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Embedded finance is the integration of financial services such as payments, banking, lending, and installment options directly into ecommerce platforms and software. Instead of sending customers or store owners to separate financial providers, these services appear inside the checkout flow, storefront, or admin dashboard, where they are easiest to use.
The global embedded finance market was worth $82.7 billion in 2023 and is projected to grow 21.3% annually through 2033, according to Allied Market Research. This suggests that embedded finance is now a core capability of ecommerce software, rather than a niche add-on.
Here’s what embedded finance is, how it works, and examples of embedded finance solutions for ecommerce.
What is embedded finance?
Embedded finance is the inclusion of financial services on non-financial companies’ platforms and apps. Embedded finance services span payments, banking, lending, insurance and digital wallets.
Some embedded finance solutions, such as buy now, pay later (BNPL), are customer-facing. Others are designed for retailers, giving them easy access to services such as money management accounts and merchant cash advances—all within their admin dashboard.
When you integrate financial services into your ecommerce store, you can create a higher-converting checkout experience and reduce cart abandonment. Baymard Institute research ties 10% of checkout abandonments to a store not having enough payment methods (a gap that an embedded solution like Shopify Payments can close). Additionally, Shopify’s accelerated checkout, Shop Pay, can lead to 50% more conversions than standard checkout.
How embedded financial services work
Behind the scenes, three key players make up the embedded finance ecosystem:
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Sponsor banks. Sponsor banks are regulated financial institutions that provide the banking license and core compliance oversight for embedded finance programs.
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Banking-as-a-service (BaaS) providers. A BaaS provider supplies the API-based technology layer that connects the sponsor bank to end brands and helps enable services such as ACH payments, card issuing, and deposit accounts.
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End brands. End brands use embedded finance products internally and in their customer experiences.
The sponsor bank and BaaS provider handle the operational side—services like payment processing, loan underwriting, fraud prevention, and compliance—so the end brand can focus on the customer experience.
For example, Shopify provides embedded financial services to store owners on its platform. Shopify partners with Stripe, a BaaS provider, to power offerings like Shopify Payments, Shopify Balance, and Stripe Issuing, which lets store owners distribute virtual and physical cards. Several FDIC-insured sponsor banks provide Shopify with banking services, manage risk, and ensure regulatory compliance behind it all.
Shopify embedded finance solutions
Shopify has a full suite of embedded finance solutions that help shop owners launch and grow their businesses. Rather than stitch together a patchwork of payment processors, lenders, banks, and checkout tools, it’s a one-stop shop where you can access financial services from a single dashboard. Many of these financial tools and services are available out of the box with minimal setup.
Shopify Payments
Shopify Payments is an embedded payment solution that lets you accept customer payments online. You have access to Shopify Payments as soon as you create your shop—no need to set up a third-party payment provider or merchant account.
Shop Pay
Shop Pay is an accelerated checkout that lets customers securely save their email, payment method, and shipping and billing info, so they can check out in a single tap instead of having to re-enter their details.
By integrating Shop Pay directly into the shopping experience, you remove the friction that causes abandonment: An external study by a Big Three global management consulting company found Shop Pay lifts conversion by up to 50% compared to guest checkout.
JW Wiseman, founder of non-alcoholic beverage brand Curious Elixirs, credits Shop Pay with reducing friction at checkout, a hurdle for a brand asking first-time shoppers to order an unfamiliar drink to their door. “We were ahead of the curve in terms of beverages direct to consumer,” he says on an episode of Shopify Masters. “People are loving the convenience that comes with buying online, and with Shop Pay, it’s easier than ever to just try something new.”
Shop Pay Installments
Shop Pay Installments is a BNPL option that lets customers split purchases into installment payments at checkout. A Visa study found that 48% of UK consumers are more likely to buy from brands that offer embedded payment options like BNPL.
Shopify Balance
Shopify Balance is an example of embedded banking for store owners. It’s a business financial account where store owners manage revenue, expenses, and payouts within Shopify, providing faster access to sales proceeds than traditional bank accounts.
Shopify Capital
Shopify Capital* is an embedded lending tool for store owners that provides loans and flexible funding solutions to eligible store owners. Eligibility and offer amounts are based on your Shopify store’s sales history and overall performance. Shopify automatically assesses your store’s performance—no credit check or lengthy application required.
Repayments are tied to sales: You pay back a fixed percentage of your daily sales (more on good days and less on slow ones), which can ease cash-flow pressure. On average, businesses that secured financing through Shopify Capital saw their sales grow 36% more than comparable shops over the next six months.
Emma Sibley, founder of London Terrariums, describes on Shopify Masters how she used Shopify Capital to scale her business and open a new physical location. “I think Shopify Capital is incredibly helpful at giving you financial aid without getting you in a pickle,” she says.
*All loans through Shopify Capital Loans are issued by WebBank. Offers are subject to change based on several factors including your store’s performance and the review of your financial information. Shopify Capital Loans must be paid in full within 18 months, and two minimum payments apply within the first two six-month periods. Offers to apply do not guarantee funding. Repayments are made based on a percentage of daily sales.
Embedded finance solutions FAQ
What are some examples of embedded finance?
Embedded finance shows up in many of the products and services people use every day, including buy now, pay later (BNPL) financing at checkout, digital wallets, in-app payments, business funding offered through ecommerce platforms, and insurance sold during a purchase.
Is embedded finance the same as open banking?
No. Open banking allows consumers to securely share their financial data with third-party providers, while embedded finance blends financial services into ecommerce platforms for the retailer or customer experience. Open banking can help power embedded finance by safely transmitting financial data.
How is AI used in embedded finance?
AI helps embedded finance providers make faster decisions and deliver more personalized experiences. For example, it can help detect fraud, assess creditworthiness, automate customer support, and identify when a customer or business may benefit from a financial product.
