Embedded finance and digital wallets are no longer fringe features – they are now fundamental to how consumers shop, borrow, and engage with brands. For financial institutions and merchant acquirers, this is more than a technology shift. It’s a strategic inflection point that presents both risk and reward.
Demand for flexible finance is growing – but so too is demand for solutions that are secure, fully regulated, and seamlessly integrated. Our collaboration with Visa on the recent ‘Payments Disrupted’ forum made one thing clear: embedded lending is no longer viewed as a consumer gimmick. It’s becoming an infrastructure-level decision for large and mid-market merchants.
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Those who adapt can unlock entirely new revenue channels and customer relationships. Those who don’t may find themselves left behind by digital wallet and embedded alternatives that offer greater convenience or stronger brand alignment. In fact, 45% of UK adults are comfortable leaving the house without a physical wallet or payment card thanks to the existence of digital wallets such as Apple Pay or Google Pay, according to research by finder.com. Additionally, data from UK Finance shows that 32% of adults are now using mobile payments.
How banks can regain ground in the embedded finance era
For traditional banks and regulated players, the opportunity lies in delivering embedded finance with all the reassurance, compliance, and control that enterprise merchants now expect. This is especially relevant as regulators across the UK and EU take a sharper look at Consumer Duty, credit risk, and digital consent flows. Embedded finance – when offered responsibly – is a way for banks to evolve with the market while keeping the trust that fintechs are still earning.
From retailers to hospitality groups, enterprise merchants now want to offer point-of-sale finance and digital wallet options that are deeply aligned with brand values, risk appetite, and customer journeys. That means banks and acquirers need to move from being processors to being orchestrators – creating frameworks that allow merchants to retain control over data, loyalty, and post-sale engagement.
One of the most important takeaways from our work in this space is the need for orchestration, not just aggregation. Too often, merchants are left integrating half a dozen fintech APIs with little coordination or compliance cover. Our approach is to offer embedded finance infrastructure that integrates lending, payment routing, dispute management, and fraud protection – all inside a regulated wrapper.
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By GlobalDataTake digital wallets as a case in point. Wallets like Apple Pay and Google Pay have become behavioural defaults – not just payment tools. For merchants, accepting wallets is no longer optional. But ensuring those wallets connect seamlessly to loyalty programmes, fraud checks, and data insights – that’s where regulated partners can make the difference.
Risk, trust and regulation: Where banks still have the edge
More importantly, when embedded finance is tied to loyalty or instalment offers, merchants want assurance. They want to know their customers won’t face unexpected costs. They want approval logic that’s explainable, and settlement flows that are predictable. That’s where banks can bring an advantage: embedding risk control and regulatory compliance without slowing down the user experience.
As embedded finance gains ground, we’re also seeing demand for tighter data stewardship. Merchants are asking: who owns the customer insight? Who controls the credit risk model? Who gets to personalise the next offer? In our model, the merchant remains in control. We believe banks should act as enablers – not extractors.
Critically, embedded finance must also evolve within a strong governance environment. With Consumer Duty coming into sharper focus and scrutiny increasing around deferred payment models, banks are uniquely placed to offer finance that’s not only functional but also fair. That’s what merchants need from their payment solutions – real-time affordability logic, transparent disclosures, and live support to assist with any merchant or customer concerns.
This year, we’ve seen particular momentum among enterprise retailers who are exploring how embedded lending can work within omnichannel journeys. From offering pre-approved instalment plans to returning loyalty customers, to enabling one-click top-ups during peak sales events – the direction of travel is clear. Flexibility must be smart. Finance must be fair. And payments must move as fast as customers do.
The competitive advantage for banks lies in combining trust with innovation. Fintechs are fast, but banks have longevity. When those two forces meet in the right way, the result is embedded finance that scales with confidence.
At Lloyds Merchant Services, we see this shift playing out across our 35,000+ merchant relationships. We’re also seeing that the best implementations happen when technology and relationship teams work together. Our merchant onboarding doesn’t just involve APIs and terminals. It involves education, co-designed flows, and escalation routes that reflect the operational realities of enterprise merchants.
That philosophy is guiding our embedded finance roadmap. Whether it’s FlexPay – our point-of-sale finance solution – or broader digital wallet integrations, we focus on preserving merchant ownership while offering institutional-grade infrastructure. We collaborate with partners like FreedomPay and Fiserv to ensure that merchants of all sizes can access advanced payment tools without losing control or visibility.
From processing to partnering: The next move for financial institutions
That’s what embedded finance should be about. Not just pushing a product but enabling a better commercial experience – one that creates value for both merchant and end customer. Banks have an opportunity to lead here. But it means thinking beyond channels and cards, and toward journeys and outcomes.
As regulators move, as fintechs scale, and as customers demand more seamless, flexible, and meaningful experiences, we believe the future of embedded finance belongs to those who can combine trust, speed, and intelligence – without compromise.
That’s what we’re building at Lloyds Merchant Services. And that’s why the next chapter of payments will be written not just by disruptors, but by those who know how to partner well.
Ross Taylor is MD, Sales, Operations and Portfolio Management, Lloyds Merchant Services
