Why Embedded Finance is a Must-Have for Marketplaces

This article examines why built-in financial tools became critical for trading platforms, what challenges they solve, and how they affect key business metrics.

From Simple Payments to Financial Ecosystems

User expectations have shot up. They want instant settlements, flexible payment terms, purchase insurance, and even investment options without leaving the platform. As a crypto solution provider, LetsExchange develops solutions that allow marketplaces to integrate cryptocurrency payments, exchanges, and digital asset storage without building their own infrastructure.

Marketplaces always struggled with friction in the buying process. Each extra step between clicking "buy" and completing a transaction drops conversion by 15-20% on average. When Shopify launched Shopify Balance in 2020 – a banking account for sellers – it seemed bold. Within a year, over 200,000 merchants used it. People value convenience above everything else.

Stripe Capital, a lending program for businesses on Stripe, has issued over $3 billion in loans since launch. The average loan is just $30,000, but the speed matters – from application to funds takes under 24 hours. Traditional banks need weeks.

Uber didn't just add card payments. The company created Uber Money, giving drivers debit cards, instant cash-out options, and cashback on fuel. Driver retention jumped 23% in the first year.

Monetizing Data Through Financial Products

Marketplaces own something traditional financial institutions envy – detailed transaction behavior data. Amazon knows not just what people buy, but when, how often, whether they return items, how quickly they decide. This data beats any credit report.

Klarna uses exactly this approach for creditworthiness assessment. Instead of traditional credit scoring, the company analyzes over 1,000 parameters of buyer behavior on partner platforms. This approves applications even for those without credit history – students, young professionals, migrants. Default rates stay below 2%, better than traditional banks.

Etsy launched Etsy Payments Pattern Card – a debit card for sellers with automatic fund allocation. The platform analyzes sales history, seasonality, average checks, and recommends how much to keep for operations, set aside for taxes, or withdraw for personal use. About 40% of sellers started using this feature in the first month.

Cryptocurrencies as Part of Financial Infrastructure

Integrating crypto payments stopped being exotic. According to Deloitte, 75% of retailers plan to accept cryptocurrencies within two years. The reason is simple: younger audiences who own digital assets actively look for ways to use them daily.

StockX, a marketplace for sneakers and collectibles, integrated Bitcoin and Ethereum payments through Coinbase Commerce partnership. The average check from crypto-paying customers was 37% higher than the platform average. Not random – crypto asset owners typically belong to the early adopter segment with higher income.

The real value isn't in accepting payments. It's creating a closed loop. Imagine a freelance marketplace where contractors receive payment in USDC (dollar-pegged stablecoin), keep some for international transactions, exchange part for Bitcoin through a built-in service, and convert part to local currency. Everything happens on-platform with minimal fees and maximum speed. Services like https://letsexchange.io make such seamless crypto-to-crypto exchanges possible without users navigating multiple platforms.

Comparing Traditional and Embedded Financial Solutions

Regulatory Challenges and Solutions

The biggest concern for marketplaces implementing embedded finance is regulation. Financial services face strict regulatory control, licensing costs millions, and compliance requires separate departments.

The solution comes through partnerships with licensed financial institutions. The Banking-as-a-Service model lets marketplaces offer financial services under their own brand using a partner's license. Revolut, Wise, Chime – all these companies initially worked this way.

Grab, a Southeast Asian super-app, got its digital banking license only in 2020, though it launched financial services in 2016. Four years the company worked through partnerships with traditional banks, built credit history, collected data, refined algorithms. When time came for its own license, regulators saw a successful track record.

PSD2 in Europe, Open Banking in the UK, similar initiatives in Australia and Brazil – the global trend moves toward financial data openness. This creates additional opportunities for marketplaces to integrate third-party financial services through APIs without becoming regulated institutions.

Impact on Key Business Metrics

McKinsey's embedded finance report shows impressive numbers. Platforms that integrated built-in financial services demonstrate:

• GMV (Gross Merchandise Value) growth of 15-30% through increased purchase frequency and average check
• Retention rate increase of 20-40%, as users with platform financial services are less likely to switch to competitors
• Lifetime value (LTV) growth of 2-3x through cross-selling and upselling financial products
• Customer acquisition cost (CAC) reduction of 10-25%, as satisfied users more actively bring new ones through recommendations

Affirm, a buy-now-pay-later platform, went public with over $8 billion capitalization. Their core value isn't lending itself, but boosting partner conversion. Stores that integrated Affirm see 20-30% conversion growth and 60-80% average check increases. People buy pricier items when they see options to split payments over months without interest.

Technology Infrastructure as Competitive Advantage

Building a proprietary financial solution from scratch costs $5 to $50 million depending on complexity. Time to launch – 18 to 36 months. For most marketplaces, these resources are unrealistic, especially considering risks and regulatory barriers.

That's why the infrastructure-as-a-service market for fintech shows exponential growth. Marqeta provides APIs for issuing virtual and physical cards, Plaid for connecting bank accounts, Modern Treasury for managing money movement. Marketplaces can assemble unique financial solutions from ready components in 3-6 months instead of years of development.

DoorDash uses exactly this approach. The platform integrated Stripe for payments, Marqeta for courier cards, Branch for instant driver payouts. Total integration time took under four months. Building this independently would need at least two years and a 50+ specialist team.

Personalizing Financial Products

Embedded finance's uniqueness lies in creating financial products perfectly fitted to specific niches. Traditional banks offer universal solutions – credit cards, consumer loans, deposits. Marketplaces can do much better.

Faire, a B2B marketplace for independent retailers, launched a financing program where shops can order goods with 60-day payment deferral. Lending terms depend not on owner credit history, but on platform sales dynamics, product categories, seasonality. The algorithm sees a shop preparing for Christmas, ordering popular items, and automatically offers better financing terms.

Turo, a car rental marketplace, created its own insurance program through Liberty Mutual partnership. Insurance cost is calculated individually for each trip based on hundreds of parameters: car brand, driver experience, route, weather conditions, previous rental history. Traditional insurance companies physically can't provide such personalization.

Globalization Through Financial Tools

International marketplaces face payment system fragmentation problems. What's popular in the US doesn't work in India. European payment methods differ from Asian ones. Embedded finance creates a universal experience for users from different countries.

Airbnb accepts payments in 191 countries and supports over 60 currencies. The platform doesn't just convert money at market rates – it accounts for local features. In Japan, convenience store payments are popular, in the Netherlands – iDEAL, in Brazil – boleto bancário. For hosts, Airbnb automatically optimizes payouts, minimizing currency losses and tax consequences.

Payoneer specializes in global marketplace payouts. A freelancer from Poland can receive payment from a US client to a virtual dollar account, convert part to euros for European platform purchases, and withdraw part in zloty to a local bank account. Everything in one interface with transparent fees.

The Future: From Transactions to Financial Planning

The next embedded finance development stage shifts from reactive services to proactive financial management. Marketplaces will stop just processing payments and start helping users make better financial decisions.

Imagine an Etsy seller getting recommendations: "Based on your last year's sales, set aside $3,200 for taxes by April 15. Also noticed growing demand for your products – maybe take a short-term $5,000 loan to increase material inventory before peak season." Not fantasy – similar tools are already being tested by leading platforms.

Robinhood, though not a classic marketplace, demonstrates an interesting approach. The platform analyzes user spending on debit cards and automatically invests rounded amounts in stocks or crypto. Spent $3.50 on coffee – the platform charges $4 and invests 50 cents. Seems small, but average users accumulate over $400 in investments this way annually.

DeFi (decentralized finance) integration opens additional possibilities. A marketplace seller could automatically place idle funds in liquidity pools, earning extra income on crypto assets, or use tokenized inventory as collateral for loans. Technically this already works, mass adoption and regulation remain questions.

Key Implementation Steps

Marketplaces considering embedded financial service integration should account for these points:

Technical aspects:

• Audit existing payment infrastructure and identify weak spots
• Choose reliable Banking-as-a-Service partners with necessary licenses in relevant jurisdictions
• Ensure complete financial operation transparency for users and easy transaction tracking
• Invest in anti-fraud systems and KYC/AML procedures from the start, not postponing

Strategic decisions:

• Start with most demanded services – usually fast payouts and flexible payment terms
• Test hypotheses on limited audience segments before mass launch
• Create a separate team for financial products, tightly integrated with the core product
• Regularly collect user feedback and quickly adapt offerings to real needs
• Consider integration with global financial networks for geographic expansion

Embedded finance isn't a one-time project but a continuous product evolution process. Successful platforms launch basic functionality within 6-9 months, then iteratively add new capabilities based on usage data.

Challenges Nobody Mentions

Despite all advantages, embedded finance carries certain risks. Operational complexity grows by orders of magnitude. Suddenly marketplaces are responsible not just for product delivery, but money movement, compliance, fraud protection. One major data breach incident or regulator problem can destroy years-built reputation.

Third-party dependencies also create vulnerabilities. When Stripe had a three-hour outage in 2021, thousands of marketplaces lost payment processing ability. Some companies started diversifying risks by integrating multiple payment infrastructure providers simultaneously.

Legal issues deserve thorough examination. In some jurisdictions, providing financial services automatically reclassifies companies as financial institutions with all consequences – capital requirements, regular audits, activity restrictions. Consultations with specialized lawyers are critically important.

Embedded Finance: The New Marketplace Standard

Embedded finance transformed marketplaces from simple trading platforms into comprehensive business ecosystems. Sellers get capital access, buyers get flexible payment terms, and platforms gain new revenue sources and deeper user integration. Companies ignoring this trend risk losing competitive positions within years.

The question isn't whether to integrate financial services, but how to do it right. Choosing reliable partners, gradual launch with hypothesis testing, attention to regulatory requirements, and focus on real user needs – that's the success recipe. Marketplaces that organically weave financial tools into user experience will create long-term barriers to competitor entry and solid foundations for growth.