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How embedded finance breaks down barriers to banking

Embedded finance is the fusion of technology and traditional financial services. Its innovation promises to transform accessibility to financial tools for all, and now change is needed more than ever.

Recent data has underscored the urgency of addressing the widening gap in economic security. Nearly a fifth (18%) of the UK are struggling with poverty. Over 11 million working-age individuals in Britain struggle with little savings, and food bank usage is at a record level.

Recognising the need for better financial inclusion is more than just a matter of convenience. It is a fundamental social equity issue, crucial for levelling the playing field and fostering equal opportunities. There is an opportunity for the financial services industry to use sophisticated technology to transform businesses and consumer experiences to break down these barriers and extend access to all members of society.


Overcoming financial obstacles 

Embedded finance - integrating financial services into non-financial experiences - is a quickly growing market with an ever-increasing array of use cases. One such is the issuance of digital wallets (or e-wallets) by traditionally non-financial organisations, and this is an essential part of driving better financial inclusion.

Digital wallets are an easy way to extend banking services to previously unbanked customers. People in the UK, for instance, may struggle to open a traditional bank account due to poor credit history or lack of fixed address but can use a digital wallet due to lower entry barriers. This could be part-managed by the public sector for example. By using embedded finance solutions, governments can create digital wallets or accounts for individuals who can’t access traditional banking services.

Another area where embedded finance can play a critical role is lending. Again, many may struggle to access credit from traditional banks but may desperately need it in this current economic climate. However, if more service providers can offer credit, it may be easier to manage costs. Retailers like Iceland in the UK are exploring loan services: the Iceland Food Club offers interest-free micro-loans of up to £100 on pre-payment cards that customers pay back at £10 per week. Embedded lending technology can make it easy for other businesses to seamlessly offer similar credit schemes to their customers and help spread out biting costs.


Terms and conditions apply

Embedded finance can dramatically improve access to financial services because it can be offered at the point of need and convenience. The implementation of embedded finance must be done carefully and with full compliance. As financial technology grows, regulatory frameworks are evolving to keep up, and companies looking to incorporate fintech offerings need to be aware of and abide by them.

For instance, the European Commission last summer published proposals for the Payment Services Directive 3 (PSD3, updating PSD2) and the Payment Service Regulation. The proposals intended to improve consumer protection and security, thus levelling the playing field between banks and non-banks and fueling open banking, among others. Although the process of finalising these proposals and the Member State transition period mean there is little time before these new regulations come into force (Deloitte estimates at the end of 2026), these new regulations illustrate a sector coming under greater scrutiny and susceptible to reshaping as new payment challenges emerge.

Overseas, in November, the US Consumer Financial Protection Bureau proposed new rules to regulate Big Tech’s digital payments and smartphone wallet services. A rapidly evolving sector is an exciting space to operate in but agility is needed to adapt to the changing regulatory landscape. That’s why many organisations embracing embedded payments will collaborate with a payments partner to help them navigate shifting rules while still rolling out services at scale.


The spotlight must be on inclusion

Neo-banks and alternative providers of financial services stand poised to shape the future landscape of financial inclusion. Fueled by digital innovation, fintechs and an increasing number of corporates are keenly aware of the importance of enhancing financial well-being, offering various tools such as spending trackers and budgeting aids to enrich the customer experience.

In the realm of finance, inclusion and innovation are inseparable partners. Through digitisation and embedded payments, the industry has the opportunity to dismantle barriers to financial access.

As financial products and services evolve, inclusion must remain a central focus at the development stage, not an afterthought. It’s up to businesses big and small to work together to make a lasting impact.


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