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Practice paper

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
Journal of Risk Management in Financial Institutions, 18 (3), 249-260 (2025)
https://doi.org/10.69554/WKFA6485

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

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Author's Biography

Piet M. Mallekoote Piet Mallekoote is an independent adviser and supervisor in the field of payments. His previous experience includes roles as Chief Executive Officer of the Dutch Payments Association and Chief Executive Officer of Currence (the owner of the iDEAL and iDIN schemes). He has also chaired various steering and stakeholder groups on innovative payments at both national and international level. He was a member of the former Digital Euro Market Advisory Group of the European Central Bank. Piet has a degree in economics from the University of Amsterdam.

Suren K. Balraadjsing Suren Balraadjsing works at Currence as a Senior Auditor and is responsible for scheme admission of parties wishing to offer Currence products iDEAL (payments) and iDIN (digital identity) to their end-users. Suren holds a degree in economics from Tilburg University. He has many years of banking experience in various positions and applies this knowledge in his current position. He is a chartered auditor and member of the interbank audit platform of the Dutch Banking Association (NVB).

Citation

Mallekoote, Piet M. and Balraadjsing, Suren K. (2025, June 1). What lessons can embedded finance learn from payment schemes? The market potential and challenges of embedded finance partnerships. In the Journal of Risk Management in Financial Institutions, Volume 18, Issue 3. https://doi.org/10.69554/WKFA6485.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 18 / Issue 3
© Henry Stewart
Publications LLP

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