Legacy Banks Are Betting Big on Embedded Finance — But Can They Move Fast Enough?

For the better part of a decade, the conventional wisdom in financial services held that legacy banks were too slow, too bureaucratic, and too burdened by decades-old core systems to meaningfully compete with agile fintech challengers. That narrative is undergoing a significant revision. Across the United States, major financial institutions are pouring billions into embedded finance initiatives — integrating lending, payments, insurance, and investment capabilities directly into third-party platforms and their own digital ecosystems. The question is no longer whether traditional banks will pursue this transformation, but whether they can execute it before neobanks and fintech platforms permanently claim the customer relationships that matter most.

What Embedded Finance Actually Means for Traditional Institutions

Embedded finance, at its core, refers to the seamless integration of financial services into non-financial platforms and customer journeys. Think of a small business owner accessing a working capital loan directly within their QuickBooks dashboard, or a retail shopper financing a purchase without ever leaving a brand's checkout page. For years, this territory was largely ceded to fintech companies — Stripe, Plaid, Affirm, and their peers — who built the infrastructure that made such integrations possible.

Now, established banks are reclaiming ground. JPMorgan Chase's Payments division has expanded its suite of embedded payment APIs, enabling merchants and software platforms to embed Chase-backed financial products without redirecting customers to a separate banking interface. Goldman Sachs, despite its much-publicized retreat from consumer banking under the Marcus brand, has doubled down on its Business as a Service (BaaS) model, powering embedded financial products for Apple, General Motors, and a growing roster of enterprise partners.

The logic is straightforward. Banks possess what fintechs have historically lacked: regulatory licenses, established trust, access to low-cost capital, and decades of compliance infrastructure. The strategic imperative is to layer modern delivery mechanisms onto those foundational advantages before the competitive window narrows further.

The Technical Debt Problem Nobody Wants to Talk About

For all the strategic clarity, the operational reality is considerably messier. The central challenge facing legacy institutions is their core banking infrastructure — systems often built in COBOL during the 1970s and 1980s that were never designed to support real-time API connectivity, cloud-native architecture, or the kind of modular service delivery that embedded finance demands.

Wells Fargo offers an instructive case study. The bank has invested heavily in its Fargo digital platform and API gateway program, yet internal technology reviews have repeatedly flagged the difficulty of exposing legacy data systems to modern integration layers without introducing latency, data inconsistency, or compliance risk. Middleware solutions can mask these limitations, but they rarely eliminate them, and they introduce their own complexity.

Citigroup's multi-year core modernization program, one of the most ambitious in the industry, illustrates both the scale of the challenge and the long timelines involved. The bank began migrating its infrastructure to a cloud-based model in 2021, with full implementation projected to extend well into the latter half of this decade. In the interim, Citi has pursued a parallel strategy of partnering with fintech infrastructure providers — including Thought Machine and Temenos — to accelerate specific use cases without waiting for wholesale system replacement.

"The banks that will win this transition are not necessarily the ones with the most advanced technology today," noted one senior technology strategist at a major US regional bank, speaking on background. "They're the ones that can execute a credible hybrid strategy — modernizing incrementally while still delivering competitive products through partnerships."

Partnership Models: A Bridge Across the Technology Gap

Recognizing that organic modernization alone cannot close the capability gap quickly enough, many institutions have turned to strategic partnerships with fintech companies as a pragmatic bridge. US Bancorp's acquisition of Bento for Business and its subsequent integration of spend management capabilities into its commercial banking platform exemplifies this approach. Rather than building expense management tooling from scratch, the bank acquired a proven product and worked to embed it within its existing client relationships.

Similarly, Regions Bank has deepened its partnership with Greenlight, the family fintech platform, to offer youth banking and financial literacy tools directly within its mobile application. The arrangement gives Regions access to a younger demographic it would struggle to reach organically while providing Greenlight with distribution through an established banking relationship.

Bank of America's approach has been somewhat different. The institution has largely chosen to build rather than buy, investing heavily in its proprietary CashPro platform for corporate clients and its Erica virtual assistant for retail customers. The results have been notable — Erica surpassed 1.5 billion client interactions in 2023 — but the build-versus-buy debate remains unresolved across the industry, with few institutions having the scale to justify BofA's level of internal investment.

The Neobank Threat Remains Real

It would be premature to conclude that legacy banks have neutralized the competitive threat from digital-first challengers. Chime, with its 22 million account holders, and SoFi, which crossed 7 million members in 2023, continue to attract customers with fee-transparent models, faster account opening, and user experiences that traditional institutions struggle to match. More significantly, neobanks have demonstrated an ability to iterate on product design at a pace that most large banks simply cannot replicate internally.

The competitive dynamics are further complicated by the entry of technology giants into financial services. Apple's expansion of its financial product suite — from Apple Pay to the Apple Card to Apple Savings, all powered by Goldman Sachs' BaaS infrastructure — represents a distribution model that banks cannot easily replicate. When a consumer can open a high-yield savings account from within their iPhone settings in under two minutes, the friction-heavy onboarding processes of traditional banks become a meaningful liability.

What 2025 Holds for the Embedded Finance Race

Industry analysts broadly expect the embedded finance market in the United States to exceed $230 billion in revenue by 2025, driven by growth in embedded payments, lending, and insurance verticals. The critical variable is not market size but market share allocation — specifically, how much of that value accrues to banks versus fintech intermediaries versus technology platforms.

The institutions best positioned to capture a meaningful share are those that have successfully separated their product and distribution layers, allowing financial services to flow through any channel where customers already spend their time. This architectural flexibility — sometimes described as "banking as a platform" — requires not just technology investment but a fundamental reconception of what a bank is and where its value lies.

For now, the race remains genuinely competitive. Legacy banks bring institutional credibility and capital depth; fintech challengers bring speed and design sophistication. The embedded finance era will likely reward institutions capable of combining both — and that combination, more than any single technology investment, may determine who shapes American banking in the years ahead.