- Key insight: Stripe agreed to buy embedded merchant credit company Parafin.
- What's at stake: Stripe and its rivals are adding more small-business services, and new AI-powered technology, to chase the market.
- Forward look: Stripe's Parafin deal is expected to close in the next few months.
With a deal to buy
Stripe has agreed to acquire Parafin, a company that enables platforms such as DoorDash, Guston, Jobber and Mindbody to offer credit to their small-business clients. Terms of the deal, which is expected to close in the "coming months," were not disclosed; and Stripe did not return a request for comment.
"Platforms power millions of small businesses throughout the world and are central to Stripe's mission," said Neetika Bansal, business lead at Stripe, in a release. "[The Parafin team] brings acute expertise and leadership in credit, risk and embedded financial products. Together, we'll be able to offer a wider range of credit products to a larger ecosystem and increase credit access for high-growth businesses."
Opening its wallet
Stripe earlier this year was reportedly ready to team with Advent Capital to acquire PayPal for $53 billion, an acquisition that would bring millions of consumers to Stripe. PayPal's board balked at the price, while Stripe made a separate deal to buy
More than 18,000 platforms use Stripe as a financial services portal for the small businesses that access the platforms. Stripe says demand for Stripe Capital, the fintech's lending product, has increased. In the second quarter of 2026, Stripe said the number of businesses that used Stripe's technology to launch increased 86% year over year. Parafin, which launched in 2000, has made loans to more than 60,000 businesses, and also offers a version of buy now/pay later credit for businesses.
The Parafin deal is in keeping with Stripe's strategy to own as much of its clients' relationships as possible, according to Aaron Press, research director of IDC Financial Insights.
"Parafin brings more of the lending business in-house, giving Stripe more control over risk, the opportunity to offer better rates, and the opportunity to take better margins," Press told American Banker.
Who else is chasing this market?
Payment companies make loans to small businesses, with repayment coming as a portion of the merchant's future payment volume. The merchants' payment record can also be used for making loan decisions, often making it easier and faster for small businesses to get loans from payment companies than banks.
Embedded small-business lending is a big business, and it's become core to how payments companies make money and retain merchants, according to Phil Philliou, managing partner at Philliou Partners.
"Whoever processes a merchant's payments can see its cash flow in real time and collect repayment directly from its sales, which is a better underwriting position than most banks have," Philliou told American Banker.
If Stripe had acquired PayPal, it would have also gotten PayPal's considerable merchant business — which for years has offered merchant credit.
Block, which sells products to businesses under its original Square brand, also offers loans to its sellers. Fiserv offers loans to merchants through Clover Capital and Amex has made several recent moves to enhance its appeal to small businesses.
Square has originated more than $32 billion in loans to small businesses since 2014. Across its combined units — Afterpay, Cash App and Square — Block's global originations surpassed $200 billion.
Block operates its own industrial bank subsidiary, Square Financial Services, which obtained its FDIC-insured charter. In 2026, Square rolled out major machine learning updates.
At PayPal, PayPal Working Capital and PayPal Business Loans enabled the company to recently surpass $30 billion in originations across more than 1.4 million loans and 420,000 business accounts globally since PayPal launched merchant lending in 2013.
By adding Parafin, Stripe is attempting to diversify into higher margin businesses to supplement its core payments services, according to Aaron McPherson, principal at AFM Consulting.
It's difficult to sell into the small-business market, given the diversity of needs and limited scale, he said.
"Building on top of an existing payments relationship solves this problem," McPherson said.
While payment companies have been offering merchant credit for years, what's changing is the emerging role of new forms of artificial intelligence.
Read more:
As fintechs nab bank charters, what's happening to BaaS? Overheated data center knocked 23 credit unions offline Chris Britt still says banking is broken, but Chime can fix it Credit unions bulk up a business that banks long dominated
Amex this week said it's planning to release new
"As disruptive as embedded lending is, agentic AI will likely disrupt it all over again," Philliou said. "When AI agents are managing a small business's cash flow, comparing financing offers and moving money on the owner's behalf, the advantage of simply being the platform where the merchant already sits starts to erode. The winners will be the lenders whose offers are good enough for an agent to pick."
