For decades, banks have had a strong moat, built around customer relationships, regulatory priviliges, and distribution network. But that moat has been breached by 2025.
This year, embedded finance became mainstream, integrating payment, lending and insurance directly onto non-financial platform. It shifted the value-creation away from the banks to tech platforms.
McKinsey’s latest report noted that “embedded financial services are no longer peripheral. They have become the standard way for consumers and business to access financial service.”
The growth of embedded financial platforms
In 2025, embedded finance will be widely adopted across all industries. Banking becomes an “invisible utility”.
Apple Pay Later was the most obvious example of this shift in consumer behavior.
In mid-2025 the company integrated Klarna into the Apple Pay interface and millions of people were able to bypass the credit card application processes.
Apple has evolved from a simple phone manufacturer to a leader in the frictionless credit industry. Amazon, a rival, has deepened their partnership with Affirm and now offers instant credit for buy-now, pay-later at the checkout.
Shopify’s embedded lending program, launched earlier this year and offering credit lines to small businesses directly on its platform was another striking example. UBER, meanwhile, integrated microinsurance for its drivers as well as flexible payment methods, bypassing traditional bank channels.
These developments show how embedded finance has captured the value chain for customers, and relegated banks to being back-end providers of infrastructure.
Accenture projects that embedded finance revenue globally will exceed $300 billion at the end of the decade. The inflexion point is 2025.
Financial services are becoming more popular among consumers who prefer to have them delivered within their existing apps.
Gary Schlossberg, Wells Fargo:
Convenience and integration are chipping away at the moats banks depended on, namely regulatory barriers and inertia of customers. The infrastructure is not important to consumers; what matters most are seamless experiences.
Earnings are already showing the pressure on bank’s moat
Earnings of traditional banks show the rise in embedded finance. JPMorgan, based in New York City, for instance posted a muted increase in the margin on consumer loans this year due to fintech partners cutting into origination charges.
Small and Medium Enterprises (SME) have experienced the most rapid erosion of traditional bank moats.
In the past, banks had a monopoly over SME lending because they controlled all transactional data. By 2025, this data advantage will be dominated by “Operating Systems”, like Shopify.
Shopify has become a financial hub with the recent addition of Shopify Balance and Shopify Capital (often powered behind the scenes by partners such as YouLend).
Shopify offers credit lines based on a daily percentage of sales.
Riccardo Collnaghi is a prominent industry analyst who explained this in 2025.
Accounting platforms and marketplaces can now own their entire financial workflow. They are no longer just replaceable tools, but instead become SME operating system.
What legacy banks have done to respond
But not all banks have lost. Those that accepted to lose their moats are the winners.
BBVA was named “Best Bank for Embedded Finance”, this year, because it leaned on the erosion.
Instead of fighting to retain users, they have opened APIs that allow partners such as Uber and other retail giants to “rent” the balance sheet and licenses.
The new strategy for survival is to adopt the Banking-as a Service (BaaS).
HSBC also followed a similar route with “Omni Collect”, and its “Merchant Box”.
This giant is actively helping brands such as Lalamove, RENPHO and Lalamove to digitalise the collection process.
HSBC, rather than being a gatekeeper or intermediary, is now a facilitator. This allows funds to be transferred directly and in real time from online marketplaces such as Amazon, into HSBC managed accounts, bypassing third rd parties.
Tariq bin Hendi has written for the World Economic Forum and argued that:
The question of whether or not traditional financial institutions can adapt to embedded finance is now irrelevant. It’s about how fast they can.
JPMorgan Chase made a huge leap in partnering up with Walmart to accelerate payments to Marketplace merchants. The bank did not force sellers to go into branches, but instead embedded their ledgers and payment rails 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.
Fintech examples that have hijacked banks’ moat
The following are examples of how embedded finance could be used to undermine traditional banks in 2025:
- Stripe Treasure has expanded the embedded banking service, which allows platforms to provide checking accounts and debit cards without having to visit a branch.
- Square has integrated payroll and lending services within its merchant ecosystem. This reduces the reliance of traditional banks.
- Revolut has launched insurance embedded products via partnerships. It offers coverage within its app.
Platforms like Wise, formerly TransferWise and Payoneer are no longer just about simple transfers. They have evolved into the “infrastructures of choice” among global business.
Wise powers international payments in dozens of legacy platforms and banks, showing that banks are also outsourcing core competences to fintechs.
In a recent report, Elina Mattila said that embedded finance represents a major shift from the traditional role of banks to become enablers for customers in their everyday digital journeys.
The market statistics are staggering. The global embedded finance market is expected to reach $148 billion by the end of the year. Transaction volume will also surpass $7 trillion.
The need for a user to log in to a bank app is gone when a customer can divide a payment during checkout or a driver can instantly “cash out”.
WGA Advisors states that embedded finance “reshapes the customer’s expectations and competitive dynamics forcing banks to adjust to stay relevant.”
The regulators are finally catching up to embedded finance
In 2025, embedded financing became synonymous with Buy-now and Pay-Later (BNPL).
This year, Klarna and Affirm have been integrated into the retail checkouts, gaining consumer credit relationships from banks that once dominated.
Klarna estimates that over 100 millions consumers worldwide will use its embedded BNPL service by 2025.
The banks lost the ability to sell credit cards, personal loans and transaction fees due to a sharp increase in transactions.
The regulators have also begun to recognize the change.
In mid-2025, the European Central Bank will issue guidance regarding embedded finance partnerships with a focus on consumer protection and systemic risks.
The Office of the Comptroller of the Currency in the US has launched consultations to help banks manage embedded third party finance risks.
Chris Skinner’s fintech commentary is a good example.
The banks are not the gatekeepers for finance anymore. Platforms are the customers, while pipes and utilities ensure compliance.
Integration is the new word for moat
Integration and speed are the key elements of the “moat” in 2025.
The customer now values “time to money” more than “brand of bank.”
Looking ahead to 2026, traditional banks will only survive if they realize that their customers are not the main character in their story.
These are the people who provide the backbone of platforms, the regulatory and liquidity support.
It hasn’t vanished – just moved. The moat no longer surrounds a bank, but the digital life of the client.
The post This post Look back at 2025: embedded finance has eroded the traditional bank’s moat will be updated as new information becomes available
