Know Your Customer), KYB (Know Your Business), AML (Anti-Money Laundering), OFAC (Office of Foreign Assets Control), UDAP/UDAAP (Unfair, Deceptive, or Abusive Acts or Practices), and Red Flag Rules. For credit services, fair lending laws and the Truth in Lending Act also come into play.
The stakes are high for non-compliance. In January 2025, Block incurred an $80 million penalty from the Conference of State Bank Supervisors for BSA/AML compliance failures. Similarly, TD Bank faced over $3 billion in penalties in 2024 for violations of the Bank Secrecy Act and failing to prevent money laundering.
To stay compliant, regularly review updates to federal and state laws, as these regulations are constantly evolving. Automated compliance tools can help streamline processes and reduce errors. Additionally, collaborating with payment orchestration platforms ensures transactions are routed through channels that meet regulatory standards.
"Focusing on compliance with fintech regulations must be your core priority – the same level as product development – especially in the early stages of your startup." – InnReg
Engaging with legal experts, participating in industry forums, and maintaining open communication with regulatory authorities are all crucial steps. Establishing a robust compliance program will help you stay ahead of regulatory changes and safeguard your operations.
Once regulatory challenges are under control, a proactive risk management strategy becomes essential for long-term growth.
Risk Management Best Practices
Effective risk management builds on your compliance and security efforts, enhancing your system’s resilience. With the U.S. embedded finance market projected to reach $468 billion by 2034, strong risk management is critical for sustainable growth.
Start with comprehensive risk assessments and regular audits. Advanced analytics can provide deeper insights into credit assessments, while real-time transaction monitoring helps identify anomalies early. Diversifying exposure and maintaining reserve funds can also protect against financial instability.
Reserve funds are particularly useful during payment delays or economic downturns. Offering flexible repayment options or shorter loan terms can mitigate liquidity issues. In some cases, selling portions of your loan portfolio can provide quick access to cash, helping stabilize operations.
Technology plays a central role here. Advanced encryption software and automated frameworks can enhance data protection while meeting privacy standards. Real-time transaction monitoring adds another layer of security by catching suspicious activity before it escalates.
Finally, invest in a dedicated compliance team and collaborate with legal experts specializing in financial regulations. Staying current with evolving rules and conducting regular audits of internal controls will strengthen your risk management framework.
With 74% of global online consumer payments expected to occur via non-financial platforms by 2030, having a solid risk management strategy is essential. It not only supports the growing volume of digital transactions but also helps maintain customer trust and security.
How M Accelerator Supports Startups in Embedded Finance Implementation
M Accelerator offers startups a complete roadmap for tackling the challenges of embedded finance. This field requires not just technical know-how but also strategic planning, industry connections, and flawless execution. With a proven track record of helping over 500 founders secure more than $50 million in funding, M Accelerator delivers the tools and guidance startups need to succeed.
Personalized Coaching and Technical Support
At the heart of M Accelerator’s approach is personalized coaching. By limiting each cohort to just six companies, the program ensures startups receive tailored advice to navigate the complexities of embedded finance.
The program includes 2–3 weekly sessions, adding up to 44 hours of hands-on support. This structure is particularly helpful for startups grappling with technical hurdles like payment gateway integration, API development, and compliance with industry regulations.
"We’ve been blown away by the level of support during the sessions. Your method, style, and advice are really wonderful."
- Abi Hannah, CEO at Fertility Circle
M Accelerator’s three-tiered structure is designed to guide startups at every stage of their journey. The Founders Studio focuses on achieving product–market fit for early-stage companies, the Startup Program helps seed-stage businesses with technical integration, and the Scale-Up Coaching supports growth-stage companies as they expand into new markets. This structure provides a clear framework for making critical decisions, such as selecting the right payment gateway or balancing Banking-as-a-Service platforms with Buy Now, Pay Later options.
"M Accelerator has helped a lot in making a pitch deck from scratch by helping show the problem from various angles. Sessions vary from different topics such as marketing, presentation, speech which syncs into the pitch creation. In addition, one-on-one sessions help to ask any questions or help you need. Thank you."
- Jemal Meredova, Co-Founder at PinChef
For startups targeting the U.S. market, M Accelerator offers tailored support, including business model adjustments and Go-To-Market strategies. This focus is key for navigating U.S.-specific regulations like KYC (Know Your Customer), AML (Anti-Money Laundering), and state-level compliance requirements.
By combining personalized coaching with strategic insights, M Accelerator helps startups overcome technical and regulatory challenges, setting the stage for scalable embedded finance solutions.
Access to a Network of Experts and Investors
Industry connections are just as important as technical support, and M Accelerator excels in this area. The program provides startups with direct access to a vast network of over 25,000 investors and 150+ industry experts. These connections open doors to funding, partnerships, and technical advice, especially for overcoming challenges like scaling payment infrastructure.
M Accelerator’s selective admissions process – accepting only 4–5 businesses per cohort (about 1–2%) – ensures that startups receive focused, high-impact support. Beyond funding, the program’s expert network offers invaluable guidance for solving integration issues and refining embedded finance strategies.
Additionally, M Accelerator’s robust LinkedIn outreach, which reaches over 2 million contacts monthly and a community of more than 500,000, helps startups build partnerships and acquire customers.
Results-Driven Framework for Growth
M Accelerator’s approach is all about delivering measurable results. Startups are guided through shaping, testing, and validating their business models before diving into full-scale implementation. This process allows companies to refine their payment solutions using real user feedback, reducing the risk of costly missteps during technical integration.
"After this startup program, I have a lot more clarity in which direction we should take, which tools we can use, and how we can go about it. — Distributing your value proposition in a way that is economical. That was something new for me. So often, we tend to design solutions that outcompete your competitors in all aspects instead of focusing on the factor that has the most impact. Expanding in the US market for us isn’t just localization. It is a second startup stage. M Accelerator Startup program is really good for Global Entrepreneurs."
- Melissa Kariuki, Founder at Whip Music Africa, Product Manager at Google
This focus on refining the most impactful features ensures that startups don’t overextend their resources. By aligning strategy, execution, and communication, M Accelerator helps companies develop payment solutions that connect with their target market.
The numbers back up the program’s success: over $50 million raised by portfolio companies and more than 10,000 investor decks reviewed. With one-on-one sessions to address specific challenges, startups can confidently navigate technical obstacles and turn them into opportunities for growth. M Accelerator’s results-driven framework ensures every technical achievement translates into market success.
Conclusion: Growing Your Business Through Embedded Finance
Embedded finance is reshaping how startups connect with customers and drive revenue. According to McKinsey research, businesses implementing embedded finance see improved customer value and reduced acquisition costs. With 64% of companies planning to roll out embedded finance solutions by 2025, acting quickly is key.
To take advantage of this shift, startups need to first understand their customers’ financial pain points. The rise in digital wallet usage – now embraced by 67% of consumers – clearly highlights the demand for seamless financial solutions. For startups, this opens doors to new revenue opportunities, such as transaction fees, lending margins, and subscription models, all while boosting user engagement within their platforms.
"Embedded finance enables every company to be a fintech company – and is creating a massive economic opportunity"
- Tom Sullivan, Content Strategist at Plaid
A smart starting point is integrating essential payment processing, followed by expanding into lending and banking services. Often, partnering with embedded finance providers offers startups a cost-efficient way to build these capabilities. This structured approach, combined with guidance from experienced accelerators, sets the stage for success.
The benefits are clear: increased revenue per customer and deeper user engagement. By creating an integrated ecosystem, startups can position themselves for sustainable growth.
Programs like M Accelerator provide invaluable support for navigating this space. With personalized coaching, access to over 25,000 investors, and technical expertise, startups can tackle challenges like payment integration, regulatory compliance, and scaling into new markets. The program’s track record – helping founders secure more than $50 million in funding – shows the real impact of strategic guidance in this fast-growing sector.
With the embedded finance market projected to hit $7.2 trillion by 2030, now is the time to act. Whether your goal is enhancing customer experience, unlocking new revenue streams, or standing out in a competitive market, embedded finance offers a proven route to growth in the U.S.
Start by identifying the financial services your customers value most and choose partners that ensure smooth integration and compliance. Embedded finance is no longer just an add-on – it’s a critical strategy for long-term success.
FAQs
What are the main advantages for startups adopting embedded finance solutions?
Integrating embedded finance solutions enables startups to offer financial services directly within their platforms, making the user experience smoother and more convenient. This ease of use can increase user engagement, build loyalty, and make the platform more attractive to customers.
Beyond improving the customer experience, embedded finance opens doors to additional revenue streams. Startups can generate income through transaction fees, revenue-sharing models, or tailored financial products. These opportunities not only support business growth but also help startups stand out in a crowded market while addressing the changing needs of their users.
By incorporating embedded finance, startups can elevate customer satisfaction, fuel their growth, and establish themselves as forward-thinking players in the digital economy.
How can startups stay compliant with regulations when integrating embedded finance solutions?
To integrate embedded finance while staying within legal boundaries, startups need to build key compliance measures like Know Your Customer (KYC), Anti-Money Laundering (AML), and transaction monitoring right into their platforms. These tools not only help meet legal requirements but also minimize risks tied to financial operations.
Keeping up with evolving financial regulations issued by U.S. authorities is equally important. Regularly reviewing compliance standards and collaborating with industry experts can help startups maintain user trust and steer clear of legal complications. Starting with a compliance-focused mindset lays the groundwork for sustainable growth.
What challenges do startups face when scaling embedded payment systems, and how can they overcome them?
Startups working to expand embedded payment systems in the U.S. often face hurdles like complex technical integrations, ensuring consistent system reliability, and managing regulatory compliance. These challenges can become even more pronounced as transaction volumes increase with growth.
To tackle these obstacles, startups should focus on implementing secure, intuitive technologies, collaborating with dependable payment providers, and strictly following data privacy and security protocols. It’s also crucial to refine payment infrastructure to reduce transaction delays and errors, ensuring a smooth user experience. By staying ahead of these challenges, startups can successfully scale their embedded payment systems while maintaining efficiency and trust.
