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Embedded finance delivers seamless, in-app financial services, making transactions faster and more convenient.
Open banking puts users in full control of their data, enabling transparency and smarter financial choices.
Combining both models creates a powerful experience, effortless journeys backed by trust and data insights.
The world of financial services has reached a turning point. The focus has shifted away from banks alone and toward experiences embedded in everyday platforms.
Currently, the discussion on embedded finance and open banking remains highly relevant. This article offers a short review of each model and highlights how they serve the user in different ways.
Open banking gives customers control over their financial data. Banks or financial institutions expose account or transaction information via secure APIs. Third-party providers can offer budgeting tools, initiate payments, or give lending insights by collecting data with consent.
In contrast, embedded finance integrates financial services directly into non-financial applications. E-commerce, ride-hailing services, and SaaS platforms embed payments, lending, insurance, or accounts in the user journey. Users do not have to leave the app.
Open finance extends open banking by sharing a wider set of financial data, including retail and business banking, investments, insurance, and credit, within open finance ecosystems.
Embedded finance does not just share data; it integrates actual financial service workflows into existing platforms. The service appears at the point of need.
Embedded finance improves customer experience in a few key ways. It integrates financial services seamlessly into app flows that users already trust. This results in fewer logins and app switches.
It offers contextual relevance, for example, a “buy now, pay later” option at checkout, or in-app insurance right after booking a flight. The offer arrives when the need appears.
It builds loyalty because the platform becomes a one-stop shop for non-financial plus financial services. The customer stays engaged longer. It offers personalization by using data from the platform itself: dynamic credit offers, tailored insurance products, and frictionless flows.
Open banking delivers strong empowerment. It gives customers control of data, transparency, and choice across products. However, the user often still needs to switch apps or go to separate providers. Embedded finance delivers smoother, more integrated journeys. Financial services become invisible in the sense that they blend seamlessly into the primary platform, making them less noticeable.
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Open Banking: The customer must switch between the bank app and a third-party app.
Embedded Finance: The service is offered inside the platform already in use.
Open Banking: The main value is data-driven insight and control.
Embedded Finance: The main value is convenience, speed, and relevance.
Open Banking: Trust is high due to regulation and transparency.
Embedded Finance: Trust depends on how seamlessly and securely the platform integrates.
Open Banking: Innovation engine for fintechs and banks.
Embedded Finance: Innovation in user journey design and business model.
For everyday consumer journeys in shopping, travel, and ride-sharing, the answer leans towards embedded finance. The friction is lower, the service is contextual and fast. Users stay in one flow instead of switching between apps.
However, for users who care deeply about data control, transparency, and comparing products across providers, open banking is the clear winner. It puts the customer in charge of their data and opens up competition.
Both models are designed to complement each other. Open banking provides the essential data infrastructure that drives and enhances embedded finance solutions.
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In the embedded finance vs open banking discussion, the advantage depends on the metric of comparison. If the focus is on a seamless customer experience and lower friction, then embedded finance leads the way. If the measure is control over data, transparency, and broad choice, then open banking stands out.
Both models play crucial roles in the evolving financial sector. Platforms and financial institutions should use them in tandem. The future of financial services will be shaped by how well they integrate embedded financial tools into everyday user journeys while maintaining the trust and openness that open banking provides.
1. What is the difference between open banking and embedded finance?
Ans. Open banking shares banking data with authorised third parties via APIs. Embedded finance integrates financial services directly into apps or platforms, allowing users to access payments, lending, or insurance without leaving the platform.
2. What is the difference between embedded finance and banking as a service?
Ans. Banking as a Service provides the backend infrastructure for financial products via APIs. Embedded finance uses this infrastructure to deliver seamless, user-facing financial services within non-financial platforms for convenience and a better customer experience.
3. What are the benefits of embedded finance?
Ans. Embedded finance offers convenience, faster transactions, better customer experience, new revenue streams for businesses, and insights into user behavior, making financial services accessible directly within apps or platforms.
4. What are the disadvantages of open banking?
Ans. Open banking can raise data security risks, integration complexity, customer trust issues, and regulatory challenges, as it relies on third-party access to sensitive financial information through APIs.
5. Why is DMI Finance banned in India?
Ans. DMI Finance was banned by the RBI due to high interest rates, non-compliance with lending guidelines, and other supervisory concerns affecting transparency and borrower protection in micro-loan operations.
