Embedded finance and banking-as-a-service (BaaS) are often mentioned in the same breath, but they sit on different layers of the same stack. Embedded finance is the experience layer—the financial services that appear inside a nonfinancial app—while BaaS is the infrastructure layer that makes that experience possible. In practice, BaaS powers embedded finance: a bank exposes its core functions through application programming interfaces (APIs) and a business builds those functions into its own product as part of the customer journey.

This shift is already reshaping the industry. The global fintech market was valued at about $264.80 billion in 2025 and is expected to grow to over $1.25 trillion by 2035. Meanwhile, global embedded finance is expected to earn more than $7.00 trillion in revenue by 2030.
Both models eliminate the need to use traditional financial institutions as intermediaries. They’re helping to redefine how people interact with money and which types of businesses are involved in those interactions. But while they work together, embedded finance and BaaS models differ in their methods, technical implementation, and target markets.

Below, we’ll discuss how embedded finance and BaaS differ technologically and how businesses are using them to create an extensive range of financial services for customers and other businesses.

Key takeaways

• Embedded finance and BaaS both rely on APIs to move financial services outside traditional banks, but embedded finance lives on the customer-facing frontend while BaaS provides the backend infrastructure that often powers it.

• The two models carry different regulatory and data profiles: embedded finance typically shares compliance responsibility with a partner financial institution and generates context-specific customer data, while BaaS carries more direct regulatory oversight and yields more general financial data.

• Embedded finance mainly serves everyday customers, gig workers, and small business owners, whereas BaaS is geared more towards fintech companies, small and medium-sized enterprises (SMEs), and underbanked populations that want modular banking solutions.

What is embedded finance?

Embedded finance is the integration of financial services technology into platforms outside the financial sector. Through APIs, these platforms can offer services such as payments, loans, and insurance; this makes financial transactions part of the customer experience.

What is banking-as-a-service?

BaaS is a model in which financial institutions provide access to their core banking functions through APIs. This enables third-party businesses to build their own financial products without needing to become banks. They can create and deploy a wide range of services, including payments, account management, and more complex functions such as lending and risk assessment. BaaS is driving a shift towards more modular and customizable banking experiences, directly affecting how financial services are delivered and consumed.

Key differences between embedded finance and BaaS

Embedded finance and BaaS both rely on APIs and have accelerated the disruption of traditional financial systems, but they differ in regulatory exposure, data outputs, target audiences, and where they operate on the stack.

Embedded finance sits on the frontend, integrating financial features into the customer-facing experience. Meanwhile, BaaS sits on the backend, giving businesses the infrastructure to build those features. Here’s an overview of how the two compare across these dimensions.

Embedded finance

Embedded finance injects financial services into platforms that focus on different activities. Whether the platform’s meant for retail, travel booking, or social media, embedded finance allows it to add banking features such as payments, loans, and insurance. This integration enables customers to complete financial transactions without leaving the familiar platform they’re already using.

For example, a rideshare app can offer its customers loans for trips, which are directly debited from an account linked within the same app. Similarly, an ecommerce platform can offer its sellers business loans or cash advances based on their sales histories, within the same dashboard they already use to run their stores. A food delivery app can take this further by giving its drivers prepaid cards that provide instant access to earnings, without requiring them to ever leave the app.

BaaS

BaaS provides the building blocks for financial services by offering businesses a menu of modular financial features via APIs. You can think of it as banking à la carte, where a third party can choose which banking features to integrate into its platform. This is especially advantageous for fintech startups that want to launch quickly without establishing full-fledged banking infrastructure. (Short for “financial technology,” fintech refers to companies that use technology to deliver financial services.)

For instance, a fintech business could use BaaS to offer its customers the ability to create accounts, transfer money, and invest in the stock market, all through APIs provided by a partner bank. A BaaS provider might offer this kind of infrastructure as a set of prebuilt modules (e.g., account creation, payment processing, card issuance) that a fintech can mix and match depending on which financial features it wants to bring to market.

Which model is responsible for compliance?

The two business models handle regulatory considerations in different ways. Businesses that implement embedded finance often partner with financial institutions to share compliance responsibilities because the primary platform usually lacks expertise in financial regulations.

BaaS, however, usually involves a more direct relationship between the fintech business and its customers because the business functions like a bank to some degree. As a result, businesses that offer BaaS are subject to more regulatory oversight—from bodies such as the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB), and from state banking regulators—as well as licensing requirements, reporting obligations, and requirements for in-house compliance officers.

What kind of data does each model generate?

Embedded finance and BaaS provide different types of data for analysis. Embedded finance typically yields customer behavior insight for a specific activity or sector, such as retail or transportation. Businesses can use this data to refine financial product offerings within that context.

BaaS yields more general financial data given its focus on stand-alone financial services. This data can be incredibly valuable, but it lacks the context-specific insight that embedded finance can offer.

Who are the target markets?

Both models attempt to fill gaps in current market offerings, but each is fine-tuned for different customer needs and preferences. Here’s a brief overview of what types of customers each model primarily targets.

Embedded finance

• General customers: Any person who engages with a customer-focused platform can fall under this category, especially if they value a one-stop shopping experience for diverse needs.

• Gig workers: With on-the-go payment solutions embedded in their work platforms, these workers represent another significant customer group.

• Small business owners: The needs of small business owners, particularly those who operate online shops and need integrated payment or lending solutions, can be met with embedded finance.

BaaS

• Fintech enthusiasts: BaaS often appeals to early adopters who are quick to try new financial products such as challenger banks and robo-advisers.

• SMEs: Businesses that want modular financial solutions without committing to a single banking entity can be a good fit for BaaS.

• Underbanked populations: BaaS can offer easier entry requirements and be more accessible to underbanked populations than traditional financial services.

Embedded finance models mostly target a broad customer base, with a strong focus on convenience and feature-rich experiences. BaaS has a more specialized target audience, including those who are dissatisfied with traditional banking options, require modular solutions, or are underrepresented in traditional financial systems.

Embedded finance extends the functionality of nonfinancial platforms to include financial services, while BaaS enables businesses to quickly offer stand-alone financial services. Both have important roles to play in the future of finance and are actively shaping how services are delivered, who delivers these services, and how customers interact with their finances.

Embedded finance, BaaS, and the rise of agentic commerce

A newer use case is emerging for both embedded finance and BaaS: AI agents that can complete transactions on a person’s behalf, without a traditional checkout flow. As these agents take on more shopping, booking, and account management tasks, the infrastructure behind embedded finance and BaaS is being adapted to let them pay and get paid autonomously—instead of routing every transaction through a human-facing interface.

Two developments in 2026 illustrate this shift. Stripe and Tempo, a blockchain company, introduced the Machine Payments Protocol, an open standard that lets AI agents pay for goods, services, and APIs programmatically, without a checkout user interface. Separately, Google named Stripe as one of the launch partners that’s endorsing its Universal Commerce Protocol, a standard designed to let AI agents discover products, manage carts, and complete purchases across businesses on a shopper’s behalf.

Together, these developments point to a future where embedded finance and BaaS are powering human-facing checkout experiences and giving autonomous agents the financial infrastructure to transact directly.

How Stripe Connect can help

Stripe Connect orchestrates money movement across multiple parties for software platforms and marketplaces. It offers quick onboarding, embedded components, global payouts, and more.

Connect can help you:

• Launch in weeks: Use Stripe-hosted or embedded functionality to go live faster, and avoid the up-front costs and development time usually required for payment facilitation.

• Manage payments at scale: Use tooling and services from Stripe so you don’t have to dedicate extra resources to margin reporting, tax forms, risk, global payment methods, or onboarding compliance.

• Grow globally: Help your users reach more customers worldwide with local payment methods and the ability to easily calculate sales tax, value-added tax (VAT), and goods and services tax (GST).

• Build new lines of revenue: Optimize payment revenue by collecting fees on each transaction. Monetize Stripe’s capabilities by enabling in-person payments, instant payouts, sales tax collection, financing, expense cards, and more on your platform.

Learn more about Stripe Connect, or get started today.

FAQs about embedded finance vs. BaaS