Photo by Andrea De Santis on Unsplash
 

Banks have enjoyed a formidable moat built on customer relationships, regulatory privilege, and distribution networks for decades. – but that moat was breached in 2025.

Embedded finance, the integration of payment, lending, insurance, and investing directly into non-financial platforms, became mainstream this year – shifting the locus of value creation away from banks and toward tech platforms.

As McKinsey noted in its latest report, “embedded finance is no longer peripheral; it is becoming the default way consumers and businesses access financial services.” 
 

The rise of embedded finance platforms

The year 2025 saw explosive growth in the overall adoption of embedded finance across industries, turning banking into an “invisible” utility.

This shift was most visible in the consumer space with Apple Pay Later.

By mid-2025, the giant integrated Klarna directly into its Apple Pay interface, effectively bypassing the traditional credit card application process for millions.

Apple isn’t just a phone maker anymore; it is the orchestrator of the world’s most frictionless credit ecosystem. Meanwhile, rival Amazon deepened its partnership with Affirm, offering instant buy-now-pay-later (BNPL) credit at checkout.

Another striking example came from Shopify, which expanded its embedded lending programme earlier this year, offering small businesses credit lines directly through its platform, while UBER integrated micro-insurance and flexible payment options for drivers, bypassing conventional bank channels.

Together, these developments highlight how embedded finance captured the customer-facing value chain, relegating banks to back-end infrastructure providers.

According to Accenture, embedded finance revenues globally are projected to exceed $300 billion by the end of this decade, with 2025 marking the inflexion point.

Consumers are increasingly preferring financial services delivered seamlessly within the apps they already use.

As Gary Schlossberg of Wells Fargo put it:

The moat banks relied on – regulatory barriers and customer inertia – are being chipped away by convenience and integration. Consumers don’t care who provides the infrastructure; they care about seamless experiences.

Pressure on banks’ moat is already showing in earnings

The rise of embedded finance is already visible in traditional banks’ earnings. NY-based JPMorgan – for example – posted muted growth in consumer lending margin this year as fintech partners cut into origination fees.

The most aggressive erosion of the traditional banking moat has occurred in the Small and Medium Enterprise (SME) sector.

Historically, banks held a monopoly on SME credit because they held the transaction data. In 2025, that data advantage has shifted to “Operating Systems” like Shopify.

The recent expansion of “Shopify Balance” and “Shopify Capital” (often powered by behind-the-scenes partners like YouLend) has turned the platform into a full-stack financial hub.

Merchants no longer wait weeks for a bank loan; Shopify uses real-time sales data to offer credit lines that are repaid as a percentage of daily sales.

Riccardo Colnaghi, a leading industry analyst, explained it in late 2025:

Embedded banking lets accounting platforms and marketplaces own the full financial workflow, turning them from replaceable tools into SME operating systems.

How legacy banks are responding

Not all traditional banks are losing, though – but the ones winning are those that have accepted the destruction of their own moat.

BBVA, for example, was named the “Best Bank for Embedded Finance” this year – because they leaned into the erosion.

Rather than fighting to keep users on their own app, they opened APIs to let partners like Uber and various retail giants “rent” their balance sheet and regulatory license.

This Banking-as-a-Service (BaaS) model is the new survival strategy.

HSBC followed a similar path as well with its “Omni Collect” and “Merchant Box” solutions.

The giant has been actively helping global brands like Lalamove and RENPHO digitise their collection process.

Rather than acting as a gatekeeper, HSBC is now a facilitator, allowing funds to flow directly from marketplaces like Amazon into HSBC-managed accounts in real-time – effectively bypassing 3^rd party intermediaries.

Tariq Bin Hendi, writing for the World Economic Forum, argued:

As embedded finance continues its rapid ascent, the question is no longer whether traditional financial institutions should adapt –  but how quickly they can.

Even JPM took a massive leap by partnering with “Walmart” to speed up payments to marketplace merchants. Instead of forcing sellers into a branch, the bank embedded its ledger and payment rails directly into Walmart’s seller portal.

At its 2025 Investor Day, the legacy giant said nearly $18 billion in payments revenue was flowing through integrated platform clients, a confirmation that its future is as a “Banking-as-a-Service” powerhouse.
 

Examples of fintech hijacking banks’ moat

Other examples of embedded finance hijacking traditional banks’ moat in 2025 include:

• Stripe Treasury expanded its embedded banking services, allowing platforms to offer checking accounts and debit cards without a bank branch.
• Square (Block) integrated lending and payroll services into its merchant ecosystem, further reducing reliance on traditional banks.
• Revolut launched embedded insurance products through partnerships, offering coverage directly inside its app.

Similarly, platforms like Wise (formerly TransferWise) and Payoneer have moved beyond simple transfers to becoming the “infrastructure of choice” for global businesses.

Wise now powers international payments for dozens of legacy banks and platforms, proving that even the banks themselves are outsourcing their core competencies to more agile fintechs.

“Embedded finance marks a fundamental shift, from banks as destinations to enablers of customers’ everyday digital journeys,” said Elina Mattila, executive director at Mobey Forum in a report.

This shift is reflected in the staggering market data. By the end of this year, the global embedded finance market will have reached an estimated $148 billion, with transaction volume through these channels crossing the $7 trillion milestone.

When a consumer can split a payment at checkout, or drivers can “cash out” their earnings instantly to an UBER Money wallet, the need to ever log into a traditional bank app disappears.

According to WGA Advisors: “embedded finance reshapes customer expectations and competitive dynamics, forcing banks to adapt to remain relevant.”
 

Regulators are catching up with embedded finance

Buy-now-pay-later (BNPL) became the poster child for embedded finance in 2025.

Names like Klarna, Affirm, and Afterpay have integrated directly into retail checkouts this year, winning consumer credit relationships that banks once dominated.

Klarna says over 100 million consumers globally used its embedded BNPL services in 2025.

A sharp year-over-year increase that made banks lose not only transaction fees, but also the ability to cross-sell credit cards and personal loans.

Regulators have started recognising the shift as well.

The European Central Bank (ECB) in mid-2025 issued guidance on embedded finance partnerships, emphasising consumer protection and systemic risk.

In the US, the Office of the Comptroller of the Currency (OCC) introduced consultations on how banks should manage third-party embedded finance risks.

As Chris Skinner, fintech commentator, put it –

Banks are no longer the gatekeepers of finance. They are pipes, regulated utilities ensuring compliance while platforms own the customer.

The new moat is integration

The “moat” of 2025 is no longer about physical presence or historical data; it is about integration and speed.

Customers now value “time-to-money” over “brand-of-bank.”

As we look toward 2026, the traditional banks that will survive are those that realise they are no longer the “main character” in the customer’s story.

They are the supporting cast – providing the liquidity and regulatory backbone for the platforms that people actually love.

The moat hasn’t disappeared – it’s just been moved. It no longer surrounds the bank; it surrounds the customer’s digital life.

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