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Embedded lending: the next big opportunity or a niche play?
The opportunity in embedded lending is largely untapped. Who's going to capture it?
Jevgenijs Kazanins
March 16, 2025 • Estimated Reading Time: 5 minutes
Hey!
I have written a lot about embedded payments, which refers to the integration of payments into software platforms. Companies like Shopify, Toast, and Bill generate billions in revenue from payment processing.
Adyen, in collaboration with Boston Consulting Group, estimated the embedded lending opportunity (as in potential revenue) to be $48 billion. Embedded lending is believed to be an even larger opportunity than embedded payments, and remains largely untapped.
My research suggests that individual lending programs have struggled to capture this opportunity. Despite years of effort, major embedded lending programs like Square Loans and Shopify Capital have captured a small fraction of this opportunity. Perhaps, this opportunity is not that large after all?
Or, perhaps this opportunity won't be captured by individual lending programs, but rather by embedded lending providers that power multiple small programs? Think Stripe Capital for Platforms, Adyen Capital, Parafin, and YouLend.
This is an exciting area! Shall we dive in?
Jevgenijs
p.s. I would like to thank Rhea for helping me with this research. This topic has been on my to-do list for a long time, and would probably stay there if not for her help🙏🏻
p.s.s. if you have feedback just reply to this email or ping me on X/Twitter
Adyen, in collaboration with Boston Consulting Group, estimated the addressable market for embedded finance to be $185 billion. Embedded finance refers to the integration of financial services, such as payments, lending, or banking, directly into a non-financial company's platform (in this particular context, a platform serving SMBs). The TAM for embedded finance represents the total revenue potential that embedded finance providers can generate.
“Four embedded financial products drive significant revenue potential for SaaS platforms in the SMB space: Payments, Capital, Accounts, and Issuing. [ Today ] their combined total addressable market (TAM) stands at $185bn. So far, only $32bn out of $185bn has been captured, leaving 80% of the market up for grabs.
According to the research, as adoption increases, the market is projected to double by 2030, growing at a 10-15% compound annual growth rate. Meanwhile, products like capital, accounts, and issuing are expected to grow even faster, at a 20% annual rate.
Payments has a $47 billion TAM, with $25 billion, or 54%, already captured. However, other segments remain largely untapped: capital ($48 billion TAM) has captured just $3 billion (93% still open), while accounts ($75 billion TAM) and issuing ($15 billion TAM) have each captured only a fraction.
With the highest adoption, payments is now the cornerstone for embedding broader financial products. Although payments still hold considerable untapped potential, an equally large opportunity lies in other financial product categories, where adoption is rapidly accelerating — albeit from a small base. Capital holds major growth potential given persistent unmet funding needs from SMBs.
Shopify $SHOP ( ▼ 4.31% ) is an excellent example of a company that has been masterfully monetizing embedded payments. Thus, in 2024, 74% of the company’s revenue came from the “Merchant Solutions” segment, which primarily generates generates revenue from payment processing.
Image source: Shopify Payments
Shopify’s revenue in 2024 was $8.9 billion, so 74% is $6.6 billion. Even if 80% of “merchant solutions” revenue comes from embedded payments (as per disclosures during Shopify Investor Day) that is $5.3 billion.
“During the year ended December 31, 2024, merchant solutions revenues accounted for 74% of total revenues. We principally generate merchant solutions revenues from payment processing fees and currency conversion fees from Shopify Payments.”
