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Regulation and collaboration: the key to mainstream embedded finance

There was one major story in fintech during 2020: the collapse of Wirecard.


The saga of the scandal-hit company increased the focus on some concerns around fintech generally. Of course, the blame for the collapse lies squarely with Wirecard - but there are lessons to be learned beyond the nefarious behaviour of executives in one company.


First, whatever the fintech-skeptics say, we should remember that the Wirecard story is not symptomatic of the collapse of the sector. However, it demonstrates some key risks: an over-reliance on a small number of systemically important players; a knowledge gap between regulators and industry; and the simple fact of the novelty of the industry.


Now that Embedded Finance is in its ascendancy, the parameters are shifting again. The main characteristic of Embedded Finance is, in some senses, one of occlusion: it is about hiding the ‘wires’ that connect users, brands, and financial services. But this lower degree of visibility for fintech service providers does not mean less responsibility - in fact, it is quite the opposite. In a world of Embedded Finance, fintech operators must understand that they are more responsible than ever for the safety of the industry and its customers.


The fintech industry strives to delight and protect customers, and incorporated into this must be the development of sustainable business models and pricing regimes, collaboration with reputable redundancy partners, and the establishment of a culture of compliance at every level of our organisations. Fintech has responsibilities, and these are deepening in a world of Embedded Finance.


But responsibility doesn’t lie solely with industry. In order to secure a sustainable future for fintech, and in order to properly protect consumers and businesses, it is necessary for industry to work closely and collaboratively with regulators. There must be a collegiate and productive relationship between these two parties.


The UK leads the way in this area. The FCA is the gold standard for fintech regulation worldwide, and the depth of the cooperation between it and the fintech sector is second to none. In particular the FCA’s sandbox regime is a world-leading solution for improved resilience and security in fintech, and industry players globally should be pushing for similar projects in their own jurisdictions. Indeed, sandboxes have been launched elsewhere, and there are plans afoot for the process to be adopted in key jurisdictions including several US states.


Regulators themselves must also take additional responsibility as Embedded Finance becomes part of consumers’ everyday lives, and they will be required to operate in a range of new areas. If Embedded Finance, and fintech more generally, are to be truly sustainable, regulators and industry must also do as much as possible to ensure the free flow of information not only between themselves, but also toward consumers.


The primary priority for regulators is, of course, the security of customers’ money and the safety of the financial system at large. But trust and sustainability are also crucial for the development of the fintech sector. Without consumer trust, fintech will never fulfil its potential - and this is particularly true of Embedded Finance. Practitioners of Embedded Finance are making a big ‘ask’ of consumers, one that requires a major shift in perception and a certain leap of faith. When asking them to trust non-financial brands with their day-to-day finances, the Embedded Finance industry must be absolutely certain that it is systemically stable.


Trust and sustainability must be cornerstones of all fintech work. As Embedded Finance continues its rise, and as fintech becomes integrated into more and more aspects of consumer life, both industry and regulators must ensure that they are doing everything in their power to ensure the safety of the industry.




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