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Embedded finance places a financial service—such as a payment, loan, account or insurance offer—inside a non-financial product or customer journey. APIs can connect the systems that deliver it, but the transformation is broader than integration: banks and platforms must decide who serves the customer, how partners share responsibilities and economics, and how they manage risk.
What embedded finance means
The EBA Open Finance Working Group defines embedded finance as integrating financial services into non-financial platforms to create seamless customer experiences. A customer might see financing while buying a product, use a payment feature inside a business platform, or access an account through a service they already use. The financial action is part of the surrounding journey rather than a separate visit to a bank or insurer.
The underlying service is still provided through financial institutions and contractual arrangements. Embedding a product does not, by itself, make a retailer, software platform or marketplace a bank. Depending on the arrangement, a bank may provide the balance sheet or regulated service while a platform supplies the customer-facing experience.
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The EBA identifies payments, accounts, lending, saving, investing and insurance as possible applications. Its report also emphasizes that APIs and banking-as-a-service (BaaS) can enable delivery, while customer-centered product design and collaboration determine whether the service fits the actual journey.
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How embedded finance differs from APIs, open banking and BaaS
These terms describe different parts of a financial-services arrangement. An API is a technical interface; embedded finance describes where and how a financial service reaches a customer. Open banking generally concerns customer-authorized access to financial data or services across providers. BaaS describes an arrangement in which a financial institution makes banking capabilities available to another business, often through APIs. The terms can overlap, but they are not interchangeable.
| Term | What it describes | Its relationship to embedded finance |
|---|---|---|
| API | A way for software systems to communicate or make capabilities available. | Can connect a platform to a financial service, but an API alone does not create a customer proposition or operating model. |
| Open banking | Customer-authorized access to financial data or services across providers. | May supply data or connectivity used in a journey; it is not the same as embedding a financial product in a non-financial platform. |
| BaaS | A financial institution makes banking capabilities available for use by another business. | Can be one delivery structure for an embedded service; the exact roles depend on the product, jurisdiction and contract. |
| Embedded finance | Financial services are integrated into a non-financial platform or customer journey. | It is the customer-facing and distribution proposition that APIs or BaaS may help deliver. |
What changes when a bank moves from integration to transformation
Integration connects systems. Transformation changes how a service is designed, distributed and operated. A useful way to assess the change is across four connected layers:
- Technical: APIs, authentication, data connectivity and modular systems allow capabilities to be connected.
- Product: A financial action—such as payment, credit or insurance—is placed where it solves a customer problem.
- Operating: Onboarding, customer support, compliance, data governance, partner oversight and recordkeeping must work across organizations.
- Business: Partners determine distribution, customer interaction, economics, strategic positioning and responsibility for risks.
The EBA’s 2024 report describes financial institutions shifting API programs toward embedded-finance use cases or complete BaaS offerings. That shift makes business readiness as important as technical readiness. In a case described by McKinsey’s banking API analysis, a bank had technology ready for an API-based loan offer, but business readiness delayed launch by more than six months. A working connection cannot substitute for decisions about product ownership, processes and partner responsibilities.
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McKinsey’s analysis also illustrates how API priorities changed over time: innovation ranked fifth among API objectives in 2020 and was the leading objective in 2022. The same analysis reported that three-quarters of APIs in the survey remained internal, while one-quarter were available to partners or the public. These are historical findings from the analysis, not measurements of the API landscape today.
Which role can a bank take?
The EBA describes financial institutions as providers, enablers or distributors, with strategic options spanning balance-sheet provision, organic enablement, BaaS, bank-operated platforms and strategic investment. These positions involve different levels of customer access, investment and responsibility; no single role suits every institution.
| Role | What the bank contributes | Key strategic question |
|---|---|---|
| Provider | A financial service or balance-sheet capacity used in a partner’s offer. | Can the bank support the product’s economics, underwriting or other financial obligations? |
| Enabler | Capabilities and connections that help another business deliver a financial service. | Can the bank operate the technology, controls and partner support reliably at the required pace? |
| Distributor | A route to customers for financial products, potentially through the bank’s own channels. | Does the bank have customer access that improves reach without undermining its existing channels? |
| Platform or strategic investor | A broader role in organizing services or supporting an ecosystem. | Does the institution have the capabilities and strategic commitment to coordinate multiple participants? |
These are strategic descriptions, not a universal allocation of legal or operational duties. Responsibilities vary with product, jurisdiction and contract. A bank choosing a role should weigh access to customers, balance-sheet needs, integration and operating investment, risk-management capability, reach into new segments and possible cannibalization of existing distribution.
How embedded financial services appear in real customer journeys
Examples reported in McKinsey’s April 11, 2024 analysis of U.S. banks show how a platform can place a financial action in context. The examples below describe arrangements as reported at that time; that reporting does not establish current availability, terms or partner status.
- Restaurant merchants: Toast partnered with WebBank on a merchant cash advance informed by card-receivables data.
- Drivers: Uber partnered with Evolve Bank & Trust and accelerated-pay company Branch on a debit Mastercard arrangement intended to let drivers get paid faster and earn fuel rewards.
- Airline customers: Airlines partnered with Uplift and CBW Bank to offer installment loans for flight purchases.
- Online shoppers: Citizens Bank began offering installment financing for iPhone purchases through Apple and extended the capability to other e-commerce merchants.
Across these cases, the embedded-finance pattern is distribution in context: a financial service appears in a platform or purchase flow where it may address a specific need. The examples do not establish that every partnership uses the same technical architecture or assigns customer support, underwriting and compliance duties in the same way.
What leaders should decide before launching
A credible opportunity starts with a customer friction point, not with the availability of an API. The EBA recommends that institutions choose roles in light of their strengths, market presence, customer needs and desired place in the value chain. PwC’s discussion of ecosystem transformation likewise stresses partner management, risk controls, legacy modernization and data protection.
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- Name the customer problem. Identify the point in a journey where a financial service would remove friction or meet a need. Be specific about who benefits and why the service belongs there.
- Choose the bank’s role. Decide whether the institution will provide the balance sheet or service, enable a partner, distribute an offer or take a broader platform role.
- Assign the customer-facing work. Set out who controls customer interaction, onboarding, support, complaints and access to data. Define these responsibilities in the operating model and contract.
- Test business readiness alongside technology. Check whether core systems, product processes and decision-making can deliver at the pace expected of the API layer.
- Establish risk and control ownership. Address compliance responsibilities, fraud, cybersecurity, privacy, service failures and recordkeeping across the parties.
- Check the economics and customer effect. Assess whether the partnership reaches new customers or a niche, and whether it could shift existing customers away from established products or channels.
Smaller and larger banks may face different trade-offs. McKinsey’s U.S. bank analysis says smaller banks can have distribution opportunities but may lack the technology and operational capacity for end-to-end journeys. Larger banks may bring balance-sheet capacity and risk controls, while costs and concerns about cannibalizing existing business can make some partnerships less attractive. These are the analysis’s observations about U.S. bank choices, not rules that apply to every institution.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What risks and regulatory conditions matter?
Partnerships can extend a bank’s operational dependencies beyond its own systems. In a joint statement issued July 25, 2024, the Federal Reserve, FDIC and OCC warned that third-party deposit arrangements—including some arrangements described as BaaS or embedded finance—can create additional access points into bank systems and amplify fraud, cybersecurity and data-privacy incidents. The agencies wrote: “Integration may amplify operational risks, such as fraud, cybersecurity, and data privacy incidents occurring at the third party that then affect the bank.” The statement concerns U.S. bank third-party deposit arrangements; it is not a general rule covering every embedded financial product.
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- Funds are first deposited at an insured depository institution.
- Account records disclose the basis for pass-through coverage.
- The actual owners and their interests can be ascertained from the records.
- The relationship between the account holder and the beneficial owners is genuine.
Branding or displaying a bank name alone does not establish pass-through coverage, and deposit insurance does not apply to every product called embedded finance. The arrangement and its records must meet the applicable conditions.
Other challenges identified by the EBA include legacy systems, organizational structures, competing stakeholder interests and data security. PwC recommends treating ecosystem risk as a distributed responsibility and building dedicated partner-management capacity. In practice, that means designing oversight and escalation paths across the partnership rather than assuming that a technical integration also settles who handles an incident or customer complaint.
How to interpret market and survey figures
Market figures for adjacent categories are easy to misread as the size of embedded finance itself. PwC’s approximately 2023 projection of roughly US$8.4 trillion by 2030, with aggregate growth above 70% over the next seven years, concerns global B2B ecosystem services—not embedded-finance revenue. It should not be used as an embedded-finance market estimate.
McKinsey’s 2024 U.S. bank article describes the U.S. embedded-finance market as worth $20 billion, but the article excerpt does not provide enough methodological detail to establish a comparable measure. It is not a current global figure and should not be compared directly with PwC’s B2B ecosystem projection.
PwC’s 26th Annual Global CEO Survey, published in 2023, found that 61% of financial-services CEOs cited changing consumer behaviour as a threat to profitability, and 74% said they would invest in technology such as AI and cloud over the next 12 months. These are survey responses and investment intentions from that survey, not current rates or guarantees of business outcomes.
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