Open Banking Is Quietly Powering a New Wave of Embedded Finance

What happened?

Open banking frameworks, which require banks to securely share customer financial data with authorised third-party providers when customers consent, have matured significantly across a growing number of countries through 2026, enabling a broader wave of what is known as embedded finance, financial services such as payments, lending and insurance that appear seamlessly within non-financial apps rather than requiring a customer to visit a separate banking app or website. Retailers, ride-hailing platforms and software providers for small businesses have increasingly integrated these embedded financial features directly into their existing products.

This expansion reflects both regulatory maturation, as more jurisdictions implement and refine open banking rules originally introduced to increase competition in financial services, and growing technical infrastructure from fintech companies that specialise in providing the underlying banking capabilities that other businesses can embed into their own products, often described as banking-as-a-service.

Key points

• Open banking rules requiring secure data sharing between banks and authorised third parties have matured across a growing number of countries.
• Embedded finance allows financial services such as payments and lending to appear directly within non-financial apps and platforms.
• Banking-as-a-service providers supply the underlying regulated infrastructure that non-financial companies use to offer embedded financial features.
• Small businesses are increasingly accessing credit and payment tools through the software platforms they already use for daily operations.
• Regulators are working to ensure consumer protection and data security standards keep pace as financial services become embedded in a wider range of everyday apps.

What we know

Financial regulators in a growing number of jurisdictions have implemented open banking or open finance frameworks that require banks to provide secure, standardised access to customer account data to authorised third-party providers, provided the customer has given explicit consent, a shift originally intended to increase competition by making it easier for customers to compare and switch between financial products and providers. These frameworks have matured over several years from initial implementation, often focused narrowly on account information sharing, toward broader capabilities including initiating payments directly from a customer's bank account through third-party applications.

Building on this infrastructure, a growing ecosystem of fintech companies now offers banking-as-a-service platforms that allow non-financial businesses to embed regulated financial products, such as payment processing, lending or even bank account provision, directly into their own applications without needing to become a licensed bank themselves. This has enabled a wide range of companies, from e-commerce platforms to software providers for small businesses, to offer financial features as a seamless part of their existing product, rather than directing customers to a separate financial institution.

Officials and experts

Regulators who designed open banking frameworks have generally viewed the growth of embedded finance as a validation of the policy's original goal of increasing competition and innovation in financial services by lowering barriers for new entrants to build products that rely on secure access to banking infrastructure and data. However, they have also acknowledged that the expansion of financial services into a much wider range of non-financial apps raises new consumer protection and oversight questions that extend beyond the scope of traditional banking regulation focused primarily on licensed financial institutions.

Fintech industry representatives have described embedded finance as a natural evolution of open banking infrastructure, arguing that it allows financial services to reach customers in the context where they are already making relevant decisions, such as offering financing options at the point of a purchase decision or providing cash flow tools within software small businesses already use for accounting. Consumer protection advocates have cautioned that the convenience of embedded finance can sometimes obscure the terms and risks of financial products, particularly for credit offerings presented seamlessly within a purchasing experience, urging regulators to ensure disclosure and responsible lending standards keep pace with the expanding range of contexts in which financial products are now offered.

Background

Open banking policy emerged from a recognition among financial regulators that customer data held by banks, if made securely accessible to other providers with customer consent, could enable greater competition and innovation in financial services, addressing longstanding concerns that established banks held an entrenched advantage due to their exclusive access to detailed customer financial data. Early open banking implementations focused primarily on enabling account aggregation services, allowing customers to view financial information from multiple accounts in a single application, and comparison tools that helped customers find better-suited financial products.

As the underlying technical infrastructure and regulatory frameworks matured, the scope of what became possible under open banking expanded considerably, moving from simple data sharing toward enabling third parties to initiate transactions and, eventually, toward the broader banking-as-a-service model that underpins today's embedded finance offerings. This evolution has been gradual and uneven across different countries, with some jurisdictions considerably further along in developing comprehensive open finance frameworks that extend beyond banking to other financial products such as insurance and investments.

Detailed analysis

The growth of embedded finance represents a meaningful shift in how consumers and small businesses access financial products, moving away from a model where financial services were generally sought out deliberately from a dedicated bank or financial institution, toward one where financial features are increasingly encountered incidentally within the context of another primary activity, such as shopping, running a business, or using a ride-hailing service. This shift is enabled technically by open banking infrastructure and the specialised banking-as-a-service providers that have built the regulated infrastructure other companies can embed into their products without needing banking licences of their own.

For small businesses in particular, embedded finance has meaningfully expanded access to credit and payment tools by integrating them directly into software platforms that businesses already use for accounting, inventory management or point-of-sale operations, allowing lenders offering embedded credit products to draw on transaction and business performance data available within these platforms to make faster and, in some cases, more accurate lending decisions than would be possible using traditional credit assessment methods that rely more heavily on historical credit scores alone. This has been particularly significant for small businesses that have historically struggled to access affordable credit through traditional banking channels due to limited credit history or collateral.

The consumer-facing growth of embedded finance, particularly point-of-sale financing options that allow customers to split purchases into instalments directly within a retailer's checkout process, has drawn particular regulatory attention given the ease with which consumers can access credit in the moment of a purchasing decision, a context that consumer protection advocates argue can sometimes lead to less considered borrowing decisions than would occur if a consumer had to separately apply for credit through a traditional lender. This has prompted several regulators to extend consumer credit protection rules, including disclosure requirements and affordability assessments, to cover embedded lending products that had in some cases previously operated with lighter regulatory oversight than traditional consumer credit.

The banking-as-a-service model underpinning much of this growth also raises questions about where regulatory responsibility ultimately sits when a financial product is offered by a non-financial company using infrastructure provided by a licensed financial institution or specialised fintech partner behind the scenes. Regulators have generally sought to clarify that the underlying licensed provider retains core regulatory responsibility for compliance, even when the customer-facing brand and experience is provided by a company that is not itself a licensed financial institution, though enforcing this clearly across an increasingly complex and layered set of commercial relationships presents ongoing practical challenges for supervisory agencies.

Data security and privacy considerations remain central to the continued expansion of open banking-enabled embedded finance, since the model depends fundamentally on customers being willing to consent to sharing sensitive financial data with third parties they may have limited direct relationship with beyond using their primary app. Maintaining robust security standards and clear, genuinely informed consent processes is widely viewed by regulators and industry participants alike as essential to sustaining the public trust that the entire open banking and embedded finance ecosystem depends upon for continued growth.

Why it matters

Embedded finance is changing how millions of consumers and small businesses access everyday financial services, often making credit, payments and other financial products more convenient and, in some cases, more accessible than through traditional banking channels alone. This convenience carries real benefits, particularly for underserved small businesses and consumers who have historically faced barriers accessing affordable financial products through conventional means.

At the same time, the embedding of financial products into a much wider range of everyday contexts raises genuine questions about consumer protection, informed decision-making and regulatory oversight that extend the traditional boundaries of banking regulation into a much broader set of consumer-facing businesses. How regulators and industry participants navigate this expanded landscape will shape whether embedded finance delivers on its potential to expand genuine access to beneficial financial services, or introduces new consumer risks that outpace existing safeguards.

What happens next?

Expect continued growth in embedded finance offerings across retail, small business software and other consumer-facing platforms, supported by expanding open banking infrastructure and a maturing banking-as-a-service industry. Regulators in several jurisdictions are likely to continue extending and clarifying consumer protection rules to ensure they adequately cover embedded financial products, particularly point-of-sale lending, given the growing volume of consumer credit now originating through these channels.

Over the medium term, the maturity and coverage of open finance frameworks, which extend the open banking model beyond banking to other financial products such as insurance and investments, will likely determine how far embedded finance can expand into additional categories of financial services beyond the payments and lending products that currently dominate the space.