People often group together open banking and embedded finance but they are distinct financial services models. Open banking allows people to share their financial data with businesses that use it to verify bank accounts, check balances before a payment, or offer better financial products. Embedded finance is when financial services – such as payments, loans, and full banking experiences – are built directly into non-financial platforms so users can access them without leaving the platform.

In this guide, we’ll explain the differences between open banking and embedded finance, and look at use cases for each.

What’s in this article?

• What is open banking?
  
• What is embedded finance?
  
• What are the main differences between open banking and embedded finance?
  
• Use cases for open banking vs. embedded finance
  
• How does Stripe link open banking and embedded finance?
  

What is open banking?

Open banking is a financial model in which banks give third parties access to your account data, including your balances, transactions, and spending habits, through secure application programming interfaces (APIs). This access is allowed only with your explicit permission. Open banking is designed to give you more control over your financial information so you can use budgeting tools, compare services, or receive better loan options based on your financial history. The global open banking market was worth an estimated $25.14 billion in 2023 and is expected to grow at a compound annual growth rate of 27.4% until 2030.

What is embedded finance?

Embedded finance involves integrating financial services such as payments, lending, insurance, and banking with non-financial apps or platforms. Instead of going to a bank, you can access these services wherever you’re already shopping, working, or managing money. For example, you can get a loan at checkout, pay with a digital wallet in an app, or earn instant cash back from a retailer. The global embedded finance market was worth $82.7 billion in 2023 and is projected to grow at a compound annual growth rate of 21.3% until 2033.

What are the main differences between open banking and embedded finance?

Open banking and embedded finance are changing how businesses and customers interact with money. If you’re building a product, working with a fintech firm, or just trying to figure out how these trends impact your business, here’s what you should know.

Open banking

Open banking allows third-party platforms to securely access bank account data through APIs. The goal is to empower customers and enable fintechs to build more intelligent tools for budgeting, lending, and payments. Users must give their explicit consent, and open banking is typically used for personal finance apps, alternative lending, and bank-to-bank transfers.

Business use cases

• Budgeting and financial tracking apps that pull in bank data

• Lenders who want real-time financial insight on borrowers

• Businesses that want to bypass card networks with direct bank payments

Revenue creation

With open banking, revenue is tied to data-driven services and direct payments. Banks charge fintechs for API access (where allowed) and fintechs monetise this by offering customers premium services or charging transaction fees.

Compliance

Open banking is highly regulated, with strict security and consent rules. Banks must provide secure API access under regulations such as the revised Payment Services Directive (PSD2) in Europe.

Embedded finance

Embedded finance integrates financial services – such as payments, lending, and insurance – with non-financial platforms. Instead of using a bank or a separate app, users can access these services in the same place they shop, book a ride, or manage business finances. Embedded finance is used to offer financing at checkout, in-app insurance, or gig worker payouts.

Business use cases

• E-commerce sites that support buy now, pay later (BNPL) at checkout

• Software-as-a-service (SaaS) companies that embed financial tools for invoicing, lending, or payroll

• Platforms and marketplaces that provide simple payouts for sellers

Revenue creation

With embedded finance, fintech providers earn revenue from service fees or licensing. Businesses that integrate financial services take a cut of transaction fees, interest, or insurance premiums.

Compliance

Embedded finance regulations are less standardised than open banking regulations. The rules depend on the specific service (e.g., lending, payments), and many companies partner with licensed financial institutions to ensure compliance.

Use cases for open banking vs. embedded finance

Even though open banking and embedded finance are often mentioned together, they solve different problems and power different experiences. Here are some examples of how they’re used.

Open banking

Faster, cheaper bank payments

Businesses can let customers pay directly from their bank accounts instead of using credit cards. This lowers fees and the risk of fraud.

• Example: A utility company offers instant bank transfers as an option for bill payments.
  

Better loan and credit decisions

Lenders can assess borrowers based on real-time bank data rather than potentially outdated credit scores.

• Example: A fintech lender uses open banking to see income and spending patterns before it approves a small business loan.
  

Instant bank account verification

Businesses can verify a customer’s bank account without waiting for micro-deposits or manual paperwork.

• Example: A trading app enables users to link a bank account and start investing in minutes.
  

Personal finance and budgeting apps

Apps can pull in financial data to help people track spending, manage subscriptions, and set savings goals.

• Example: A budgeting app connects all your bank accounts to show your cash flow in one place.
  

Embedded finance

In-app branded payments

Companies can process payments without sending users to a third party.

• Example: Uber handles the ride fare through its app so users don’t need to pull out a physical card.
  

Integrated lending and BNPL

Businesses can suggest financing options at checkout without requiring customers to go to a bank.

• Example: Shopify lets businesses suggest instalment payments through an embedded financing option.
  

Banking-as-a-service (BaaS)

Companies can support banking features (e.g., accounts, debit cards, bill pay) within their platforms.

• Example: An expense management platform offers virtual cards to simplify businesses’ expense spending among different teams.
  

Embedded insurance

Businesses can bundle insurance coverage into the purchase process instead of making customers shop for it separately.

• Example: A travel booking site suggests purchasing trip insurance at checkout with a single click.
  

Automated vendor and payroll payments

Platforms that manage business operations can also embed financial tools to pay workers or suppliers directly.

• Example: A gig platform automatically pays workers at the end of their shifts instead of relying on manual payouts.
  

Open banking feeds data and bank payments into embedded finance products. For example, a BNPL provider that uses open banking can check a customer’s bank balance in real time before it approves an instalment plan. A business that uses embedded finance for payouts might use open banking to verify an account before it sends money.

How does Stripe link open banking and embedded finance?

Stripe connects open banking and embedded finance through its APIs and infrastructure. These let businesses integrate financial services with their products while tapping into the data-sharing benefits of open banking. Here’s how Stripe joins these models.

Payments and payouts via Stripe Connect

Stripe uses open banking in regions where it’s supported to facilitate faster account-to-account payments. This lets businesses accept bank payments without using card networks.

Platforms that facilitate multiparty payments, such as gig economy apps, can instantly transfer payouts to workers’ bank accounts via Stripe Connect, often using open banking connections. Open banking helps automate onboarding, payouts, and financial data sharing to simplify operations for businesses and service providers.

Embedded banking via Stripe Treasury

Stripe Treasury allows platforms to provide bank-like features (e.g., wallets, accounts, spending capabilities) without becoming banks themselves.

Through partnerships with institutions such as Fifth Third Bank and Evolve Bank & Trust, businesses can embed financial services within their apps to provide branded bank accounts, bill pay, and more.