What Is Embedded Finance? | Payment Economics Journal Issue 30

Embedded finance places financial products inside the systems where businesses transact.

PEI definition

embedded finance

noun phrase

A financial product, service, or capability designed and delivered within a nonfinancial commercial environment, where the environment's context, distribution, data, or workflow materially shapes access, eligibility, terms, execution, servicing, or use.

Payment Economics Institute, 2026.

Embedded finance begins when context does more than place a financial offer inside an interface. The surrounding environment may supply company identity, purchasing authority, an approved amount, invoice status, sales history, delivery confirmation, supplier data, or workflow permission. That context can determine whether the product appears, who can use it, its terms and controls, and where the result returns. The platform, financial provider, or both may carry the brand. Legal and economic responsibility remains with the parties that fund, authorize, execute, and service the product.

What is the product?

An embedded-finance product may be a payment, commercial account, card, working-capital facility, insurance product, or investment. Its embedded character comes from the commercial context that shapes when it appears, who receives it, and how it works. An approved purchase, an accepted invoice, a completed delivery, or marketplace activity can supply that context. The financial provider supplies and services the regulated product. The surrounding platform contributes the business relationship, workflow, and operating data. Together, they deliver a financial product suited to the buyer, supplier, merchant, or other participant within the activity.

Product families

Payments and money movement. Acceptance, payouts, disbursements, account-to-account transfers, cross-border payments, and reconciliation can occur inside the commercial experience. Payment may begin at checkout, after a delivery milestone, during invoice approval, or when a marketplace releases earnings. Context can determine the amount, recipient, timing, rail, controls, and reconciliation path. In business environments, payment capabilities can sit inside procurement, expense, ERP, and vertical systems.

Accounts and stored value. A platform can give a business an account, wallet, or stored balance for receiving, holding, and moving funds. Commercial activity can create the balance, update the ledger, and shape how funds are used. The regulated structure determines how money is held, safeguarded, disclosed, and returned. Current platform infrastructure increasingly connects accounts with acceptance, payouts, and spend, allowing funds to remain inside the operating environment from receipt through use.

Credit and working capital. A commerce platform can extend working capital using sales history. An approved invoice can trigger supplier early payment while preserving the buyer's terms. A marketplace can finance the work required to complete an order. Transaction context can inform eligibility, amount, pricing, repayment, and servicing. A bank, fund, or other capital provider carries balance-sheet exposure and credit loss according to the structure.

Issuing and spend control. A physical or virtual credential can be created when a purchase, trip, claim, project, or supplier payment is authorized. Amount, merchant, category, geography, and duration controls can follow the transaction. A virtual card is one instrument in this family. It becomes embedded when the governing workflow creates it for a defined purpose, carries policy into authorization, and returns transaction data for reconciliation.

Insurance and protection. Coverage can appear within travel, mobility, e-commerce, payroll, property, and vertical software experiences. The environment identifies the asset, event, or activity, the moment of need, and the data required to quote. A licensed carrier or intermediary provides underwriting and claims capacity. Digital distribution infrastructure can carry quoting, enrollment, policy service, and claims access within the partner experience.

Treasury and cash management. An ERP, commerce, payroll, or vertical software platform can connect operating balances and cash flows to accounts, liquidity tools, or investment products. Receipts, scheduled obligations, and approved forecasts create the data needed to move, hold, or invest cash. The regulated provider retains the custody, disclosure, and conduct obligations appropriate to the product.

Operating architecture

Embedded-finance programs combine three broad roles: provider, distributor, and enabler. The distribution owner controls the commercial context, interface, and business relationship. A regulated provider supplies the financial product and the authority to accept deposits, move money, extend credit, issue a payment credential, underwrite risk, or offer an investment product. Infrastructure providers connect the parties through APIs, ledgers, identity systems, onboarding, decisioning, processing, and reconciliation. Banks, funds, or other capital providers absorb funding and balance-sheet exposure. Networks and payment rails transmit value.

One organization may occupy several roles. Another program may include a sponsor bank, program manager, processor, ledger provider, network, capital provider, platform, and enterprise client. A credible architecture assigns ownership of marketing, eligibility, onboarding, consent, funds flow, ledger integrity, servicing, disputes, loss, reporting, and wind-down. The business can encounter one coherent interface while data, money, risk, and economics move through the full chain.

Related systems

Banking as a service describes the provision of banking products through a regulated institution's infrastructure, commonly enabled by APIs. It is a supply model. Open banking enables permissioned access to account information and payment initiation. It is a connectivity and consent model. Embedded finance describes the financial product delivered within the commercial experience. In one program, banking as a service can supply regulated capability, open banking can supply consented data or initiation, and embedded finance can describe the product as the business encounters it.

Technology connects these roles, while context creates the embedded character. An API can expose a balance, initiate a payment, issue a card, or submit a credit application. The surrounding environment determines why the product appears, what data informs it, when it is offered, how it is governed, and where the result returns. Context continues through execution and servicing, joining the financial product to the activity that created the need.

Commercial model

An embedded product creates commercial value when it improves the activity around it. A buyer can complete a purchase with fewer handoffs. A supplier can receive funds sooner without changing the buyer's terms. A merchant can obtain capital from current sales data. A platform can keep payment, account, or financing activity inside the operating record. Relevance, timing, control, and service determine whether the financial product improves the experience it enters.

Economics depend on role. Distribution owners can earn processing revenue, interchange participation, referral or servicing fees, subscription expansion, and stronger retention. Financial institutions can gain deposits, loan assets, premium, transaction volume, and new distribution. Infrastructure providers can earn software, platform, and processing fees. Networks gain volume. The business user must receive enough value in access, speed, price, control, or convenience to sustain adoption.

Every revenue line carries a corresponding obligation. Credit brings funding, underwriting, servicing, and loss exposure. Payments bring fraud, disputes, settlement, and reconciliation. Accounts bring ledger integrity, safeguarding, liquidity, and access. Insurance brings underwriting, policy administration, and claims service. Investment products bring custody, disclosure, and conduct requirements. Data sharing brings consent, privacy, security, and control over downstream use. A credible program prices both the revenue and the responsibility.

One interface can concentrate the customer experience, but accountability follows the licensed activity and contractual allocation. United States banking agencies state that a bank's use of third parties does not diminish its responsibility to comply with applicable law. Their joint statement on third-party deposit arrangements addresses fragmented operations, access to records, compliance functions, operational resilience, fraud, data, and funds availability. Contracts and controls must make those responsibilities visible across the full relationship.

Market structure

No single leader is evident across embedded finance because the category combines different products, jurisdictions, business segments, and positions in the value chain. Networks lead in reach and acceptance. Banks and insurers lead in licensed capacity and risk. Infrastructure providers lead in orchestration. Software platforms lead in context and distribution. These positions are complementary and economically distinct.

Financial products were progressively separated from their traditional distribution channels. Platforms are now recombining those layers around a different commercial relationship. Some firms integrate payments, issuing, accounts, capital, compliance, and servicing. Others specialize in one function and connect to a broader program. Platforms deepen into financial products while banks, insurers, networks, and capital providers expose their capabilities through partnerships and technology.

Product maturity also differs. Payments and issuing scaled earlier because the rails, unit economics, and operating models were established. Accounts, credit, insurance, and treasury products require different licenses, balance sheets, risk systems, and servicing capacity. A market can be advanced in one layer and early in another. That uneven maturity explains why embedded finance can feel established and still be taking shape.

Economic result

The economic result is the combined financial effect created by the product and the relationship that delivers it. Revenue may appear as processing fees, interchange, interest, premium, deposit value, software income, or stronger customer retention. Costs may include funding, incentives, credit loss, fraud, servicing, operations, compliance, settlement, and capital. These economics accrue to different participants, so the same product can create an attractive return for one party, a marginal return for another, and a weak result for the relationship as a whole.

Adoption and transaction volume show whether the product is used. They do not show whether it creates durable value. That assessment requires the full arrangement. It asks who supplies distribution, regulated capacity, capital, infrastructure, and service. It accounts for the risks each participant assumes, how value is allocated, and whether the product improves the underlying commercial activity for the buyer, supplier, platform, and financial provider.

Durable economics require each essential participant to earn a return commensurate with its capital, risk, and operating responsibility. The business must receive value that exceeds the friction, price, and risk introduced by the financial product. A product can scale in volume while weakening the relationship that supports it when benefits accrue to one layer and burdens settle elsewhere.

Embedded finance reaches maturity when the financial product and its surrounding commercial experience can be managed as one economic system. For enterprise payment portfolios, PEI measures that result through Payment Yield.

Suggested Citation

Jasinski, D. (2026). "What Is Embedded Finance?" The Payment Economics Journal, Issue 30, July 20, 2026.

Author

Daniel Jasinski, Founder & CEO, Payment Economics Institute

References

Adyen. "Embedded Finance Solutions for Platforms." Available here.

Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency. (2024). "Joint Statement on Banks' Arrangements with Third Parties to Deliver Bank Deposit Products and Services." Available here.

Chubb. "Digital Platforms and Embedded Insurance." Available here.

Mastercard. "Embedded Finance Solutions: B2B Payments Automation Within Your Platform." Available here.

McKinsey & Company. (2024). "Embedded Finance: How Banks and Customer Platforms Are Converging." Available here.

Open Banking Limited. "What Is Open Banking?" Available here.

Payment Economics Institute. (2026). "The CFO Measurement Problem in Enterprise Payments." The Payment Economics Journal, Issue 23. Available here.

U.S. Department of the Treasury. (2022). "Assessing the Impact of New Entrant Non-bank Firms on Competition in Consumer Finance Markets." Available here.

Visa. "Virtual Cards for Business." Available here.

Visa Consulting & Analytics. (2023). "Embedded Finance: What Are the Emerging Opportunities in This New Value Chain?" Available here.