Embedded finance vs open banking: How they differ

Embedded finance and open banking are often mentioned in the same breath, but they’re not the same.

Embedded finance is the distribution of financial services into non-financial products, while open banking is an infrastructure that allows authorised third parties to access bank account information and initiate payments via secure APIs.

Independently, both can unlock new revenue streams and customer loyalty. Together, they can transform how fintechs, PSPs, and financial institutions compete.

As a PSP or a FI, you’re probably weighing up embedded finance or open banking because:

• Your clients expect faster settlement and broader coverage than legacy rails can deliver.

• Competitors are rolling out new financial products and growing their market share. 

• The market is shifting towards platforms that embed financial services directly, making it harder to stand still without losing ground.

This article will clearly illustrate the differences between each and help you determine which solution is best for you. 

Prefer to have a chat with an expert about how open banking and embedded finance can help your business? Yapily is an open banking provider that enables companies to build embedded finance experiences while gaining regulated access to nearly two thousand banks across Europe via a single API. Book a no-obligations call with one of our team.

What is open banking?

Open banking is a financial technology that enables consumers and businesses to securely share their banking data with authorised third parties and initiate instant account-to-account payments.

In recent years, open banking payments have emerged as a strong alternative to card-based transactions, offering a direct account-to-account route that bypasses card networks like Visa and Mastercard. This reduces reliance on multiple intermediaries—and their associated fees—while enabling faster, lower-cost settlement.

With an open banking solution, PSPs and FIs access customers’ bank accounts through APIs (Application Programming Interfaces). Regulations like the revised Payment Services Directive (PSD2) in Europe require all banks to provide secure open banking APIs to officially approved third parties, who are then able to see account data or initiate payments with the customer’s explicit consent.

By using an open banking platform, financial institutions and PSPs can avoid the need to integrate with each bank individually to achieve these goals. Instead, the platform provides them with a single integration that aggregates connections to multiple banks’ APIs. 

This comes with significant advantages: PSPs and FIs benefit from lower transaction costs, faster settlement times, and reduced maintenance. Their clients can improve the customer experience by offering a safe and frictionless payment journey that involves verification through the end-user’s trusted banking app.

Open banking works under strict regulations. Alongside the PSD2 in Europe, it’s overseen by the FCA in the UK and falls under the CDR in Australia. It also comes with strong customer authentication (SCA) requirements, and it relies on standardised, secure access that serves to protect customer data.

Open banking enables the following two services: 

1. Account Information Services (AIS): verify identity, assess affordability, and track spending

AIS offers real-time and secure financial data retrieval. By providing up-to-date insights directly from users’ accounts, AIS empowers businesses to offer personalised financial services, improve risk assessment, and verify identity faster and more accurately. 

For example, let’s say a lender wants to gain access to a customer’s bank transaction history to assess creditworthiness and perform KYC checks.

Traditionally, the customer is required to download their bank statements manually and upload them to the lender’s portal or deliver them in a different manner (such as through email). These files are then checked and sorted to verify authenticity and assess affordability, which can add delays and costs to both the customer and the business. There are also potential security implications of sharing information through email. 

With AIS, the customer is asked for explicit consent — typically granted by approving the request through their bank’s own app or online banking portal using strong customer authentication (such as a passcode, biometric check, or mobile push notification). Once consent is given, the lender can request direct access to their bank account data through a secure API. The bank then returns real-time data, such as transaction history and account details, and the process takes minutes rather than days.

Other AIS use cases include:

• Personal finance management apps: Aggregating data from users’ multiple bank accounts in order to help customers budget, categorise spendings, and provide personalised insights.

• Wealth management apps: Accessing account balances to give wealth managers a real-time view of assets and liabilities.

• Accounting software companies: Managing cash flow and reconciling payments by collecting transaction data from varying sources and gathering it in comprehensive dashboards.

• Insurance providers: Pulling transaction data to verify regular income or premium affordability.

2. Payment Initiation Services (PIS): initiate direct bank payments and enable faster & cheaper transfers

PIS, also known as Pay by Bank, works through the same API as AIS. Its purpose is to trigger direct account-to-account payments with the customer’s consent via strong customer authentication (such as a biometric request or a face ID) on the user’s banking app. 

By initiating payments directly between bank accounts, PIS leads to faster, cheaper, and more transparent transactions.

To illustrate, imagine a merchant using a PSP to process customer payments.

Usually, these payments are card-based. The customer enters their card details at checkout, the transaction routes through issuers, acquirers, and card networks, and settlement can take up to three days. Each intermediary takes a fee, reducing margins for both the PSP and the merchant.

With PIS, the PSP can offer a “Pay by Bank” option directly in the checkout flow. The customer is redirected to their bank app or web portal, approves the payment, and funds move instantly from the customer’s account to the merchant’s. This bypasses card networks, reduces fees, and gives the PSP a new value-added payment rail to offer its merchants.

PIS is already being applied in different industries, such as:

• Payment service providers in e-commerce and retail offering account-to-account payments to merchants, who then provide customers with faster checkout options.

• Lenders streamlining not only account verification and risk assessment (AIS) but also repayments and loan disbursements (PIS), making it quicker and more secure to transfer loans between accounts and automate repayments.

• Gig economy platforms providing workers with instant payouts directly to their bank accounts, allowing them faster access to funds, saving on card fees, and improving customer satisfaction.

• Wealth & investment platforms enabling customers fund their trading or savings accounts instantly from their bank, reducing drop-offs compared to manual transfers or card settlement delays.

• Insurance providers streamlining premium collections and claims payouts by transferring funds directly between accounts, minimising reliance on cards or cheques.

• Travel & ticketing platforms providing faster, lower-cost settlement on high-value purchases where card fees are especially painful.

• Utilities & subscription services enabling instant account-to-account bill payments with fewer failed transactions compared to cards that expire or get blocked.

• Marketplaces and platforms using PIS to pay out sellers instantly after a transaction, improving liquidity and platform stickiness.

Pay by Bank vs Card Networks

Card networks are ubiquitous, but they're expensive and can be slow to settle. Here's how card network payments compare to Pay by Bank:

See a complete guide to open banking payments here.

What is embedded finance?

Embedded finance is the integration of financial services, such as payments, lending, insurance, or banking, directly into non-financial products or platforms, allowing users to access these services seamlessly at the point of need.

By offering payments, lending, or insurance via APIs, you enable SaaS platforms, marketplaces, and other non-financial companies to embed financial products directly into their customer experience. This opens up new revenue streams for you, not to mention that it makes your services stickier: you become more embedded in the infrastructure behind the platform rather than just another payment option.

The benefit for merchants is that customers are more likely to complete purchases they would have otherwise not considered or found too cumbersome to search up themselves, as the relevant financial products are accessible within the payment flow. As a result, merchants earn revenue on referral fees or percentages of sales while also improving user experience and increasing customer trust. 

And since these benefits make merchants more successful and reliant on your services, you get to nurture long-term relationships with your clients.

How to leverage embedded finance: four use cases

The main goal of embedded finance is to remove friction and provide users with everything they need across one ecosystem. For PSPs and financial institutions, the opportunity lies in powering these use cases via APIs and infrastructure. 

Here’s how:

1. E-commerce platforms and merchant cash advances

PSPs that serve e-commerce platforms are in a prime position to embed lending into their offering. Traditionally, merchants in need of working capital had to apply directly to a bank or lender, upload statements, and wait days for approval.

But with embedded finance, you can offer merchants cash advances against their future sales, with approval and disbursement embedded directly in the platform’s dashboard. Open banking provides the real-time transaction data that lenders or funding partners need to underwrite these advances quickly and securely.

As the PSP, you can either provide the funding yourself or partner with a lender, earning fees or interest in the process. Because repayments are routed automatically through your payment rails, merchants are more likely to keep processing with you, and the platform effectively becomes a new distribution channel for financing.

2. Gig economy platforms and instant payouts

Gig economy platforms are increasingly demanding instant payout options for their freelancers. Under this model, workers can access their earnings in real-time through embedded wallets and branded debit cards, rather than waiting days for funds to clear through banks or card networks.

This not only enhances customer satisfaction for your clients but it also keeps the flow of funds within your ecosystem. As the PSP or FI, you can capture the payout volume, generating recurring revenue for your payment infrastructure.

The high transaction frequency also makes your infrastructure deeply embedded, helping you retain long-term partnerships. Plus, instant settlement differentiates your offering.

3. Property management SaaS and rent payments

Rather than using external payment rails and investing resources in manual processing, property management SaaS companies can utilise a PSP’s infrastructure to embed rent payments directly into their platforms. 

Since you handle backend operations like automated reconciliation, landlord settlement, and flexible payment options, your integration becomes stickier, helping you build long-term relationships. Rent also creates recurring payment flows under your infrastructure.

In the meantime, tenants get to pay rent directly through the SaaS platform, removing friction from the payment process, and landlords benefit from a reduction in card costs, making you stand out among competitors in the industry.

4. Travel booking and embedded insurance

When booking flights or travel experiences, customers usually have to make a separate digital trip to an insurer’s website and fill out additional forms, which can slow the process down drastically and reduce conversions.

With embedded finance, the platform surfaces the product within the payment journey, while underwriting and claims are powered by the financial institution. 

A major benefit here is that you can capture new distribution opportunities without having to make standalone sales, lowering your customer acquisition costs. You also get to create revenue-sharing agreements with platforms in high-volume verticals like travel.

Want to discuss how embedded finance and open banking can help your business? Book a call with one of our experts.

Embedded finance vs open banking: how they differ

Embedded finance and opening banking are complementary, but they have important differences:

How open banking can power embedded finance

Open banking provides the infrastructure layer, the secure rails that facilitate the movement of payments and data between banks and third parties. 

Embedded finance is the distribution layer: how those financial services are delivered inside non-financial platforms.

Together, they let PSPs and financial institutions improve the efficiency of their services and open new revenue streams through platform partnerships.

Let’s take a closer look at four use cases of open banking and embedded finance working in tandem:

• Embedded account top-ups using PIS: Instead of making manual bank transfers or entering debit card details, users can add money to their account (e.g., digital wallets, investment platforms, gaming accounts) by tapping an open banking-powered payment button directly in the app or platform itself. This way, top-ups occur immediately (distribution) and funds are transferred directly from the customer’s bank account to the platform, resulting in lower fees and faster settlement times (infrastructure).

• Credit decisions using AIS for income verification: Instead of asking applicants to manually provide bank statements and payslips, lenders can integrate AIS via a secure API and, with the customer’s consent, pull real-time transaction data from their bank account (infrastructure) right inside the purchasing or onboarding journey (distribution).

• Fintechs using open banking APIs to build white-label payment flows: Instead of offering bank payments by using card networks, fintechs can use an open banking API connection to multiple banks (infrastructure). Depending on the provider, they can also build their own white-label payment flow so that the end customers can initiate payments directly within the fintech’s platform without seeing a third-party label (distribution).

• Variable Recurring Payments (VRP) for subscriptions and utilities: Instead of relying on direct debits, which are slow and inflexible, or card-on-file, which comes with high fees and risk of expiry/chargebacks, platforms can use open banking-powered VRPs (infrastructure) to enable flexible, real-time recurring payments. Embedded inside a SaaS product or a utility app (distribution), this lets customers set up and manage recurring payments directly in-app, while PSPs and FIs can offer a differentiated, lower-cost alternative to cards and direct debits.

Why choose Yapily as your open banking partner

Yapily is an open banking infrastructure provider. We lay down the secure, regulated rails that PSPs, fintechs, banks, and financial institutions use to access bank data and initiate payments, helping them build and scale their own financial products.

With a single integration, you can connect to over 2,000 banks across 19 European countries and gain regulated access to both account information services and payment initiation services. 

Yapily also enables fintechs and non-banks to build embedded finance experiences, from instant account top-ups to automated income verification, while we handle the complexity of connectivity, compliance, and ongoing maintenance. This means you can focus on product and customer experience, whilst Yapily provides the infrastructure that makes it all possible.

1.  Gain access to broad coverage across the UK and Europe using a secure, ISO-certified API

As a PSP, fintech, or other financial service provider, your goal is to serve as many customers as you can in the countries you operate in. Yapily helps you do this. 

We are a third-party AIS and PIS provider authorised by the Financial Conduct Authority (FCA) in the UK, and we also hold equivalent approvals across the EU under the PSD2 regulation. 

By partnering with us, you can access extensive banking networks that cover Europe’s major markets, from the UK to France, Germany, and the Netherlands. This way, you can expand your customer base without worrying about the regulatory responsibilities. 

We offer industry-leading business account connectivity, making us the ideal choice for B2B and SME-oriented financial services (alongside others).

2. Offer both open banking data services and Pay by Bank through one integration

Yapily provides the infrastructure to integrate both AIS and PIS, enabling you to build embedded finance solutions and scale across markets.

We’ve created Yapily Data Plus to make it easier for our clients to perform risk assessments, conduct accurate account verification, and analyse customer behaviour through enriched data, from categorised spending to flagged recurring payments.

Take our partnership with Adyen, one of Europe’s leading fintech companies, for instance: with Yapily, Adyen’s merchants enjoy a faster and highly secure onboarding process. This helps Adyen deliver a frictionless customer experience and increase retention.

As for Yapily Payments, you can turn this feature on to offer Pay by Bank, variable recurring payments, and bulk payments to automate multiple transactions in one go.

Allica Bank customers, for example, now have the opportunity to top up their Business Rewards Account directly through Yapily’s open banking infrastructure. Instead of switching between apps and platforms, SMEs supported by Allica Bank can manage their funds in one place.

3. Make payments your own with customised white labelling

One reason that embedded finance is becoming increasingly popular is that it helps nurture customer trust by improving the user experience throughout the purchasing and onboarding journey. 

This is because customers are presented with the right product at the right time and within a familiar workflow, which means there’s no need to search for additional products (like insurance or lending) on other platforms.

With a provider like Yapily, you can make this experience even better with customised white labelling. Instead of being transferred into a portal with third-party logos, the customer stays within the branded payment journey, where your own logos remain front and centre. We keep things running behind the scenes, but we want you to stay in the spotlight. 

We believe this works for everyone’s benefit. The user stays in a familiar ecosystem, which removes friction, while you get to strengthen your brand, customise for different use cases, and increase customer retention.

Partner with Yapily and see how open banking powers embedded finance

Open banking is a crucial part of any embedded finance strategy. While embedded finance focuses on delivering financial services within non-financial platforms, open banking provides the connectivity that makes it possible: from secure account data access (AIS) to instant payments (PIS).

By understanding how the two differ and how they work together, you can capture additional revenue, create smoother customer journeys, and stay competitive in a rapidly changing market. Yapily provides the open banking infrastructure that lets you do exactly that.

Get in touch with us to learn more about how open banking and embedded finance can work in tandem to strengthen your market positioning.

FAQ: Embedded finance vs open banking

1. Is embedded finance the same as open banking?

No. While embedded finance integrates financial products like lending or insurance into non-financial platforms, open banking provides regulated access to bank data and payment initiation via secure APIs.

2. What is the best example of embedded finance?

Gig economy platforms often embed instant payout options via wallets or branded debit cards. While workers gain financial flexibility and platforms benefit from increased customer loyalty, payment service providers and financial institutions get to capture payment volume and generate recurring transaction revenue.

3. How much does open banking cost?

The cost depends on the provider, the type of services, and the scale of your operations. Most providers charge either per-transaction fees or API call fees, and they might also offer tiered or subscription pricing.

4. What’s the best open banking provider for embedded finance?

It depends on your needs. Yapily fits the bill thanks to our wide geographic coverage, AIS and PIS authorisations, customised white labelling, and strong business account connectivity. Other leading players include TrueLayer, Salt Edge, and Tink.

5. How secure is open banking?

Open banking relies on regulated APIs, strong customer authentication (SCA), and bank-grade security, reducing fraud and chargeback risk. This makes it as or even more secure than card payments.