The financial services landscape is evolving, with embedded financial services increasingly prevalent across multiple sectors. In a previous post, I examined the development of embedded banking, specifically embedded accounts and payments. 

While ‘embedded banking’ and ‘embedded finance’ are often used interchangeably, they represent complementary but distinct concepts with different applications and providers. This blog post explores these concepts and their use cases and clarifies the differences. 

Embedded finance has transformed how financial services are delivered and consumed, moving from standalone banking institutions to seamless integration within non-financial platforms. It’s also not a new concept if we define it as delivering a financial service at the point of need. For example, in the 1920s, Ford established a lending program for car buyers at its physical dealerships through the Ford Credit Bank. 

The first wave of modern embedded finance was typified by co-branded cards and banking services. That rapidly evolved, primarily due to technological advancements, particularly Application Programming Interfaces (APIs), enabling firms across various industries to integrate financial services directly into their platforms, including payment processing, lending, insurance and investment services. 

Today, we see financial services delivered at the point of need, enhancing the customer experience. For example, an e-commerce platform that integrates payment processing, buy-now-pay-later options and insurance for purchased items at the checkout. 

Embedded finance encompasses several distinct categories, each with notable use cases:  

• Embedded payments are one of the most visible and widely adopted forms of embedded finance, integrating payment capabilities directly into applications and websites for a frictionless experience. Examples include ride-sharing apps such as Uber, where payments are processed in the app, removing the need to handle cash or use card readers or third-party apps and Shop Pay by Shopify, which provides credentials that work across multiple retailers, streamlining the checkout process.  
• Embedded lending involves offering credit services, often within an online checkout and eliminating traditional loan application processes. The most well-known is Buy Now, Pay Later (BNPL) services like Klarna, which are integrated into checkout processes, allowing consumers to split purchases into smaller monthly instalments without leaving the shopping environment.
• Embedded insurance delivers relevant, personalised protection into purchase journeys, allowing consumers to include or add on coverage. This model is prevalent in the US, for example, in travel and hospitality, with Expedia offering customers the ability to purchase travel insurance for their bookings. Or Tesla, which offers new owners an option to insure their vehicle and file and manage any claims all within its app.

Embedded banking is a core element of the broader embedded finance movement, focusing specifically on integrating traditional banking services into everyday applications and platforms. Embedded banking laid the foundation for embedded finance by demonstrating the possibilities of integrating core financial services into third-party services. 

The Banking as a Service (BaaS) model facilitates embedded banking through the integration of capabilities like embedded accounts, embedded payment services and card issuing. 

An amalgamation of providers powered the first wave of embedded services, filling a gap in demand while incumbent banks played catch-up. In the UK and EU, fintechs saw the potential for services powered by an EMI licence to deliver digital wallets and embedded payment services when time to market and agility were paramount. 

But that also left firms with a problematic choice: launch digital services with an agile, digital-first partner or collaborate with a bank with the credentials to provide peace of mind to end customers but potentially take longer to get to market. 

Some notable examples of embedded banking include: 

• Shopify Balance: A US business bank account offered by Shopify linked directly to a merchant’s Shopify Store. Using Stripe for payments and several underlying bank providers for account services and card issuing enables merchants to manage their finances within the platform they use to run their business. Small business owners can access their funds faster, efficiently execute financial transactions and receive exclusive rewards for using their Balance card.
• Lyft Direct: A service that the ride-hailing app offers its drivers, providing an embedded account powered by Stride Bank. Drivers instantly receive payments in their accounts, cash-back offers, and exclusive card rewards. They can also set up separate savings accounts through the program, helping them manage their finances directly through the platform they use to earn income.
• The AA: The UK’s leading roadside assistance firm, serving 14 million members, offers instant access savings accounts to members and the public, with differing rates, and plans to provide unsecured personal loans using NatWest’s Boxed platform.  

Embedding services at the point of need, particularly into non-financial applications, makes trust in the underlying provider paramount. That includes adherence to regulatory standards and reassurance that their data and transactions are secure. Trust is crucial to fostering loyalty in a new service and attracting customers. 

Trust and regulatory foundation 
Recognising that gap, ClearBank launched its embedded banking proposition in 2019. It offers several core features, including proven, scalable payment capabilities and FSCS protection for eligible deposits. 

 
Evolving embedded banking partnerships 
ClearBank began its embedded banking journey by collaborating with Tide, a service focused on the historically underserved SME market, to deliver embedded accounts. Today, Tide supports over 10% of the UK SME market with a business account specifically designed for SMEs, freelancers, and scaling businesses, unlocking a viable and attractive alternative to incumbent banks. 

We’ve continued investing in embedded bank accounts and embedded payments powering services for innovators like Capital on Tap, Chip, Raisin, Revolut and Wealthify. After successfully delivering embedded current accounts, we developed new products, including high-yield embedded savings accounts and Cash ISAs. 

For example, with wealth app Chip, our partnership began with agency banking delivering accounts and payment scheme connectivity, before evolving into embedded banking to power its savings products. The results speak for themselves, with more than 675k savings accounts and deposits totalling over £5bn by the end of 2024. 

In February 2024, ClearBank and Chip introduced a flexible Cash ISA that allows customers to save up to the current allowance of £20,000 per tax year, tax-free. The same philosophy guided that work as it did with our existing interest-bearing savings account product, which passes the majority of the interest earned to the client for them to pass on to customers. 

The Cash ISA has also proven incredibly popular, with more than 155k ISA accounts and over £1.82bn in deposits at the end of the year. You can read more about our successful partnership with Chip here.  

The distribution of banking products is fundamentally changing. Embedded finance allows non-financial brands to deliver financial services directly to their customers. Integrating seamlessly into non-financial platforms makes these services more accessible, convenient, and contextually relevant to users. 

Embedded banking, as a subsector of this broader trend, transforms how businesses and consumers interact with traditional banking services. With modern providers such as ClearBank, financial and non-financial brands now have a partner that balances agile service capabilities with robust controls and processes. 

The most successful embedded finance providers will combine regulatory compliance with an ability to innovate. This requires embedded finance partners with the right customer, technical, operational, and regulatory excellence to deliver trust in their services. 

Firms that successfully leverage embedded finance and banking will likely gain significant competitive advantages through enhanced customer experiences, new revenue streams, and deeper customer relationships. Embedded services are a transformative force reshaping the financial landscape.