Embedded finance
Also called embedded financial services, embedded payments
Embedded finance is the delivery of financial products, such as payments, accounts, loans or insurance, inside a non-financial company's app or checkout. A licensed bank, payment firm or insurer provides the regulated service behind the scenes. The brand owns the customer relationship, while the licensed partner keeps legal responsibility for compliance.
How it works
A typical structure links three parties: a consumer or business brand, a technology provider that connects systems, and a licensed institution that holds the permission. The brand may act as an agent, distributor or appointed representative. The licensed firm remains responsible for customer due diligence, sanctions screening, transaction monitoring, complaints handling and fair treatment, even when the brand or technology provider performs tasks.
Regulators focus on whether the licensed firm controls its partners. US banking agencies have taken enforcement action against partner banks with weak oversight of fintech programmes, and their 2023 interagency guidance treats these relationships as third-party risk. In the EU, the revised Consumer Credit Directive brings buy now pay later products into scope from 20 November 2026, affecting point of sale lending.
The rules
Requires risk-based oversight across the life cycle of third-party relationships, including bank partnerships with fintech companies.
Banks supervised by the Federal Reserve, FDIC and OCCMakes authorised payment firms responsible for their registered agents and for outsourced operational functions.
UK payment service providers and their agentsExtends consumer credit rules to buy now pay later products and loans below EUR 200 and sets creditworthiness and disclosure duties.
EU creditors and credit intermediariesCommon questions
Who is responsible for compliance in embedded finance?
The licensed institution that provides the regulated service carries legal responsibility. It can delegate tasks to the brand or technology provider, but it stays accountable for AML checks, consumer protection, complaints and data handling. Regulators expect it to oversee partners as it would any outsourced function.
How is embedded finance different from banking as a service?
Banking as a service describes the licensed firm's offer: regulated products made available to other companies through APIs. Embedded finance describes the result for the end customer, who uses those products inside a non-financial brand's app or checkout.
What are the main compliance risks?
Common risks include weak customer due diligence by partners, unclear ownership of complaints, poor record keeping on customer funds, misleading marketing and fragmented transaction monitoring. US enforcement against partner banks has focused on BSA and AML controls over fintech programmes.
Does embedded lending fall under consumer credit rules?
Generally yes, where it is regulated credit. In the EU, the revised Consumer Credit Directive applies from 20 November 2026 and covers buy now pay later products. In the UK, the government has legislated to bring deferred payment credit under FCA regulation.
