SAN FRANCISCO—As credit unions chart their path through an increasingly digital financial landscape, new data from Treasury Prime’s 2025 Banking Innovation Index delivers a clear message: embedded finance and real-time technology are no longer optional—they’re survival tools.

With 99% of community bank and credit union leaders citing embedded finance as essential to long-term viability, and 40% pointing to real-time payments as critical to growth, the pressure is mounting for credit unions to reassess their tech stacks, rethink compliance strategies, and recalibrate partnerships to stay competitive in a rapidly evolving market, Treasury Prime said.

Local presence still matters—but for mid-sized banks and credit unions, it’s no longer enough to secure lasting loyalty or fuel long-term growth, the data show.

So, where should community institutions focus their digital efforts—and how quickly must they act?

To answer that, Treasury Prime surveyed 300 banking leaders at the VP level and above. The findings reveal a sector leaning into embedded finance as a key growth strategy amid rising customer expectations and persistent economic uncertainty.

Every institution surveyed is either implementing, launching, or exploring embedded finance, Treasury Prime said.

The message is clear: sustainable growth will require community banks and credit unions to move fast—but with discipline, Treasury Prime said.

Key findings include:

Embedded finance is no longer optional: 99% of decision-makers say embedded finance is important to their intuition’s long-term survival, and 60% say it is extremely important

99% of decision-makers say embedded finance is important to their intuition’s long-term survival, and 60% say it is extremely important Banking leaders have high expectations for embedded finance partners: Compliance-related factors like risk management approach (34%) ranked high alongside tech considerations like scalability or growth potential (31%), with no clear winner

Compliance-related factors like risk management approach (34%) ranked high alongside tech considerations like scalability or growth potential (31%), with no clear winner Regulatory uncertainty keeps compliance top of mind, but may not hold back innovation: About half of leaders (51%) say uncertainty is stalling digital innovation at their FI, while another 45% say uncertainty simply encourages them to be more proactive about compliance

About half of leaders (51%) say uncertainty is stalling digital innovation at their FI, while another 45% say uncertainty simply encourages them to be more proactive about compliance Banking leaders believe their tech stacks are mature. But are they too optimistic? More than half (55%) say their banking technology is “fully modernized” and upgraded with modern, flexible infrastructure

More than half (55%) say their banking technology is “fully modernized” and upgraded with modern, flexible infrastructure “Real-time” and “instant” technologies are key to future growth: 40% of decision-makers say real-time payments infrastructure is critical to their growth strategy

Embedded Finance Is No Longer Optional

With interest in embedded finance so high, where are decision-makers focusing their efforts?

“Despite negative headlines about Banking-as-a-Service (BaaS) throughout the past year, over half of respondents (54%) said they were exploring or offering BaaS or embedded banking capabilities,” Treasury Prime said.

Embedded lending (51%) and Payments-as-a-Service or embedded payments (49%) capabilities were also top responses. At the other end of the spectrum, compliance-related services ranked lower — possibly because decision-makers already consider them table stakes, the report states.

Banking Leaders Have High Expectations For Embedded Finance Partners

When it comes to evaluating fintechs as potential embedded finance program partners, banking decision-makers haven’t reached a consensus on which considerations are most important.

“Unsurprisingly, compliance-related factors like risk management approach (34%), strong security and data protection (32%), and regulatory and compliance adherence (32%) rated highly. However, technological concerns like seamless API integration (31%) and scalability or growth potential (31%) weren’t far behind,” Treasury Prime said.

According to the report, the lack of a single defining priority reflects a complex reality: Each community FI is ultimately looking for a partner who fits its specific risk tolerance, and that means different things for different institutions. When vetting potential partners, leaders may evaluate fintechs on their business models, approaches to data security and even their existing banking relationships — and all of these can be equally important to building credibility and forging trust.

The trend is largely the same when decision-makers consider forming relationships with fintech clients that want to use their FI’ infrastructure for embedded banking. Strong security and data protection (33%) is the top criteria leaders look at when evaluating fintech clients, but scalability and growth potential (30%), regulatory and compliance readiness (29%), and risk management and fraud controls (29%) are nearly as important, the study explains.

Regulatory Uncertainty Keeps Compliance Top Of Mind, But May Not Hold Back Innovation

“While risk management and compliance are non-negotiables for community financial institutions, maintaining those standards throughout the lifecycle of an embedded finance program is not always simple,” Treasury Prime said.

Respondents flagged multiple compliance pain points around digital tool adoption, with consumer protection law compliance (38%) and open-banking and data-sharing compliance (37%) topping the list. These responses highlight the importance of centralizing digital compliance oversight within a unified bank operating system that streamlines reporting and ensures consistent enforcement of regulatory standards across every embedded finance touchpoint.

How has ongoing regulatory uncertainty at the federal level affected digital innovation projects, including embedded finance initiatives?

Leaders of community financial institutions are split: About half (51%) say uncertainty is stalling digital innovation at their bank, while another 45% say uncertainty simply encourages them to be more proactive about compliance. It seems likely that the impact of uncertainty is uneven, discouraging some initiatives while having limited impact on others, the data show.

‘Real-Time’ And ‘Instant’ Technologies Are Key To Future Growth

The report reveals that leaders of community financial institutions recognize their customers and members have higher expectations for speed and convenience.

“As a result, they’re prioritizing technology that supports faster and real-time financial interactions, whether it’s payment settlement, credit decisioning or wage access,” Treasury Prime said. “For instance, 40% of decision-makers say real-time payments infrastructure is critical to their growth strategy. Just as many (40%) say the same about embedded finance infrastructure, while 36% say lending and credit decisioning automation is critical.”