Embedded Finance Is Coming for Your Best Customers. Here's How to Fight Back.

Last year, Shopify Capital crossed $5 billion in cumulative merchant lending since launch. Apple’s savings account with Goldman Sachs pulled in over $10 billion in deposits within its first four months. Amazon has been quietly offering merchant lending for over a decade, pushing past $9 billion in total loans.

None of these companies have bank charters. None of them want one. And none of them need to walk into your lobby to take your best customers.

This is embedded finance – financial products delivered inside non-financial platforms, at the exact moment a customer needs them. It is the most significant structural threat to community banking since the megabank consolidation wave of the 1990s. And most community bankers are not treating it that way.

What Embedded Finance Actually Is

The term gets thrown around loosely, so let’s be precise. Embedded finance is the integration of banking, lending, insurance, or payments into software platforms that are not, themselves, financial institutions. The banking happens inside the experience the customer is already using – shopping, invoicing, managing payroll, running a storefront.

Bain & Company estimated the embedded finance market at roughly $2.6 trillion in transaction value in 2021, with projections reaching $7 trillion by 2026. McKinsey has put embedded finance revenue pools at $92 billion by 2030, roughly a 25% compound annual growth rate. These are not speculative numbers from fintech boosters. These are from the most conservative strategy firms in the business.

The reason the numbers are so large is simple: embedded finance removes friction. A Shopify merchant who needs working capital doesn’t want to fill out a loan application at a bank. They want a pre-approved offer inside their dashboard, funded in 48 hours, repaid automatically from sales. That is what Shopify Capital delivers. And it works because Shopify already has the transaction data, the customer relationship, and the moment of need.

Community banks are not losing these customers in a head-to-head product comparison. They are losing them because the comparison never happens. The banking product shows up inside the platform, and the customer never even considers going to a bank. why customer acquisition costs are rising for community banks

The BaaS Layer That Makes It Possible

Behind every embedded finance product is a Banking-as-a-Service provider – the infrastructure layer that lets non-banks offer regulated financial products. Companies like Unit, Treasury Prime, Synapse (before its collapse), and Column provide the APIs, compliance frameworks, and charter access that platforms need.

Here is the part that should concern community bankers: many BaaS providers are built on top of community bank charters. The community banking system is, in some cases, literally powering its own disruption. Banks like Evolve Bank & Trust, Celtic Bank, and Cross River have built significant BaaS businesses by renting their charters to fintechs and platforms.

This creates a strange dynamic. Some community banks are profiting from BaaS partnerships while the broader community banking model gets undercut by the embedded products those partnerships enable. The fee income is real. But the strategic cost – training your customers’ customers to bank without you – is harder to see on a balance sheet.

The Synapse bankruptcy in 2024 exposed the fragility of some of these arrangements, leaving thousands of end-users locked out of funds and regulators asking hard questions about oversight. The OCC and FDIC have both signaled increased scrutiny of bank-fintech partnerships. Cornerstone Advisors found that roughly 12% of community banks and credit unions had active BaaS partnerships by 2024, but that number was declining as compliance costs and regulatory risk became clearer. BaaS regulatory risk and community banking

Who Is Actually Taking Your Customers

Let’s name names, because the threat is not abstract.

Shopify

Shopify offers lending (Shopify Capital), payments (Shopify Payments), checking accounts (Shopify Balance), and installment plans (Shop Pay Installments). Their merchant base is over two million businesses. Every one of those merchants used to need a bank for these services. Many still have a bank relationship – but the high-margin products are migrating to the platform.

Apple

Apple Card. Apple Pay. Apple Savings. Apple Pay Later (though the latter was wound down, the infrastructure remains). Apple has 1.4 billion active devices worldwide and a track record of entering markets slowly, then dominating them. Their savings product offered a 4.15% APY at launch in 2023 – a rate most community banks could not match without destroying their margins.

Amazon

Amazon Lending has served hundreds of thousands of small business sellers. Amazon also offers co-branded credit cards through Chase, a merchant checkout financing product, and an insurance marketplace. Their advantage is the same as Shopify’s: they own the transaction data and the customer relationship.

Vertical SaaS Platforms

This is where the threat gets granular. Toast (restaurants), ServiceTitan (home services), Mindbody (fitness), and dozens of other vertical software platforms are embedding payments, lending, and payroll into their tools. These platforms serve exactly the kind of small business customers that community banks have historically owned. And they are capturing financial wallet share one feature at a time.

The pattern is consistent: a platform builds a non-financial product, gains distribution, then layers in financial services because the unit economics are irresistible. Payments and lending become margin enhancers for the software business. The bank relationship gets hollowed out from the inside. vertical SaaS and the unbundling of small business banking

Why “We Have Relationships” Is Not a Strategy

The default community bank response to competitive threats has always been the same: we have relationships. Our customers know us. They trust us.

That was a viable defense when the threat came from megabanks with impersonal service. It is not viable when the threat comes from a platform that already has a deeper, more frequent relationship with the customer than you do.

A Shopify merchant logs into their dashboard every day. They check sales, manage inventory, fulfill orders. The banking features are right there in the sidebar. They talk to their community banker maybe once a quarter, if that.

Frequency of contact is the new competitive moat. And in embedded finance, the platform wins that metric by default, because it owns the daily workflow. The bank is a utility – necessary but invisible, like plumbing.

Relationship banking still matters. But it has to be rebuilt around the actual cadence of how small businesses operate today, not the cadence that worked in 2005.

The Community Bank Response Playbook

This is not a “sit back and wait” situation. Here is what a credible response looks like.

1. Own Your Niche Before a Platform Does

Embedded finance works because platforms know their vertical. Community banks should pick theirs. If you are in an agricultural community, you should be the most technologically capable ag lender within a hundred miles – with digital applications, satellite-data underwriting, and operating lines that flex with commodity prices.

If your market is small-town retail and restaurants, build a lending process so fast and so specific to those borrowers that Toast Capital looks generic by comparison.

The banks that survive embedded finance will be the ones that go deeper into specific customer segments rather than trying to serve everyone with the same general-purpose toolkit. niche banking strategies for community banks

2. Build or Buy Your Own Embedded Layer

Some community banks are flipping the embedded finance model by partnering with the platforms their customers use. Instead of waiting for Shopify to replace you, integrate with Shopify so your lending products show up inside the merchant’s dashboard.

This is technically feasible today through open banking APIs and platforms like Plaid, MX, and Finicity. It requires investment. It requires rethinking your technology stack. But it is the single highest-leverage move a community bank can make: meet your customers inside the tools they already use, rather than asking them to come to you.

Several core providers – including Jack Henry (Banno), Finastra, and nCino – are building partnership layers that make this more accessible for banks under $5 billion in assets. The window to act is now, before these platforms finalize their default financial partners.

3. Use Your Data Advantage

Here is something community bankers often forget: you have data that platforms do not. You see both sides of a customer’s financial life – deposits, lending, cash flow patterns, personal and business accounts. Shopify sees transaction volume. You see the full picture.

Use that. Build advisory services that leverage holistic financial data. Offer cash flow forecasting, working capital planning, and proactive lending offers based on what you can see in deposit trends. This is the community bank version of embedded finance – embedding your expertise into your customer’s financial life, not just waiting for them to ask.

4. Stop Competing on Rate. Compete on Speed and Experience.

Apple offered 4.15% on savings. You probably cannot match that profitably. Do not try.

Instead, compete where platforms are weakest: speed of decisioning on commercial loans, flexibility on terms, human judgment for edge cases, and the ability to say yes when an algorithm says no. A Shopify Capital offer is fast, but it is rigid. The terms are fixed. There is no negotiation. There is no lender who understands that your seasonal business always has a slow Q1.

That flexibility is a product. Price it, market it, and deliver it faster than you do today.

5. Get Loud About What Embedded Finance Cannot Do

Embedded finance products are transactional by design. They cannot advise. They cannot sit across a table and help a business owner think through a succession plan. They cannot structure a complex commercial real estate deal. They cannot sponsor the chamber of commerce dinner and then follow up with three referrals.

These are real, valuable services. But you have to make them visible. Most community banks deliver extraordinary value and then never tell anyone about it. In a market where platforms are aggressively marketing commoditized financial products, invisibility is a death sentence. marketing strategies for community banks in a digital-first market

The Strategic Choice

Community banks face a fork. One path leads to slow irrelevance – watching platform after platform absorb financial services into their software, nibbling away at lending, payments, and deposits until the bank is a balance sheet with no customer franchise. The other path requires investment, strategic focus, and a willingness to change how banking is delivered without changing what makes community banking valuable.

Embedded finance is not a fad. It is a structural shift in where and how financial products are consumed. The BaaS infrastructure is built. The platforms have distribution. The customer expectations are already set.

The community banks that will thrive in this environment are not the ones that pretend the threat does not exist, and not the ones that try to become technology companies. They are the ones that take their deepest advantages – local knowledge, relationship depth, regulatory standing, and full-balance-sheet visibility – and deliver them in the channels and cadences that modern businesses actually use.

The platform giants do not want to be banks. They want the revenue that flows through banks. Your job is to make sure that revenue still flows through you.