How the role of partnerships is changing in the embedded finance ecosystem
- Executives from Shopify, Upgrade, Fiserv, Synchrony, Cross River, and GlossGenius shed light on the scale of the opportunity and evolving partnerships in the embedded finance space, at Tearsheet's 'The Big Bank Theory' Conference.
- Many players are already offering embedded finance solutions, and brands are actively looking for new ways of embedding financial services into their offerings. However, as the market expands, it all comes down to evolving and embracing different integration models that locate and resolve pain points for end-consumers as well as merchants.

Embedded finance has snowballed over the last few years, driven by the implementation of payment capabilities into many platform businesses. This explains why it reached $20 billion in revenues in the United States alone in 2021, according to McKinsey. It is further estimated that the market could double in size within the next three to five years.
Recently, Tearsheet held The Big Bank Theory Conference, where executives from Shopify, Upgrade, Fiserv, Synchrony, Cross River, and GlossGenius shed light on the scale of the opportunity, evolving partnerships, and emerging trends in the embedded finance space.
Many players are already offering embedded finance solutions, and brands are actively looking for new ways of embedding financial services into their offerings. However, as the market expands, it all comes down to evolving and embracing different integration models that locate and resolve pain points for end-consumers as well as merchants – based on balanced partnerships among banks, technology providers, and distributors of financial products.
New research finds that financial services embedded into e-commerce and other software platforms accounted for $2.6 trillion, or nearly 5%, of total US financial transactions in 2021 – and is expected to exceed $7 trillion by 2026. The majority of that contribution came from payments and lending – signaling that these two areas will continue to be the core foundation for embedded finance.
The accelerating adoption of embedded finance solutions boils down to a few factors – digitization of commerce, business management, and significant investment into the space has expanded opportunities to embed finance in non-financial customer experiences.
Data shows investors are particularly interested in embedded finance providers with a precise business strategy and the capability of allowing existing infrastructure to transition into a fully digital financial ecosystem. As a result, investor interest is driving high funding in the space and fueling its global expansion.
“Embedded finance is gaining momentum because of the sheer digitization of commerce. SMBs are using expense management solutions, AP and AR applications, and payroll software applications, while the end consumers are into super apps, loyalty apps, social media, and creator apps. The number of digital surfaces in the last few years has allowed companies to start recognizing and start embedding tools across those journeys,” said Shruti Patel, Director of Partnerships at Shopify. “The second factor is venture capital funding that is leading to a ton of collaboration and innovation that just didn't exist earlier,” she added.
Choosing the right partner
When a non-financial company wants to offer a new financial product or service, they have three options: build, partner, or buy. While a few end-user-focused brands might choose to build their own financial services, others can be skeptical due to the demanding and arduous financial regulations, operations, and infrastructures. All things considered, developing beneficial partnerships is the most common route taken by service providers and fintechs.
In the embedded finance relationship, a partnership ecosystem among banks, financial services providers, and retailers/merchants is of great importance. The current economic environment has driven a shift in fintech strategies, which is actually proving to be a unique opportunity for commercial partnerships to play out.
The question then becomes, how do embedded solution providers decide on who to partner with?
Making the right decision for a long-term partnership is critical. Alignment with the company’s values, and the ability to deal with market ambiguity and stand the test of time, while sharing the same vision for customer experience, are some of the key aspects for businesses to focus on when choosing an embedded finance partner.
“Diversity is critically important to us, it's got to be the right cultural fit for us – the core of who we are and the values at Synchrony. And we need to make sure that we believe that the entrepreneurs and the funds we're investing in, think about approaching problems in the same way we do,” said Trish Mosconi, Chief Strategy Officer at Synchrony.
Some providers gravitate more toward other qualities while collaborating. Each of the players involved in the equation needs to define what it requires from a partnership before diving in.
“As a services and technology provider, data and security are paramount for us while partnering. Partners will have to have some data security policies in place, like consent-based entitlements. But more broadly, if I sort fintechs into direct-to-consumer and the ones that increase operational efficiency, or sprinkle other things like ESG that bring value to the customer, it’s something we’re starting to look for in partners,” added Niranjan “Ram” Ramaswamy, GM of Embedded Fintech at Fiserv.
Inherent in their design, fintechs are continuing to forge partnerships to integrate financial services into digital applications. Recently, eToro, a social investment platform, joined hands with embedded finance provider OpenPayd. Additionally, Gigable, a gig economy platform, partnered with embedded finance platform Weavr, to give customers real-time control over their finances. And Finastra, a lending solutions provider, and Jifiti, a white-labeled Buy Now Pay Later platform, announced a point-of-sale BNPL embedded finance partnership for financial institutions.
Fintechs are evolving from mono-line to multi-line to meet demand. Many of the startups that launched as mono-line businesses to target a core pain point for customers have expanded their customer bases and raised subsequent rounds of funding. As a next step, they are transitioning to a multi-line business model by creating strong partnership webs across multiple verticals to generate revenues.
The increasing role of regulation
As the fast-growing fintech industry expands, the sector has started to attract greater regulatory scrutiny.
Stepping into the banking industry subjects a fintech company to strict regulation and constant oversight. In order to level the playing field, recent regulatory measures by the Consumer Financial Protection Bureau (CFPB) and the report released by the US Treasury show that new regulations and rules are approaching to monitor fintechs on the same level of scrutiny and regulation as banks.
“The CFPB is doing a good job of enabling innovation by making sure that there are guardrails and consumers are well-protected. According to Michael J. Hsu, the Acting Comptroller of the Currency, bank-fintech partnerships are here to stay, but there needs to be clarity that needs to be dug and guardrails need to be added for proper risk management and controls,” said Renaud Laplanche, Co-Founder and CEO at Upgrade.
Traditionally, in a typical bank-fintech relationship, both sides act as competitors and collaborators at the same time – however, there are as many differences as similarities between the two.
One of the challenges that continues to persist in a bank-fintech relationship is that embedded finance still has to plug into core banking technology to work. Fintechs want to address market requests a mile a minute, but payment companies have to rely on banks – which act as expensive and slow mediators – to originate and settle payments on their behalf.
Banks are more process-oriented and heavily regulated when compared to fintechs, which pushes them to take a longer route. Additionally, most banks are still running on legacy tech, with APIs that were originally designed for internal use. These factors lead to financial institutions and fintechs being on different wavelengths.
Going forward, there are two emerging trends to look out for in the coming years, according to Shopify’s Shruti Patel. First, the cryptocurrency market downturn highlights regulators’ growing focus on the financial services industry. And secondly, the embedded finance space will likely continue to heat up with the intensifying competition – and growing demand owing to the scale of untapped opportunity in the marketplace.
“The risk and regulatory environment needs to level up from a sophistication perspective to match what's happening in the marketplace. Today, what happens across the value chain is that banks are more accountable for risks – fintechs and middleware players will have to share more data, whether that's customer data or other types of data. This will shift the risk across the equation as well,” she said.