The UK financial services environment is changing massively, and embedded finance is at the forefront of that change. An idea that is set to revolutionise how banks, lenders and aggregators transact within the market. As we approach 2025, this overlooked driver is ready to unlock incredible possibilities for those financial services willing to adapt and rethink their role in the digital economy. 

What is Embedded Finance and Why It Matters

It represents the seamless integration of financial services directly into non-financial platforms and customer journeys. This means that banks and lenders can extend their reach beyond traditional boundaries and meeting clients exactly where they are making financial decisions. 

Think of it as financial services becoming part of the fabric of commerce itself. When a small business owner applies for a loan directly through their accounting software, or when an e-commerce customer accesses credit at the point of purchase, embedded finance is at work.

Lending Before Embedded Finance: Challenges of Traditional Models 

Historically, the UK financial landscape was dominated by traditional banks and building societies operating within rigid frameworks. The Processes were physical or semi-digital at best. Borrowers used to face high documentation demands, inflexible credit models, and centralised risk assessments that failed to account for the unique realities of SMEs. This model presented significant challenges for banks and lenders. 

After the 2008 financial crisis the capital dried up even more. Around 90% of SME lending came from 4 banks and they had no appetite to innovate or take on more risk. This concentration created a massive funding gap with many viable businesses unable to get the capital they needed to grow. Lenders were constrained by old systems, risk averse underwriting models and unable to process and analyse real-time business data.

Digital transformation started when banks and lenders acknowledged that their conventional systems could not keep up in an increasingly dynamic economy. Customer expectations shifted to speed, convenience, and personalisation, and massive advances were being made in the types of data analysed and way risk was assessed. This shift represents a complete reimagining of how financial services could be delivered and experienced. 

The Current Landscape: Government Support and Market Transformation

Today it’s a very different landscape, driven by government initiatives and technological innovation. The market is growing rapidly; embedded finance revenues are projected to grow from $6.47 billion in 2024 to $15.77 billion by 2029. 19.5% compound annual growth rate. According to McKinsey research Europe’s embedded finance market could be over €100 billion by 2030 and 10-15% of banking revenue pools.

Key Government Initiatives Fueling Embedded Finance Growth

Government initiatives have played a crucial role in creating this favorable environment.

• Open Banking and Open Finance Roadmap: The Open Banking initiative, now expanding into broader Open Finance, sets international standards for smart data, real-time payments, and cross-industry data sharing. 

• Smart Data Council & Centre for Finance, Innovation and Technology (CFIT): These bodies work together to unblock barriers to financial innovation, support open standards, and prioritise SME access to affordable credit. 

• British Business Bank (BBB) Finance Hubs and Growth Schemes: BBB provides resources and tailored loan schemes across UK regions, enhancing SME financial inclusion and transparency in funding options. They have provided over £3.5 billion in funding to more than 23,000 UK small businesses in 2023 alone, with most beneficiaries located outside London. 

Current Market Impact

This supportive regulatory environment has enabled unprecedented innovation for banks and lenders. Banking-as-a-Service (BaaS) models allow traditional institutions to partner with technology providers and retailers, creating new revenue streams while extending their reach. Research indicates that embedded finance solutions deliver measurable business impact:

• Conversion Rate Improvements: 5-12% boost in conversion rates 

• Average Order Value Growth: 15-30% increase in average order values 

• Revenue Growth: 4-7% incremental revenue growth overall 

SME inclusion has particularly benefited from this transformation. Revenue-based and alternative lending models, powered by embedded platforms, now support flexible funding for SME, bypassing traditional lengthy approval processes that historically created barriers to capital access. 

The sector has witnessed significant product innovations across multiple verticals that demonstrate the practical applications of embedded finance. 

Key Developments in the Embedded Finance Sector

• Embedded Payments Evolution: Companies like Klarna are expanding their ecosystem with features such as “save now, pay later”. It allows users to store money, add funds, and earn cashback directly within the app. 

• Embedded Lending Solutions: SaaS companies like Pulse, are coming up with unique solutions, streamlining how banks and lenders embed credit offerings into their customer journeys. They offer a comprehensive Unified Lending Interface with the following key solutions: 

• Loan Origination System (LOS): It helps automate and streamline access to data and workflows so that loan applications are processed efficiently, accurately, and in compliance with regulatory requirements in the UK. 

• Loan Management System (LMS): Handles disbursals, repayments, and closures post-approval.

• Einstein aiDEAL: An AI-powered automated underwriting system designed to revolutionise the loan approval process. It processes over 90% of deals in under a minute, offering instant underwriting decisions. 

Banks, lenders, and digital credit providers can embrace Pulse to unlock speed, scale, and smarter risk evaluation. It enables seamless integration with existing systems while offering flexibility to innovate faster, reach underserved segments, and stay competitive in a data-first lending environment. Looking to modernise your lending infrastructure? Book a demo now. 

• Embedded Insurance: Startups like Wrisk and Zego have launched embedded insurance products for consumers and gig workers, enabling app-based policy management. 

• Embedded Wealth Management: Robo-advisors such as Nutmeg have partnered with digital banks to offer automated wealth management services through banking applications. 

What’s Next for Embedded Finance in the UK

As we look toward future, embedded finance is poised to transition from an innovative concept to standard practice across sectors. 

Future Transformation Areas: 

• Continued Government Backing: New laws like the Data Protection & Digital Information Bill is set to widen “Smart Data” and digital identity features, allowing more innovative, data-based lending models to thrive. 

• Next-Generation Lending Models: Anticipate more B2B embedded lending, green finance pilots, and deeper AI-powered personalisation that will transform how financial products are delivered and experienced. 

• Regulatory Advances: The UK is ramping up regulation to ensure consumer protection as embedded finance proliferates, with frameworks evolving to maintain both innovation and risk management. 

• Deeper Bank-Fintech Collaboration: Traditional banks are expected to deepen their partnerships with fintechs and tech platforms, becoming “enablers” while non-banks take on customer primacy and innovative distribution. 

• AI and Hyper-Personalisation: Lending models will increasingly use AI to tailor products to individual or business needs, leveraging real-time transactional and behavioral data for instant, context-driven offers. 

• Financial Inclusion Expansion: Embedded finance will expand financial inclusion by enabling non-traditional lenders to use alternative data and digital footprints, reaching segments that legacy banks overlooked or underserved. 

Embedded finance is a chance for aggregators to become the central orchestrators of the financial system. Instead of merely comparing offerings, they can embed lending, insurance, and investment solutions into their own platforms. It builds one-stop financial marketplaces that are all-encompassing and cater to both consumer and business financial requirements.

Conclusion

Embedded finance is quickly becoming the unseen framework behind how lending is going to work across the economy. With the regulatory backdrop, firm government support and a significant ecosystem of established and disruptive finance players. 

There is no question that an opportunity exists for any forward-thinking and adaptable regulated institutions, and it is essential for institutions to realise that the opportunity is to make use of their expertise and infrastructure to facilitate and enable this shift.