PSD2 and the UK: From Compliance to Commercial Value

Even after Brexit, PSD2 continues to shape the UK banking sector. The Payment Services Regulations (PSRs) transformed PSD2 into UK law. Since 2018, they’ve compelled banks to open APIs, enable third-party access, and transform customer data into a strategic asset.

Fast forward to 2025: Open banking in the UK is no longer about APIs; it’s about monetisation, embedded experiences, and the coveted competitive edge. As of Q2 2025, over 12 million UK consumers and businesses are active users of open banking. That number’s driven by embedded finance: credit and payments delivered inside digital journeys. Open banking is no longer a threat to banks. It’s the gateway to embedded lending, deeper engagement, and new revenue streams.

Embedded Lending: A New Growth Engine in the UK

Embedded lending is growing rapidly across various sectors in the UK, including e-commerce, the gig economy, SME platforms, and digital marketplaces. According to the Open Banking Implementation Entity (OBIE), the UK saw a 38% increase in embedded lending APIs usage in 2024. SaaS companies like Pulse are embedding credit checks and loan approval flows inside accounting apps and banking dashboards.

A report from Finextra (2025) shows that UK SMEs are increasingly using embedded lending to access cash flow loans, invoice financing, and revenue-based finance, with 60% preferring it over traditional bank applications. Meanwhile, on the consumer side, banks and firms are embedding credit options directly at checkout or in fintech apps. Open banking data powers instant affordability checks, reducing credit risk while improving conversion rates.

Pulse is a prime example of this trend. It integrates Open Accounting and Open Banking data to automate credit assessments, enable real-time financial insights, and streamline loan structuring directly within accounting platforms and banking dashboards. SaaS companies like Pulse are embedding credit checks and loan approval flows inside accounting apps and banking dashboards. Embedded lending in the UK isn’t just growing—it’s reshaping the credit delivery landscape.

The Stack: UK’s Tech Advantage

The UK is a fintech powerhouse. London leads Europe in fintech investment, and the infrastructure is mature. The key layers enabling embedded lending include:

• Open Banking APIs: Mandated under UK PSRs. Major UK banks, including Lloyds, Barclays, NatWest, HSBC, and Starling, offer developer portals and secure APIs for accessing account information and initiating payments.
• Banking-as-a-Service (BaaS): Firms provide core banking infrastructure to fintechs and marketplaces, enabling them to offer financial services.
• Consent-driven data flows: Under FCA oversight, UK firms deploy consent dashboards, explainability tooling, and AML/KYC modules embedded via SDKs or APIs.

In short, the UK has all the necessary ingredients, including regulatory clarity, technical maturity, and depth in fintech, to lead in embedded lending.

Strategic Upside for UK Banks & Fintechs

Embedded lending offers distinct commercial benefits for UK players:

• Improved acquisition: Serve thin-file customers (e.g., gig workers, students, early-stage businesses) using real-time transaction data rather than outdated bureau scores.
• Increased margins: Offer short-term credit at the point of need (e.g. invoice finance or BNPL) with higher yields and lower marketing costs.
• Faster decisioning: Open banking eliminates paper trails. Underwriting drops from days to minutes.
• Reduced risk: Real-time income, expense, and debt analysis reduces default risk. Lenders can see true affordability beyond static data.
• Compliance alignment: Embedded journeys, powered by open banking, help meet the FCA’s Consumer Duty by ensuring fair, personalised, and appropriate credit.

In 2025, UK banks can no longer ignore embedded lending. It’s where the growth and the risk are truly dynamic. Another great example of embedded lending is Pulse’s Unified Lending Interface (ULI). It empowers banks, lenders, accountants, advisors, and the businesses they serve with a plethora of powerful AI and machine learning-based solutions, with real-time data at its core. Pulse’s loan origination system (LOS) automates the entire application process, reducing application times to under 3 minutes. Pulse’s underwriting solution- Einstein aiDeal, automates underwriting and is capable of decisioning 95% deals in under 60 seconds with customisable criteria. After disbursement, users can utilise Pulse’s lending management system (Pulse LMS) to monitor repayments, defaults, or delays.

The result? One stellar interface that simplifies, automates and expedites the entire lending journey, from application to disbursement to follow-ups. To learn more about Pulse’s ULI, book a demo today.

Regulatory Momentum: Beyond PSD2

The UK is going further than PSD2.

• Smart Data initiative: Driven by the Department for Business and Trade, it aims to extend open data principles to the telecom, energy, pensions, and insurance sectors. It lays the foundation for open finance.
• JROC Roadmap (2023–2026): Sets the UK’s vision for the next phase of open banking. Key priorities include API performance, dispute management, and commercial frameworks (JROC Report, 2025).
• FCA’s Consumer Duty (effective July 2023): Now fully enforceable. Lenders must prove their products are suitable, affordable, and in the customer’s best interest.

For firms offering embedded lending, this means:

• Clear disclosures
• Explainable AI in underwriting
• Real-time consent tracking
• Proactive harm prevention

Those aligning early will scale faster and face less scrutiny.

Execution Playbook for UK Firms

To deploy embedded lending in the UK market, firms should:

• Invest in open API strategy: Create or connect to developer-friendly APIs with secure authentication, consent layers, and monetisation options.
• Leverage FCA-licensed TPPs: Use regulated AISP/PISP partners to access account data, initiate payments, or embed lending logic.
• Use UK-centric credit data: Incorporate income verification, transaction categorisation, and credit insights using open banking + CRAs like Equifax/Experian.
• Deploy explainable AI: Ensure models used for underwriting or personalisation are auditable, bias-checked, and interpretable under FCA rules.
• Partner across ecosystems: Work with accounting platforms (e.g., Xero, Sage), e-commerce sites, or gig economy platforms to embed finance where it matters.
• Measure outcomes: Monitor customer impact, affordability, dropout rates, default patterns, and model drift to ensure optimal performance.

What’s Next: Beyond 2025

As open finance evolves, embedded lending will touch every UK consumer and SME journey. Three shifts to watch:

1. Contextual credit: Loans triggered by in-app events like a cash flow dip or an invoice delay will become the norm.
2. Earnings-linked lending: For gig workers and freelancers, credit will be tied to real-time income feeds from platforms like Uber or Deliveroo.
3. Embedded SME finance: ERP and accounting platforms will become the primary interface for business loans, not bank branches.

UK firms that build around APIs, data consent, AI models, and FCA alignment will own this future.

Conclusion

In the UK, open banking and PSD2 have shifted from a regulatory focus to an opportunity-driven approach. Embedded lending is the clearest, most valuable expression of that shift.  With smart APIs, AI-led underwriting, and consent-based data flows, banks and fintechs can deliver credit when needed—ethically, instantly, and profitably.

The winners will not be the biggest banks, but the most connected ones. Those who see lending not as a product, but as a service embedded into life, will lead the UK’s next decade of financial innovation.