What lessons can embedded finance learn from payment schemes? The market potential and challenges of embedded finance partnerships

Piet M. Mallekoote and Suren K. Balraadjsing
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Piet M. Mallekoote: Independent Adviser and Supervisor, The Netherlands
Suren K. Balraadjsing: Scheme Auditor, The Netherlands

Journal of Risk Management in Financial Institutions, 2025, vol. 18, issue 3, 249-260

Abstract: New technologies, changing customer needs and regulations have reshaped the traditional playing field for banks and other financial services providers. Embedded finance is an example of this. Embedded finance is the seamless integration of financial services into non-financial platforms (eg e-commerce). As a result, customers no longer need to leave the platform to fulfil their financial needs, such as paying or borrowing. This offers customers greater convenience and efficiency. Banks and other traditional financial services providers are increasingly being pushed back into the value chain, unless they compete with these platforms by becoming more innovative, entering into strategic collaboration with technology partners and building embedded financial platforms themselves. In both cases, from a supervisory perspective, they are ultimately responsible for the risks of these ecosystems. This paper analyses the background of embedded finance, the unbundling of the value chain of traditional financial service providers and the emergence of new ecosystems. The benefits of embedded finance for customers, however, entail risks arising from the increasing complexity of the new ecosystems. If the mutual responsibilities of all parties involved are not clearly defined, the risk of market failure increases. It may also be unclear whom the customer should contact in the event of a problem or incident with the service provided by the platform. The authors advocate a form of organised cooperation, which also has proven itself in existing payment schemes. This includes common standards, uniform agreements and transparency with respect to the terms and conditions of the provided services. This will not only reduce costs for all the parties involved, but also increase trust among consumers and businesses using these services. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/

Keywords: banking-as-a-platform; banking-as-a-service; buy now pay later; data sharing; embedded finance; FinTech; market failure; open finance; platforms (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2025
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