Embedded finance: payments inside another company's product

Embedded finance is the provision of a financial service inside a non-financial product. A ride-hailing app that pays its drivers instantly is embedding payments. An e-commerce marketplace that holds the buyer's money until the goods are delivered is embedding payments. A payroll platform that pays employees on demand is embedding payments. The customer does not see a bank, does not open a bank account, and does not know a payment is happening. They see a button that says pay, or a balance that updates, and the payment happens invisibly underneath. The model has three parties. The first is the non-financial company, the brand, which owns the customer relationship and the user experience. The second is the banking-as-a-service provider, which provides the regulated infrastructure: the accounts, the payment rails, the screening, and the ledger. The third is the sponsor bank, which holds the licence, holds the customer money, and is responsible to the regulator. The brand never touches the money, the provider never holds the licence, and the bank never meets the customer. Each party has a defined role, and the contracts between them define who is responsible when something goes wrong. The regulatory stack is the hardest part. The brand is usually not regulated, the provider may be regulated as an electronic money institution or a payment institution, and the sponsor bank is fully regulated. The regulator holds the sponsor bank responsible for everything, including the actions of the brand and the provider. The sponsor bank must therefore be able to see every payment, must be able to stop a payment, and must be able to audit the provider and the brand. A sponsor bank that cannot see the payments is a sponsor bank that will lose its licence. The customer experience is the reason embedded finance exists. A driver who finishes a ride and sees the money in their account within seconds is more likely to drive again. A marketplace seller who is paid on delivery is more likely to list again. An employee who can access their earned wages before payday is more likely to stay. The payment must be instant, invisible, and reliable, because the customer judges the brand by the payment, even though the brand does not process it. A payment that fails, or that is delayed, damages the brand, not the bank. The risks are concentrated. Because the payment is invisible, the customer does not know who holds their money, and does not know who to complain to when it goes wrong. Because the brand is not regulated, it may not understand the compliance obligations, and may onboard a customer the bank would have rejected. Because the provider sits between the brand and the bank, a failure at the provider affects every brand it serves. The sponsor bank must therefore control the onboarding, the screening, and the transaction monitoring, even though it never meets the customer. The business model is a revenue share. The sponsor bank charges the provider, the provider charges the brand, and the brand either absorbs the cost or passes it to the customer. The fee is usually a percentage of the payment value, plus a fixed fee per transaction. The economics work because the volumes are large and the cost per payment is low, but they only work if the exception rate is low, because each exception costs more than a hundred successful payments. The requirements must state the fee model, the revenue share, and the exception cost. For a business analyst, embedded finance is a three-party requirements exercise. The requirements must state what the brand sees, what the provider does, and what the bank controls, and must state the contracts between them. The acceptance criteria must include a test where a payment is made through the embedded product end to end, and the money, the screening, the ledger and the status are all correct. Last reviewed 7 November 2026. Further reading: the Bank for International Settlements work on embedded finance; the European Banking Authority opinion on banking as a service; the Financial Conduct Authority guidance on embedded finance; the McKinsey report on embedded finance 2024.