Embedded Payments Emerge as a FinTech M&A Target

FinTech buyers are increasingly seeking embedded payments as a growth opportunity amidst a challenging funding and software landscape. Embedded payments are already integrated into various industries, such as real estate closings, municipal bills, healthcare practices, and commercial banking. Recent transactions including Fifth Third's investment in Payload, Priority Commerce's acquisition of IntelliPay, and CSI's acquisition of Qolo indicate a trend of capital investment in payment providers with established positions in specific industries and software environments.

This shift in M&A strategy suggests that targeting specific verticals with embedded payments is becoming part of the acquisition value proposition. Payments providers embedded within software do not need to win every transaction independently; they can leverage the software already used to run the business. The PYMNTS Intelligence report "FinTechs Tap Embedded Payments to Deepen Customer Relationships" highlights that 90% of surveyed FinTechs offer embedded payments, making it the most common embedded finance capability.

The motivations behind this trend extend beyond payment revenue. 60% of FinTechs cited adding or improving embedded finance to gain better customer data and insights, while 60% aimed for competitive differentiation. Additionally, 53% aimed to reach new customers. Acquiring a company already embedded in a vertical can provide transaction flows, customer relationships, and the data generated by those transactions. Moreover, it can offer a channel for selling treasury, lending, payouts, or other financial products.

However, this trend also brings challenges such as compliance, risk management, integration, and operational capacity. Among FinTechs offering four or more embedded finance capabilities, 54% reported difficulty with cross-functional collaboration, and 46% cited too many internal resources being devoted to supporting those capabilities. This shift towards embedded payments moving deeper into systems where invoices, accounting, and other business processes reside reflects the evolving landscape of the payments industry.