In Through the Looking-Glass, Lewis Carroll’s Red Queen tells Alice: “It takes all the running you can do, to keep in the same place.”
This idea — now widely known as the Red Queen hypothesis — isn’t just a quirky literary moment. It’s a powerful principle that applies across business, technology, and strategic competition, and embedded finance is the perfect example.
As financial services become more deeply integrated into digital platforms, companies must anticipate industry shifts just to stay competitive. Standing still isn’t an option when it comes to embedded finance — if you’re not moving forward, you’re falling behind.
And this is no longer just a theoretical concept: it’s playing out in real time. The businesses that have fully embraced value-add embedded financial services — like Toast, Lightspeed, and Square — are seeing these revenue streams make up the majority, if not all, of their steady-state EBITDA.
In a landscape where embedded finance is reshaping the competitive playing field, those who move first and go all-in are reaping the greatest rewards
The competitive reality (and urgency) of embedded SME finance
SMEs urgently need capital to grow, yet access to finance remains a major hurdle. 61% of SMEs sought external working capital financing in the past two years, with loan applications rising 20% quarter-on-quarter. Despite this demand, success rates fell to 45% in 2023.
"Trying to access financing has been a horrific experience. The process is complicated, the criteria are tough, and as a small business, it often feels like the odds are stacked against you. We have the ambition, but without funding, growth remains a constant struggle,” says Ruby Sheldon, Founder of UK-based Putty Pals.
Even more concerning is the rise of ‘finance apathy’ among SMEs. The British Chambers of Commerce reports that many businesses are now avoiding finance altogether — either because they expect rejection, or because they’ve stopped looking for growth opportunities. As the House of Commons Treasury Committee noted in May 2024: “While alternative providers may have emerged in the years following the financial crisis, SMEs are not necessarily aware of them and do not tend to seek them out.”
This puts platforms at a critical junction. If they fail to recognise this need or delay entry while waiting for a 'perfect' product, they risk losing ground to competitors who are already stepping up with a 'good enough' solution that meets their SMEs customers' urgent needs. The demand for capital is voracious, and now is the time to capitalise on it.
Why platforms must take the lead
In such a high-stakes arena, embedded finance providers can’t afford to play it safe. Platforms must take bold action to stay ahead, anticipating market shifts and proactively addressing customer needs before they become pain points.
The fastest route-to-market here is to partner with a specialist embedded provider that can offer a turn-key solution that helps prove the validity of this need.
Embedded lending products benefit from agile, iterative development. By launching an initial version that is good (but may not be perfect), payment platforms can gather data, receive user feedback, and adjust accordingly.
This approach lets platforms learn directly from real-world usage and improve continuously, rather than spending excessive time and resources trying to anticipate every potential issue.
Platforms have the chance to maximise retention and unlock new revenue streams for relatively low costs. Those that own distribution will be able to offer unprecedented convenience to end users, sparking large new revenue streams.
To succeed, they’ll need to choose partners carefully — institutions that truly meet their needs and enablers with a razor-sharp focus on fulfilling their requirements.
Take the case of Dojo, a leading payments platform in the UK and Europe, which launched a fully embedded capital solution with YouLend, that has now surpassed £1 billion in financing for its small business customers, demonstrating the strong demand for bundled financial services in this day and age.
🔧 Today, the most successful platforms are those that proactively educate, engage, and innovate — meeting SMEs where they already operate. Just ask Dojo, now generating significant revenue outside of payments, through capital and payouts.
Innovate or stagnate
Beyond revenue growth, embedded finance can enhance customer experience. Users expect fast, frictionless access to financial tools. The businesses that can deliver on this expectation will command loyalty, while those that trail behind will struggle with retention.
The competitive edge comes from creating financial solutions that feel invisible yet indispensable. Think of Apple Pay’s seamless transaction experience or Shopify’s embedded lending solutions.
These platforms have embedded finance so deeply into their ecosystems that users hardly notice — they just experience convenience. Let’s see what that looks like in action.
👉 Explore Shopify's study on the positive effect of Shopify Capital here.
Case study: YouLend and leading PSP reduce churn by 75% through partnership
For payment service providers (PSPs), standing out in a competitive market isn’t just about lower rates; it’s about delivering real, demonstrable value to merchants. That’s exactly what a leading PSP achieved with YouLend’s embedded finance solution, reducing churn by 75% and unlocking new revenue streams in the process.
By integrating revenue-based merchant financing, the PSP made it easier for businesses to access funding in just a few clicks, without complex development or upfront costs. Merchants at different stages in their entrepreneurial journey could invest in growth, boost cash flow, and be more competitive — all through the same platform they were already using for payments.
The results?
✅ 75% drop in churn
📈 26% boost in GMV post-funding
💰 A new, risk-free revenue stream
As this partnership demonstrates, embedded finance isn’t just an add-on or nice-to-have. It’s a strategic investment that can increase retention, drive revenue, and future-proof your platform in an increasingly saturated market.
The bottom line: Embedded finance is at a crossroads
The message is clear: Innovate, or risk fading into irrelevance. If your business can meaningfully embed financial services, then perhaps it must.
The alternative is watching your competitors leverage their growing financial services economics toward subsidising (or outright relinquishing) their core economics in the name of total addressable market expansion. Or toward outspending you to higher marginal customer acquisition costs, which your economics alone can’t sustain.
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