Embedded Finance: Moving from Hype to Reality

Embedded finance: it's the buzzword du jour, promising seamless integration of financial services into, well, everything. The pitch is compelling: boost customer loyalty, unlock new revenue streams, and future-proof your business. But as a former hedge fund analyst, I've learned to treat any claim of exponential growth with a healthy dose of skepticism. So, let's dive into the numbers and see if embedded finance is truly poised for hyper-growth or just another overhyped tech trend.

The raw projections are certainly eye-catching. One report estimates the global embedded finance market will reach $7.2 trillion by 2030. Another pegs the MENA region alone at $37.7 billion by 2029, a massive leap from $11.2 billion in 2024. Those are big numbers, no doubt. But projections are just that—projections. They rely on assumptions, and as any seasoned investor knows, assumptions can be dangerous. What are the underlying assumptions driving these forecasts? Are they reasonable, or are they based on best-case scenarios?

Digging Deeper: Adoption vs. Actual Use

One area where the data gets murkier is the actual usage of embedded finance solutions. Sure, adoption is up. Vertical SaaS platforms are embedding payments left and right, with "more than half of relevant independent software vendors offering embedded payments in North America in 2025." Okay, great. But are SMEs actually using these embedded payment options more than their traditional banking relationships?

Here's where a discrepancy emerges. While SMEs are increasingly accustomed to integrated payments within their SaaS platforms, they still "look elsewhere for banking solutions." Why? Because, as one report notes, "SME’s relationships with their banks are far stickier than the relationship with their software providers." It's a classic case of inertia. People stick with what they know, even if there's a potentially better option available.

And this is the part of the report that I find genuinely puzzling. The argument for embedded finance hinges on convenience and seamless integration. But if SMEs are still defaulting to their existing banks for core financial services, how much "friction" is actually being removed? Is embedding payments really a game-changer, or just a marginal improvement?

The numbers suggest the latter. Only a "single-digit percentage of merchants consistently use software finance products such as cash advances." Single-digit. That's hardly a revolution. It suggests that while the option is there, the value proposition isn't compelling enough to drive widespread adoption.

The Security Question Mark

Another crucial factor is security. As digital payment volumes explode, so do the risks of fraud and data breaches. Proponents of white-label embedded finance solutions tout their "robust fraud prevention" and "strong compliance frameworks." But are these solutions really more secure than traditional banking systems?

It's a tough question to answer definitively. After all, security is an ongoing arms race. What's secure today might be vulnerable tomorrow. However, the fact that "79% of organizations experienced payments fraud in 2024" suggests that something isn't working. Whether embedded finance solutions are contributing to the problem or simply failing to solve it is unclear, but the high fraud rate is a red flag.

WEX, for example, partnered with Trulioo to enhance security through AI-powered identity verification. That sounds promising, but it also highlights the inherent vulnerability of digital systems. Every new layer of security is an admission that previous layers were insufficient. It's a constant game of catch-up.

The "Coopetition" Narrative: Banks Aren't Going Anywhere

Finally, let's address the elephant in the room: the future of traditional banks. Many articles frame embedded finance as a disruptive force that will render banks obsolete. But the reality is far more nuanced. We're seeing "coopetition"—a blend of competition and collaboration—between banks and fintech companies.

Banks have scale, trust, and capital. Fintechs have agility and innovation. The smartest players are recognizing that they can achieve more by working together than by fighting each other. The $500 million asset-backed securitization financing that Astra Tech's subsidiary, Quantix, secured from Citi is a prime example. (That's a substantial amount for a UAE fintech deal, by the way.) It's a win-win situation: Quantix gets the capital it needs to scale its lending platform, and Citi diversifies its portfolio and taps into the growing embedded finance sector.

The claim that "the financial system of the future won’t be built in banks" is hyperbolic. Banks will remain a vital part of the financial ecosystem, albeit in a potentially evolved form. They'll likely become more like infrastructure providers, powering the embedded finance solutions that are integrated into various platforms. Embedded finance is set to have a major impact worldwide

A Dose of Reality

Embedded finance has the potential to transform how we access and interact with financial services. The market is expected to grow by 9.3% on an annual basis to reach US$646.1 million by 2025. But the hype often outpaces the reality. Adoption is growing, but actual usage remains limited. Security concerns persist. And traditional banks aren't going away anytime soon. So, is embedded finance poised for hyper-growth? Not quite. It's more like steady, incremental growth with a few pockets of explosive innovation. It's important to look at the facts, not just the marketing.

Show Me the Data, Not the Dream

Embedded finance holds real promise, but it's not a guaranteed path to riches. A sober look at the numbers suggests a more nuanced picture, one where adoption is gradual, security risks are ever-present, and traditional players still hold considerable sway.