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The Ethical and Societal Aspects of Embedded Finance

The Ethical and Societal Aspects of Embedded Finance






Piloted by open banking and encouraged by evolving consumer habits amidst the pandemic, embedded finance is a growing trend in the FinTech ecosystem. As embedded finance advances and develops, its impact will encompass the banking and financial industry. Embedded finance enables the integration of applications, websites, and business models to those of non-bank brands and non-financial platforms, introducing a new model of banking and financial services distribution and new opportunities for ambitious companies to influence and enhance the banking economic lives of their customers.

These ongoing developments mean that their customer base can seamlessly access their banking and financial services within the parameters of their everyday lived lives. However, although embedded finance offers the benefits of convenience and simplicity, significant societal and ethical considerations need to be addressed. 

Embedded Finance Defined

Embedded finance is not a new concept. For decades, non-banks and non-financial institutions have offered banking and financial services via private-label credit cards at retail chains, supermarkets, and airlines. Furthermore, embedded finance includes sales financing at auto-loans at dealerships and appliance retailers, arrangements that operate as a conduit for the banks behind them to reach end-consumers. 

Put more succinctly, embedded finance places a financial product or service into a non-financial customer experience, journey, or platform. However, what empowers this emerging generation of embedded finance is its integration of banking and financial products into digital interfaces that users interact with daily. These interfaces come in various forms, from accounting software to shopping cart platforms and customer-loyalty apps to the digital wallet.

For businesses and consumers who use these interfaces, acquiring banking and financial services has become a natural extension of the non-banking and non-financial experience. Whether this is online shopping or managing inventory and scheduling employee shifts, these are the developments of embedded finance that have significantly grown in recent times. 

The ongoing evolution of embedded finance has enabled fundamental changes in commerce, consumer, and merchant behaviour and technology. The further development of digitalization in business management and marketing has exponentially increased opportunities to embed finance into non-banking and non-financial customer experiences.

Additionally, as digital natives have come of age, they increased the opportunities available to businesses and consumers to receive all their banking and financial services using digital platforms. Open banking innovation has helped unlock latent demand by enabling third-party FinTech players to access consumers’ banking data and allowing them to conduct transactions on their behalf.  

The Data Protection and Privacy of Embedded Finance

Embedded finance involves exchanging personal data between banking and financial institutions, third-party providers, and non-financial platforms. These create issues pertaining to privacy and data protection.

When considering the functionality of embedded finance, optimized application programming interfaces( APIs) are not enough. They need data of sufficient quality and scope. 

For example, pre-filling a lengthy application form for a financial product dramatically enhances the user journey, but not if the available data is insufficient for the provider to assess creditworthiness accurately.

Therefore, banking and financial institutions must ensure that they have industry compliance, comply with data protection regulations, and obtain explicit consent from their customers before sharing their data with third-party providers. Third-party providers must ensure that they have adequate security measures that protect their consumer data.

When handling an individual’s finances and data, compliance and regulation must be strictly adhered to on every level to bolster consumer trust and avoid penalties. The accountability and responsibility for this compliance ultimately lie with the providers. However, there should be collaboration and transparency between banking and financial institutions and regulators to help [them] meet regulatory standards.

The Fairness and Transparency of Embedded Finance

Embedded finance also raises questions about transparency and fairness. Banking and financial institutions must ensure transparency about their services, fees, associated charges, and the fairness with which they deal with their customers.

Furthermore, banking and financial institutions and regulators must incentivize by offering sweeteners that assist their providers in meeting regulatory standards to avoid any [perceived] discrimination or malpractice. They achieve this by providing [their] customers with different interest rates based on their demographic characteristics. Additionally, third-party providers must [also] be transparent about the data they collect and how they use it. 

The Accessibility and Inclusion of Embedded Finance

Embedded finance has the potential to increase [the] opportunity of financial inclusion by enabling [their] customers access to banking and financial services more efficiently. However, this also raises questions about accessibility per se. Banking and financial institutions must ensure that their products and services are accessible to all customers, regardless of geography or physical capabilities. To ensure this accessibility, they must adopt inclusive design practices, such as providing alternative formats for information and ensuring that their applications, platforms, and websites are compatible with assistive technologies.

The Digital Divide of Embedded Finance

Embedded finance raises questions about the digital divide. The digital divide refers to the gap between demographics and regions that have access to modern communication and information technology and those that don’t.  

Although the term ‘digital divide’ now encompasses the financial and technical ability to utilize the available technology, including access or a lack thereof, to the internet, the divide referred to is constantly shifting parallel to the advancements and developments of FinTech.

While embedded finance offers significant benefits for customers with access to digital platforms, [embedded finance] may exclude those without access. Therefore, it is incumbent that banking and financial institutions ensure that their products and services are accessible to all of their customers, immaterial of their level of digital literacy. Moreover, they [banking and financial institutions] must collaboratively work together to address the [digital divide] by investing in digital infrastructure and supporting digital inclusion initiatives.   


Embedded finance has the potential to transform the FinTech industry by enabling traditional banking and financial services to be integrated with non-banking and non-financial service platforms. While embedded finance proffers many benefits, [it] also posits many ethical and societal questions that must be  addressed.    

As a fintech, Youtap continues to advance and develop innovative software that supports open banking, embedded finance, and third-party providers. Youtap enables central, traditional, and neo-banks to transform their infrastructure with new banking and financial services and software. Their real-time transaction processing platforms enable central banks, payment processors, and retail conglomerates to centralize their payment processing and aggregation networks.

Youtap is unique within the FinTech industry because it provides a comprehensive banking and financial services platform that traditional banks or financial service providers requires to operate successfully and competitively. Whether this is for applications or loyalty programs, mergers or not, Youtap continues to have the solutions to any problems that may occur due to digitalization and inclusion.

Banking and financial service institutions and third-party providers must ensure their compliance with data protection regulations. They must be fair, impartial, and transparent with their customers while adopting inclusive design practices and addressing the digital divide. By addressing these considerations, embedded finance can offer a more accessible and inclusive service to the FinTech industry, safeguarding the sensitivity of ethics and maintaining social responsibility.

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