In the 1950s, department stores like Sears began issuing their own credit cards. Not because they wanted to be banks, but because keeping customers inside their ecosystem was good for business. The financial product was secondary to the shopping experience.Today, that same logic is playing out on a much larger scale. Tech platforms, retailers, and vertical software providers are weaving payments, lending, and cash management directly into the tools their customers already use. The difference is that today’s embedded financial features are far more sophisticated and far harder for traditional financial institutions (FIs) to see coming.For community financial institutions (CFIs), this shift means competition is no longer limited to other banks or even fintechs. It increasingly comes from the software, platforms, and marketplaces that already have your customers’ attention.Embedded Finance Has Moved Beyond Buzzword StatusEmbedded finance — the integration of banking features into non-financial platforms — has reached a meaningful scale.According to a 2024 report from BCG and Adyen, the total addressable market for embedded payments and finance across North America and Europe now stands at $185B, a 25% increase from just two years earlier. Current market penetration sits around $32B, suggesting significant room for growth ahead.What’s driving this? Adoption of vertical software by small- and medium-sized businesses (SMBs) has accelerated significantly. In the US, SMB use of industry-specific software platforms reached 59% in 2024, up from 50% in 2022. More than half of relevant independent software vendors in North America also offer embedded payment capabilities, and SaaS platforms with integrated payments account for 36% of SMB acquiring revenues.In practical terms, this means that when a landscaping company uses job-management software or a retailer sells through an online marketplace, financial services — payments, credit, and cash flow tools — are readily available within those platforms. There’s no separate banking login required.How Commerce Platforms Are Becoming Financial HubsPerhaps no recent example illustrates this shift more clearly than Walmart’s partnership with JPMorgan Chase to embed banking tools directly into its online marketplace. Walmart’s third-party sellers can now accept payments, manage cash flow, and access financial services within the Walmart platform. Walmart isn’t a solitary example. Macy’s, for instance, offers weekly payouts to marketplace sellers through an embedded solution, replacing the biweekly or monthly cycles sellers were accustomed to elsewhere. That kind of speed and convenience is what business owners increasingly expect — and it’s being delivered outside the traditional banking system.The same pattern can be seen coming toward CFIs, though on a smaller scale. When a local business owner manages payments, financing, and cash flow through a software platform or marketplace, the daily touchpoints that once belonged to their CFI start to disappear, along with opportunities for cross-selling, advising, and deepening relationships.How CFIs Can Respond StrategicallyThe competitive shift here is subtle but important. These non-bank financial platforms are touting convenience, speed, and integration, not a full suite of financial services. They don’t replace the advisory relationships, local expertise, and accountability that CFIs provide. The areas where CFIs hold the strongest advantages — complex lending, regulatory guidance, long-term financial planning, and personal accountability — are precisely the areas embedded platforms struggle to replicate. The high-stakes financial moments that shape a business or a family’s future are not well served by automated platform logic.Rather than viewing embedded finance as an existential threat, CFIs can treat this moment as an opportunity to clarify their long-term goals and current trajectory. Here are some steps you can take to understand how the rise of embedded finance is impacting your customers and how you can enhance your value to SMBs:
- Learn what platforms customers are using. When a landscaping company processes payments through its job-management app or a retailer accesses working capital inside Shopify, those are financial interactions that used to flow through a bank. The first step to regaining some of those transactions is to understand which platforms and tools your business customers rely on. Ask them what they’re using and what they like about the tools. If they reference capabilities your CFI already has, it’s an opportunity to demonstrate for your customer. If your CFI doesn’t have the same selling points, you can take information back to your leadership team to discuss replicating those features in your own offerings.
- Emphasize your advisory value. Platforms like Walmart's marketplace or Square's seller ecosystem are built for speed, convenience, and transaction volume. However, they can’t provide guidance on advisory topics like business expansions, succession planning, regulatory navigation, or nuanced credit decisions. Double down on the high-trust, high-stakes moments where your CFI shines and embedded platforms fall short. Make advisory services easy to access, and ensure your customers understand the distinction between transactional convenience and genuine financial guidance.
- Consider partnerships rather than competing. Many of the platforms and retailers using embedded finance are actively seeking banking partners to provide the regulated financial infrastructure behind their tools. The key is choosing the right partnerships. Some put the financial institution behind a white label, invisible to the end customer. Others keep the institution front and center while extending its reach into new digital workflows. Evaluate fintech and platform partnerships with a clear criterion: does this integration keep us in the customer relationship, or does it push us behind the scenes? The best partnerships extend your capabilities while reinforcing — not replacing — your role as a trusted financial partner.
- Focus on the big financial picture. Embedded platforms might have flashy, fast-clicking capabilities, but they lack something that’s far more important to banking customers: the full view of their financials. Customers want transparency, alerts, timely updates, and a choice of easy contact methods for their financial institution. Improving onboarding flows, real-time status updates, and responsive service channels can materially improve the customer experience without requiring you to build a super app.
Embedded finance is a structural shift in where customers experience financial services, not a passing fad. As routine payments and lending move into platforms and marketplaces, CFIs’ value concentrates in what those platforms can’t offer: complex credit, nuanced advice, and accountable relationships. The winners will know which ecosystems their customers use, stay visible as primary advisors, and extend their reach through selective partnerships and better digital experiences.
