Quick answer
Embedded finance means offering financial services, such as payments, loans, insurance or investments, inside a non-financial platform, marketplace or workflow[1]. The app is the shop window; a licensed bank or lender usually provides the product behind it.
Key points
- Embedded finance puts payments, lending, insurance or investments inside non-financial apps and websites.
- The brand you see is often not the regulated provider; a partner bank or licensed lender usually stands behind the product.
- Platforms can use their own data, such as a seller's sales history, to decide on loans quickly.
- BNPL at checkout is the best-known consumer example; merchants pay BNPL providers 5% to 8%, against 2% to 3% for cards.
- Regulators worry about unclear responsibility, bundled products and borrowing that other lenders cannot see.
On this page
#What does 'embedded finance' mean?
Until recently, if you wanted a loan you went to a bank. Today the offer often comes to you, inside an app that has nothing to do with banking: a shopping site, a ride-hailing app or software that small businesses use to run their shop. A World Bank analysis from July 2025 defines embedded finance as the integration of financial services, such as payments, lending, insurance and investments, into non-financial platforms, marketplaces and workflows[1]. This page focuses on lending; the insurance side is covered in embedded insurance explained.
European regulators describe the same trend as 'platformisation'. In a joint report of January 2022, the three European Supervisory Authorities said digital platforms are increasingly used to market and distribute financial products and services, sometimes bundling different financial and non-financial services together[2]. The European Banking Authority had already reported, in September 2021, rapid growth in the use of digital platforms to 'bridge' customers and financial institutions[3].
#Who actually provides the loan inside an app?
Lending money to the public normally requires a licence, and most apps do not have one. So embedded finance is usually a partnership. The platform owns the customer relationship and the screen; a regulated bank or lender provides the product and holds the licence; and a technology firm may connect the two. The same layering appears in banking as a service. In the US, a 2011 Government Accountability Office report described an early version of this model: a partner bank approved, originated and funded loans that an online platform then bought[4].
The layers behind an embedded loan
- Customer — sees offer in an app
- Platform — shop, marketplace, SaaS
- Tech provider — APIs, decision engine
- Licensed lender — bank or credit firm
| Type | Where you meet it | Who borrows |
|---|---|---|
| Buy now, pay later | Online and in-store checkout[5] | Consumers |
| Point-of-sale instalment loans | Checkout for larger items, monthly payments[5] | Consumers |
| Merchant working-capital loans | Seller dashboard of an e-commerce platform[1] | Small businesses |
| Platform credit for small firms | Big tech marketplaces and payment apps[6] | Small businesses |
#Why do platforms want to offer loans?
Two reasons stand out: data and sales. The Bank for International Settlements (BIS) describes a loop it calls DNA, for data analytics, network externalities and interwoven activities: more users create more data, better data improves services, and better services attract more users[6]. A marketplace already sees how much a seller sells and how often customers return items, so it can judge a loan application quickly. The BIS notes that Ant Financial and Mercado Libre say their credit decisions typically use more than 1,000 data series per applicant[6].
The World Bank gives examples of e-commerce platforms such as Hepsiburada and Mercado Libre extending working-capital loans to merchants based on their sales and revenue data[1]. For consumers, the most visible example is buy now, pay later, where a Federal Reserve note estimates that providers originated close to $160 billion of consumer credit in the US in 2025[5].
#Who pays for embedded lending at checkout?
Often the merchant. The Federal Reserve note found that BNPL providers charge merchants fees of 5% to 8%, higher than the 2% to 3% charged by credit card providers[5]. The shop pays more per sale because it hopes the financing option brings more or bigger sales. For background on what card fees include, see interchange fees explained.
Worked example
Worked example: the merchant's cost on an $80 order
Using only the fee ranges from the Federal Reserve note (actual contracts vary), here is what a shop would pay on one $80 order. Computed with code.
- BNPL fee at 5%
- $4.00
- BNPL fee at 8%
- $6.40
- Card fee at 2%
- $1.60
- Card fee at 3%
- $2.40
- Extra cost of BNPL vs card on this order
- between $1.60 and $4.80, depending on where each fee falls in its range
#What are the risks of embedded finance for customers?
The convenience that makes embedded finance attractive also hides its structure. The European Supervisory Authorities warned that consumers can find it hard to work out which authority is responsible when they need to complain or get redress, and flagged the risk of mis-selling, especially for tied and bundled products[2]. In the US, the Federal Reserve, FDIC and OCC issued a joint statement in 2024 on banks' arrangements with third parties to deliver deposit products, highlighting risks such as customers misunderstanding deposit insurance coverage and weak recordkeeping[7].
There is also a system-wide issue. The World Bank notes that if embedded lending stays inside the 'walled garden' of one platform, borrowers may struggle to build a full credit profile, and other lenders may not see all of a borrower's debts[1]. That links directly to the credit score you build, or fail to build, through these products.
Common beginner mistakes with embedded finance
Assuming the app is the lender
The brand at checkout is often a distributor; a partner bank or lender usually provides the credit.
Accepting a bundle without reading it
Loans, insurance and memberships can be packaged together; check what you are actually signing up for.
Forgetting debts across apps
Credit taken in different apps may not show up in one place, so keep your own list.
Ignoring who handles complaints
Know which firm and which regulator to contact before something goes wrong.
#How does embedded finance connect to open banking and APIs?
Embedded products run on application programming interfaces (APIs), which let the platform, the lender and sometimes your bank exchange data in real time. Where open banking rules exist, you can also let a lender read your bank data to decide on a loan, a practice discussed in alternative credit data explained. For the technical side, see how banking APIs work.
The bottom line
Embedded finance moves loans and other financial services into apps and checkouts people already use, usually through a partnership with a licensed lender. It can make credit faster and more accessible, especially for small sellers, but it can blur who is responsible and scatter debts across platforms. Always find the real lender behind the button.
Frequently asked questions
Is embedded finance the same as banking as a service?
They are related. Banking as a service is the licensed bank's offer to partners; embedded finance is what the customer sees inside the partner's app. See banking as a service explained.
Is BNPL a form of embedded finance?
Yes. It is credit offered inside a merchant's checkout, and it is the most common consumer example[5].
Who do I complain to about a loan taken in an app?
The lender named in your agreement first, then the relevant regulator or ombudsman. European supervisors note this can be hard for consumers to work out[2].
Why can platforms lend so quickly?
They already hold data about their users, for example a seller's sales history, and use it to assess loans[6].
Sources
- How embedded finance is reshaping credit access for MSMEs and individuals: Implications for credit information systems — World Bank (Private Sector Development blog), 2025 Primary
- ESA Final Report on Digital Finance (ESA 2022 01) — European Supervisory Authorities (EBA, EIOPA, ESMA), 2022 Primary
- EBA sees rapid growth in the use of digital platforms in the EU's banking and payments sector — European Banking Authority, 2021 Primary
- Person-to-Person Lending: New Regulatory Challenges Could Emerge as the Industry Grows (GAO-11-613) — US Government Accountability Office, 2011 Primary
- 'Buy Now, Pay Later' Beyond 'Pay in 4': A Comprehensive Product Overview (FEDS Notes) — Board of Governors of the Federal Reserve System, 2026 Primary
- Annual Economic Report 2019, Chapter III: Big tech in finance — opportunities and risks — Bank for International Settlements, 2019 Primary
- Joint Statement on Banks' Arrangements with Third Parties to Deliver Bank Deposit Products and Services (CA 24-5) — Federal Reserve, FDIC and OCC (copy hosted by the FDIC), 2024 Primary
- PS26/1: Regulation of Deferred Payment Credit (unregulated Buy Now Pay Later) — Financial Conduct Authority, 2026 Primary
