What is Embedded Finance?

Embedded finance is the implementation of financial services within non-financial contexts via standardised API connections to regulated bank infrastructure.

Most coverage of embedded finance addresses the opportunity from the non-financial platform perspective: what it means for the retailer, the SaaS company, the marketplace. This piece takes the other angle, addressing what embedded finance means for the banks and infrastructure providers who make it possible. For more context on the open banking layer underneath, see our blog, What Is Open Banking? The Complete Guide for 2026.

What is embedded finance?

Embedded finance is the integration of regulated financial services, including payments, credit, insurance, and deposit accounts, into non-financial platforms and applications, enabled by standardised API connections to regulated bank infrastructure. The financial product is real, regulated and seeing increased adoption in the below use cases. 

Three examples illustrate its uses:

• B2C checkout: A consumer buys a laptop. At the payment screen, a buy now pay later option appears from a regulated lender. The platform handles the experience; the credit product sits on a bank’s or licensed lender’s balance sheet.
• B2C point of purchase: A travel booking platform surfaces insurance at the moment of purchase. The cover is underwritten by a regulated insurer; the platform accesses it via an API.
• B2B SaaS: An accounting software platform offers a working capital credit line based on real-time cash flow data. The credit is provided by a bank; the software is the distribution point.

The mechanism is identical in each case: an API layer connects regulated bank infrastructure to the platform’s user experience, to provide financial products seamlessly within the journey.

How does embedded finance work?

The model has three layers. Understanding which layer a bank occupies is the starting point for any commercial strategy around embedded finance.

Layer 1: The regulated bank or financial institution.

The bank provides the balance sheet, the banking licence, and the regulatory standing that makes the product legal and viable. Without a regulated institution at the base, there is no embedded finance product.

Layer 2: the secure API layer that exposes bank products, data, and services for embedded use.

This is where a bank’s capabilities become embeddable inside a third-party platform, through secure, standards-compliant APIs rather than direct integration. A BaaS provider is one route to build this layer, translating bank capabilities into developer-friendly endpoints and handling programme operations on the bank’s behalf. But BaaS is a possible implementation, not the layer itself, and not the only way in. A bank running a standards-compliant API platform can expose this layer directly, participating in embedded finance on its own terms rather than ceding the relationship to a middleware intermediary.

Layer 3: The end-brand or non-financial platform.
The consumer-facing layer: the e-commerce site, the SaaS platform, the marketplace. It integrates financial products into its user experience via an API connection to the BaaS or bank layer, and takes responsibility for distribution and the customer relationship.

Open banking regulations formalised the API access that allowed this model to scale past bespoke bilateral integrations. PSD2 in Europe, Section 1033 in the US, and the Consumer Data Right (CDR) in Australia each established standardised frameworks requiring ASPSPs (Account Servicing Payment Service Providers) to expose regulated API endpoints to authorised TPPs (third-party providers). Those frameworks created the rails. Embedded finance runs on them.

Account information and payment flows use AIS (account information services) and PIS (payment initiation services) access types under these frameworks, each with its own consent model and security requirements.

For a view of these frameworks globally, see The Open Finance Tracker.

Types of embedded finance

The product category spans six main verticals. In each, a regulated financial product is distributed by a non-financial platform via an API connection to a licensed institution.

Embedded payments are the most mature vertical. Frictionless checkout, in-app disbursements, and virtual wallets integrated into ride-hailing, gig economy payroll, and marketplace platforms all fall here. The payment processing infrastructure sits behind the interface; the user rarely encounters the bank directly.

Embedded credit and BNPL. This includes buy now pay later products, point-of-sale deferred credit, and revolving credit lines embedded in consumer and B2B platforms. Embedded credit at checkout compresses the decision and application into seconds. BNPL adoption has shifted consumer expectations: instant, invisible credit decisions are now a baseline, not a feature.

Embedded insurance includes cover offered at point of purchase: travel insurance surfaced by a booking platform, device protection at an electronics checkout, cargo insurance embedded in a logistics management tool. The carrier remains a regulated insurer; the platform handles distribution via API.

Embedded banking is current accounts, deposit accounts, and card issuance delivered under a bank’s licence via a non-bank platform. Shopify Balance is the canonical example: a business account integrated directly into a merchant’s existing commerce tools. This is white-label banking in its most commercially direct form, and it depends entirely on a licensed institution holding the account.

Embedded investing, such as fractional shares, micro-investing, or embedded wealth management integrated into consumer apps. More sophisticated implementations allow non-financial platforms to offer regulated investment products as a retention mechanism, without building direct investment infrastructure.

Finally, B2B embedded finance. Working capital loans, trade credit, supply chain lending, and payroll services integrated into ERP systems, procurement software, and accounting tools. This is the fastest-growing segment for incumbent banks because the use case maps directly to existing corporate banking relationships. A bank that already holds a business’s account can extend working capital finance through that business’s accounting software without acquiring a new customer.

What does embedded finance mean for banks?

Banks occupy two distinct roles in the embedded finance ecosystem. When building your embedded finance strategy, it’s important to understand their different opportunities.

The first is sponsor bank: providing the licence and balance sheet that backs the financial product distributed by a third-party platform. The sponsor bank earns revenue through transaction fees, interchange on card programmes, and deposit float on accounts held at scale. The compliance obligation stays with the bank regardless of which platform surfaces the product. That is both the primary risk and the primary competitive moat.

The second is infrastructure provider: exposing the standardised, compliant APIs that fintechs and non-financial platforms build on. This is where architecture matters. Banks with well-documented, FAPI-secured open banking APIs become more attractive partners for TPPs and embedded finance programmes. The standards governing this exposure are specific: FAPI for security profiling, PSD2 and PSD3 in Europe, FDX in the US, CDR in Australia. A bank that meets these standards across multiple frameworks has a structural advantage in supporting global embedded finance partners.

The commercial logic is clear. API monetisation through premium API tiers, transaction-based fees, and data-driven product offers allows banks to extend their balance sheet to new distribution channels without building consumer acquisition infrastructure. The embedded finance market is projected to reach $248 billion by 2032. The infrastructure layer, not just the sponsor bank role, captures a meaningful share of that value.

The Ozone API Platform is built for banks taking this approach: FAPI-certified, standards-agnostic across UK Open Banking, PSD2, FDX, and CDR, and deployable as SaaS or on-premise.

Embedded finance vs open banking: what is the difference?

Open banking provides the regulated, standardised API infrastructure. Embedded finance is a category of financial products built on top of that infrastructure. They are complementary, not competing frameworks.

Open banking frameworks created the standardised rails that allowed embedded finance to scale. Without them, embedded finance reverts to bespoke bilateral integration: expensive to build, difficult to maintain, and impossible to regulate consistently. For the full picture on what open banking infrastructure provides, see What Is Open Banking?.

FAQs

What is embedded finance?

Embedded finance is the integration of regulated financial services, including payments, credit, insurance, and deposit accounts, into non-financial platforms and applications via standardised API connections to bank infrastructure. The bank provides the regulatory standing; the API is the connection point; the non-financial platform provides the distribution.

How does embedded finance work?

Embedded finance operates through a three-layer model. A regulated bank provides the licence and balance sheet; a BaaS or middleware provider translates bank capabilities into developer-accessible APIs; a non-financial platform integrates those APIs to offer financial products within its existing user experience. The bank remains the regulated entity throughout.

What are the most common examples of embedded finance?

BNPL at checkout (Klarna, Affirm), in-app insurance at point of purchase, business current accounts embedded in SaaS platforms (Shopify Balance), and working capital lending integrated into ERP or accounting software. Each involves a regulated financial product distributed through a non-financial platform via an API connection to a licensed institution.

What is the difference between embedded finance and Banking-as-a-Service?

BaaS is the middleware layer: it translates bank capabilities into developer-friendly APIs and manages programme operations on behalf of the sponsor bank. Embedded finance is the product category that end-brands deliver to their customers using that infrastructure. BaaS is one layer in the embedded finance stack, not a synonym for it.

What is the difference between open banking and embedded finance?

Open banking provides the regulated API rails (standardised and security-graded access to account data and payment initiation) that banks are required to expose under frameworks like PSD2. Embedded finance is the broader category of financial products that third parties build using those rails and additional bank infrastructure. Open banking is the foundation; embedded finance is one of its commercial outputs.

How do banks benefit from embedded finance?

Banks acting as the infrastructure layer for embedded finance can generate new revenue streams: transaction fees, interchange on card programmes, deposit float on accounts held at scale, and premium API access tiers. They extend their balance sheet and regulatory standing to new distribution channels without building consumer acquisition from scratch.

What regulations govern embedded finance?

In Europe, PSD2 and PSD3 alongside EBA guidelines govern API access and payment initiation. In the US, the CFPB’s Section 1033 rule formalises open banking data rights. In Australia, the Consumer Data Right (CDR) governs data sharing. The sponsor bank carries the compliance obligation regardless of which non-financial platform distributes the product.

Is Klarna embedded finance?

Yes. When Klarna’s BNPL option appears at an e-commerce checkout, that is embedded finance: a financial product integrated into a non-financial platform’s purchase flow. Klarna acts as the end-brand and credit provider; the regulatory and funding infrastructure sits with Klarna’s banking licence and sponsor bank relationships.

What is B2B embedded finance?

B2B embedded finance integrates financial products, including working capital loans, trade credit, payroll services, and expense management, directly into the software platforms businesses already use: ERP systems, procurement tools, accounting software. It is the fastest-growing embedded finance segment because the use case maps to existing bank-to-business relationships rather than requiring new consumer acquisition.