Embedded Finance Becomes a Competitive Equalizer for Small Business

Embedded finance made its mark as a capability advantage for large retailers and digital-native platforms. By streamlining checkout, offering branded payment products and monetizing customer relationships, mid-market and enterprise retailers were able to scale their digital operations and drive a competitive moat.

That narrative held water for years, but as commerce and payments innovation accelerates and embedded finance capabilities become democratized, the traditional framing of embedded finance only being a big deal for big companies is shifting.

Findings in the report “Retailers Expand Embedded Finance to Unlock Control and Customization,” a collaboration between PYMNTS Intelligence and Marqeta, reveal that smaller and mid-sized retailers increasingly see embedded finance as a way to close the gap with larger competitors.

About three-quarters of retailers making under $500 million in annual revenue say embedded finance innovation is more important than other innovation areas over the next year.

For smaller retailers in particular, embedded finance can offer leverage. According to the report, 68% of retailers using embedded finance cite gains in operational efficiency, while more than half say it improves customer journeys and reduces checkout friction. Higher conversion rates, faster speed to market for new products and improved access to customer data all follow.

Why Size Shapes Embedded Finance Strategy

One of the report’s more revealing findings is how retailers now define competitive advantage. While embedded finance is associated with revenue growth and efficiency, its strongest perceived benefits relate to trust: improved customer experiences, reduced churn and greater transparency around payments and financing options.

More than half of surveyed retailers say embedded finance bolsters consumer trust, and nearly the same share say it helps prevent churn. These are not marginal gains. In an environment where consumers routinely switch between payment methods—and increasingly strategize how they pay—trust becomes a differentiator.

Smaller retailers, in particular, benefit from this dynamic. Lacking the brand gravity of national chains or marketplaces, they must earn trust through consistency, clarity and seamless experiences. Embedded finance enables that by making payment choice intuitive, financing transparent and rewards integrated rather than bolted on.

For smaller retailers, embedded finance is not expected to generate immediate margin expansion; it is expected to enable scale, resilience and credibility. In that sense, it functions more like core infrastructure than a standalone profit center.

Read the report: Retailers Expand Embedded Finance to Unlock Control and Customization

Smaller Retailers Are Choosing Partners Over Platforms

Strong regulatory and compliance capabilities top the list across all revenue tiers, followed closely by advanced fraud and risk management. Ease of integration and customization remain important, but they no longer dominate decision-making.

Retailers increasingly expect embedded finance providers to act as extensions of their risk, compliance, and payments teams—streamlining KYC checks, reducing AML friction and simplifying data protection across jurisdictions. Per the report, nearly nine in 10 firms face regulatory challenges, making fraud prevention and risk management top vendor selection criteria.

For smaller retailers without large internal compliance departments, this expectation is especially pronounced. The right partner can effectively serve as a risk buffer, allowing firms to innovate without overextending their internal resources.

At the same time, the bar for success has risen. Embedded finance now demands governance, discipline and long-term thinking. Retailers that treat it as a plug-and-play feature risk exposure; those that treat it as strategic infrastructure stand to gain control, credibility and competitive relevance.

After all, embedded finance does not reduce regulatory exposure; it redistributes it. And managing that exposure requires partners with deep compliance expertise, not just technical capabilities.

For smaller and mid-sized retailers, embedded finance offers a rare opportunity: the chance to compete not by matching size, but by matching sophistication. The technology alone is no longer the differentiator. Execution is.