NMI-Parafin’s White-Label Embedded Lending

NMI, a global embedded payments platform processing over $200 billion annually, has partnered with embedded finance infrastructure provider Parafin to launch "NMI Business Capital," a white-label working capital product available to NMI's approximately 4,000 channel partners serving more than one million U.S. merchants.¹ Celtic Bank will originate the loans, with Parafin providing underwriting, compliance, servicing, and capital markets infrastructure.

• Distribution scale: NMI's network spans ISOs, PayFacs, and SaaS platforms that can now toggle on branded financing within the same merchant portal they use for payments, eliminating the need to build proprietary lending infrastructure²

• Underwriting model: Parafin uses ML-driven risk models trained on business performance data rather than personal credit scores, enabling pre-approved offers surfaced in real-time with decisions in seconds³

• Capital stack: Parafin brings substantial funding capacity including a $360 million forward-flow agreement with Cross River Bank (September 2025) and a $125 million warehouse facility from SVB and Trinity Capital⁴⁵

• Track record: Parafin has extended over $16 billion in financing offers across platforms including Amazon, Walmart, DoorDash, and TikTok, and reports funding nearly $1 billion annually with volume growth of 400% since its 2022 Series B³

• Revenue economics: Industry estimates suggest embedded capital can triple PayFac margins, increase SMB lifetime value by 25-55%, and reduce churn 30-60%¹

The partnership positions NMI to compete directly with PayPal Working Capital, Stripe Capital, Square Loans, and Shopify Capital for the SMB financing wallet—a market where the channel partner relationship, not the lending product itself, becomes the competitive moat.

What Alternative Business Lenders Need to Know

How Does This Product Actually Work?

NMI Business Capital operates as a revenue-based financing product with automatic repayment tied to daily card settlements—structurally identical to what Stripe Capital, Square Loans, and PayPal Working Capital have offered for years.¹⁰ The mechanics: Parafin underwrites against processing history visible through the NMI gateway, Celtic Bank originates the loan (providing the rent-a-charter structure), and repayment flows as a fixed percentage of daily sales until the principal plus fee is satisfied.

Celtic Bank has built its business model around exactly this type of fintech partnership. The Salt Lake City-based industrial bank has historically powered embedded lending programs for Square (before Block obtained its own charter) and continues to serve as the bank partner for Stripe Capital's U.S. loan products.⁹ Celtic operates as the regulated entity that enables Parafin's technology to function under a compliant lending framework without Parafin needing to hold a banking license.

What's missing from the announcement is pricing specificity. Industry benchmarks for comparable products show holdback rates typically running 9-15% of daily sales, with flat fees (not interest) ranging from 10-20% of the advance amount.¹³ Stripe Capital's published examples show a $20,000 loan with a $2,000 fee (10% flat fee) and 12% holdback.¹¹ Square's holdback rates typically fall between 9-13%.¹³ Shopify Capital uses factor rates of 1.10-1.13, translating to total borrowing costs of 10-13%.¹⁴

Without NMI/Parafin disclosing their specific pricing structure, we can't assess whether they're competing on cost or purely on distribution convenience.

Where Does NMI Sit in the Competitive Landscape?

The embedded SMB lending market has become extremely crowded. Square Loans originated $5.7 billion in 2024—the largest volume among online small business lenders tracked by industry publications.¹² Shopify Capital has distributed over $3 billion since 2016 with funding amounts up to $5 million per merchant.¹⁴ PayPal Working Capital offers advances up to $125,000 (or $200,000 for repeat borrowers) with holdback rates of 10-30%.¹⁵

The critical difference: Square, Shopify, and PayPal own their merchant relationships end-to-end. They control the processing data, the dashboard where merchants reconcile daily sales, and the moment when a capital offer appears. As payments consultant Richard Crone told American Banker, embedded lenders "win only when they sit at the moment merchants settle the day's sales."¹

NMI operates one layer removed. Its 4,000 channel partners—ISOs, PayFacs, and vertical SaaS companies—maintain the direct merchant relationship. NMI provides infrastructure. This creates both an opportunity (massive distribution reach) and a structural limitation (NMI doesn't control the merchant experience, its partners do).

AFM Consulting principal Aaron McPherson framed it directly: "NMI/Parafin would need to compete without the data provided by a full-service merchant processing platform. ISO partnerships help, but are typically not as full-featured."¹

What's the Real Opportunity for ISOs and PayFacs?

For channel partners that don't have the resources to build proprietary lending infrastructure, NMI Business Capital offers a turnkey capital product with fee-sharing economics. The value proposition is straightforward: add a revenue stream without touching underwriting, compliance, or collections.

The margin improvement potential is real. Industry analysis suggests embedded capital programs can triple PayFac margins while increasing SMB lifetime value 25-55% and reducing churn 30-60%.¹ S&P Global 451 Research data shows 69% of small-to-medium businesses want their software partners to offer integrated financial services.¹

But there's a qualification layer here. These economics assume the ISO or PayFac actually activates the product, integrates it into their merchant dashboard, and promotes it to eligible merchants. Historical white-label lending adoption among ISOs has been lukewarm. Many ISOs remain focused on payment residuals—their core revenue stream—and view lending products as ancillary features that require sales effort they haven't prioritized.

The question isn't whether NMI can make this product available. It's whether 4,000 channel partners will actually turn it on and sell it.

What Does This Mean for Standalone Alternative Lenders?

The channel threat is concrete. If an ISO that previously referred working capital leads to you can now offer their own branded capital product—with pre-approval, one-click funding, and automatic repayment built into the merchant's existing workflow—that deal flow becomes captive.

This isn't theoretical. The embedded lending market in the U.S. is projected to grow from $7.65 billion in 2024 to $45.74 billion by 2034, a CAGR of nearly 20%.¹⁶ Visa research shows 80% of consumer lenders already offer embedded lending products, but only 45% of SMB lenders do—leaving substantial room for new entrants.¹⁷ BCG estimates the global SMB funding gap exceeds $5 trillion, with nearly 50% of U.S. small businesses not receiving the financing they seek.²⁴

The structural disadvantage for standalone lenders is clear: you're competing against capital offers that appear at the exact moment a merchant settles their daily sales, inside the same interface they already use. That's a timing and friction advantage that outbound marketing can't easily overcome.

However, the merchants most susceptible to embedded offers tend to be smaller-ticket, lower-complexity borrowers—businesses doing $20,000-$100,000 in annual card processing who need $10,000-$50,000 in working capital. High-volume lenders working larger deals ($250K+, equipment financing, complex MCAs with multiple positions) may see less immediate impact. Those borrowers typically require more sophisticated underwriting than embedded products can deliver.

What Are the Risk Factors to Watch?

Celtic Bank's appetite: Celtic has historically been conservative relative to WebBank or Cross River in its fintech partnerships. If Celtic constrains approval rates or deal sizing, NMI Business Capital may underperform relative to merchant expectations. Watch for ISO complaints about eligibility thresholds.

Activation rate: The 4,000 channel partners is a potential reach number, not an active user count. If only 10-20% activate the product in year one, the competitive impact is limited.

Pricing position: Without disclosed pricing, we can't assess whether NMI/Parafin will compete on cost or rely solely on distribution convenience. If they're priced at Stripe/Square parity, they're competing purely on channel access. If they're priced lower, they may sacrifice margin to drive adoption.

Data depth: NMI sees transaction volume through its gateway, but may not have visibility into the full merchant P&L that Shopify or Square can access through integrated accounting features. Shallower data typically means more conservative underwriting.

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