Last updated: August 2024

Embedded finance is integrating financial services — payments, lending, insurance, BNPL — directly into the ecommerce experience. Here's what it means for UK merchants, where it's already working, and how open banking fits into the picture.

Finance is moving into the shopping experience — and most merchants are only at the beginning

Embedded finance is the broad term for financial services that are built directly into non-financial products and platforms. In ecommerce, that means payment plans, lending, insurance, and account-linked payment options that are available within the shopping experience itself — not as a redirect to a separate financial application, but as a native part of the checkout or product page.

The concept has been developing for several years, but the pace of adoption has accelerated significantly. Buy Now Pay Later became mainstream in UK ecommerce during the early 2020s. Open banking-powered Pay by Bank is growing rapidly. Embedded business lending — where a merchant can access working capital through their ecommerce platform — is now available at scale through providers like Shopify Capital.

For UK merchants on Shopify and WooCommerce, embedded finance is relevant at two levels: as a set of options to offer customers that can improve conversion, average order value, and loyalty; and as a set of infrastructure choices that affect the cost and efficiency of running the business itself. This guide covers both.

Quick summary

• Embedded finance integrates financial services — payments, lending, BNPL, insurance — directly into ecommerce platforms rather than requiring customers to seek them out separately

• For customers, embedded finance reduces friction and increases choice at the moment of purchase, which tends to improve conversion and average order value

• For merchants, it can open new revenue streams, provide access to business financing, and reduce payment infrastructure costs when built on open banking rails

• Pay by Bank is one of the clearest examples of embedded finance in UK ecommerce — bank-authenticated payment built into the checkout flow, removing card network intermediaries

• The main implementation challenges are technical integration, regulatory compliance, and cost management — understanding these before adopting any embedded finance product matters

• AI, open banking data access, and expanding regulatory frameworks are driving the next phase of embedded finance development in the UK and Europe

What embedded finance actually means in ecommerce

Embedded finance is finance that appears where the customer already is, rather than requiring them to go somewhere else to access it.

The traditional model required separation: you shopped on a retailer's website, then went to your bank or a lender to finance the purchase, then returned to complete the transaction. Embedded finance collapses this into a single experience. The financing option, the insurance product, or the payment plan is available on the product page or at checkout, presented as part of the purchase journey rather than as a separate application process.

This isn't just about convenience, though convenience is a genuine benefit. The separation model created drop-off: customers who wanted financing but didn't want to navigate a separate application abandoned the purchase. Embedding the financial service in the shopping experience removes that drop-off point, which is why conversion rates typically improve when relevant embedded finance options are added.

For UK ecommerce merchants, the most directly relevant examples of embedded finance are payment methods (including Pay by Bank via Fena), Buy Now Pay Later, and business lending products. Each represents a different layer of the embedded finance stack, but all share the characteristic of bringing a financial service into the merchant's existing platform rather than requiring redirection.

Where embedded finance is already working in ecommerce

The most instructive examples of embedded finance in ecommerce are worth examining for what they show about the commercial logic.

Buy Now Pay Later in retail.

The integration of BNPL — through providers like Klarna, Clearpay, and others — into major UK retail checkouts produced measurable effects on both conversion rates and average order values. Customers who would have abandoned at the payment step due to immediate affordability constraints could complete purchases through a payment plan. Average order values increased because customers were willing to commit to higher-spend baskets when the payment was spread. The financial service was embedded in the checkout; no separate application was required.

Shopify Capital for merchants.

Shopify Capital offers merchants access to business loans and cash advances based on their sales data, available directly through the Shopify platform. This is embedded finance at the merchant level rather than the customer level — the financial service is built into the platform the merchant already uses, using data the platform already holds. The underwriting is faster and the access is simpler than a conventional business loan application, precisely because it's embedded in the existing commercial relationship.

Flexible financing for high-value products.

Retailers selling high-ticket items — fitness equipment, furniture, electronics — have found embedded financing options (0% APR payment plans, extended financing) to be particularly effective at converting customers who want the product but face a barrier on the full upfront cost. Peloton, Wayfair, and similar businesses have used this model to expand their addressable customer base without changing their pricing.

Pay by Bank.

This is the embedded finance development most directly relevant to most UK Shopify and WooCommerce merchants. Rather than routing payment through card networks with their associated fees, delays, and chargeback exposure, Pay by Bank integrates bank-authenticated payment directly into the checkout. The customer authenticates within their banking app; the funds transfer directly to the merchant. This is financial infrastructure — account-to-account payment rails — embedded into the ecommerce experience.

The commercial case for embedded finance at the customer level

When embedded finance is designed and presented well, it tends to produce three consistent commercial effects.

Conversion improvement.

Removing the friction of external financial applications, offering payment flexibility that converts customers who face affordability barriers, and providing familiar, trusted payment options at checkout all reduce the proportion of customers who reach checkout but don't complete. The specific magnitude depends on the product category, customer demographic, and quality of implementation.

Average order value increase.

Payment plans and BNPL enable customers to consider higher-spend options without the full cost being an immediate constraint. The psychological mechanism is straightforward: spreading a £400 purchase across four payments changes the cognitive reference point from £400 to £100, which is a different purchasing decision. Merchants with well-implemented BNPL consistently report higher average basket sizes among customers who use it.

Retention and loyalty.

Customers who have a positive experience with embedded financial services — a BNPL plan that worked as expected, a Pay by Bank checkout that was faster and more secure than card entry — have an additional reason to return. The financial relationship becomes part of the brand relationship, which is a more durable form of loyalty than price competitiveness alone.

The commercial case at the merchant level

The embedded finance opportunity for merchants isn't only about what they offer customers. It's also about the infrastructure they use to run their business.

Payment cost reduction.

Card payment processing fees — interchange, scheme fees, acquirer margin — represent a significant ongoing cost for most UK ecommerce merchants. Pay by Bank via Fena removes the card network layer entirely for transactions processed through it, reducing the effective per-transaction cost. This isn't a promotional rate that changes over time; it's a structural cost reduction from using a different payment infrastructure.

Business financing.

Embedded lending products like Shopify Capital provide access to working capital based on platform sales data, typically faster and with less friction than conventional business lending. For merchants who need to fund inventory, marketing, or operational growth, this kind of embedded finance is an access point that didn't exist a decade ago.

Chargeback elimination.

Pay by Bank transactions don't go through card networks, so card chargeback mechanisms don't apply. For merchants in categories with elevated dispute rates, this structural change in how payments settle removes a cost and operational burden that card-based embedded finance products can't address.

Data and insight.

Embedded finance products generate financial behaviour data that is often richer and more actionable than purchase data alone. BNPL providers share data on payment plan behaviour. Open banking payment data provides real-time account-level insight. For merchants with the capability to use this data, it improves the precision of everything from credit risk assessment to marketing personalisation.

The implementation challenges worth understanding

Embedded finance's commercial benefits are real, but implementation isn't without complexity. Understanding the challenges matters before adoption.

Technical integration.

Adding a financial service to an existing ecommerce platform requires integration work that varies significantly in complexity. Some embedded finance products — Fena's Pay by Bank integration for Shopify and WooCommerce, for example — are designed for straightforward implementation without extensive development resource. Others, particularly more complex lending or insurance products, may require significant technical work and ongoing maintenance.

Regulatory compliance.

Financial services are regulated, and embedding them in an ecommerce platform doesn't change that. In the UK, payment services require FCA authorisation. Lending products are regulated under consumer credit legislation. Insurance is regulated separately. Merchants don't need their own FCA authorisation to offer regulated financial services through a regulated provider — but they do need to understand what obligations they carry as the platform through which the service is offered. Working with FCA-authorised providers who understand the compliance context is the practical starting point.

Cost management.

Embedded finance providers charge for their services — typically through fees, commissions, or revenue sharing. The commercial benefit of the embedded service needs to exceed its cost, which requires modelling before adoption rather than after. For Pay by Bank, the cost comparison is straightforward — Fena's fees versus current card processing costs, with the chargeback and settlement timing benefits on top. For BNPL and lending products, the analysis is more complex because the cost structure varies by provider and volume.

Customer trust and brand alignment.

Financial services carry implicit trust requirements that not all ecommerce brands are positioned to extend. A BNPL option offered by a brand with no established financial credibility may be viewed with more scepticism than the same option offered by a brand customers already trust. Implementation quality matters — a poorly designed or poorly communicated financial service can damage the purchase experience rather than improve it.

Where embedded finance is heading: the trends worth watching

AI-driven personalisation.

The combination of open banking data access and machine learning is enabling genuinely personalised financial offerings at the individual customer level. Real-time affordability assessment, personalised payment plan options, and predictive credit risk scoring are all becoming practical at the ecommerce checkout level. The direction of travel is toward financial services that adapt to the individual customer's financial context rather than offering the same options to everyone.

Expanding open banking capabilities.

The UK's open banking framework is developing incrementally. Variable Recurring Payments (VRPs) — which will enable account-linked recurring billing without card credentials — are being rolled out. Premium open banking services that go beyond payment initiation to include richer account data access are in development. Each of these expands what's possible for embedded finance products built on open banking infrastructure.

Embedded insurance.

The integration of contextually relevant insurance into the purchase flow — device protection for electronics, travel insurance for holiday bookings, warranty extension for appliances — is an area of active development. The commercial logic is similar to BNPL: offering a relevant financial service at the moment of purchase captures demand that would otherwise be lost to friction.

Regulatory evolution.

PSD3 and the Payment Services Regulation will update the regulatory framework for open banking across Europe, with implications for what embedded finance products can be built on that infrastructure. The UK's own post-Brexit regulatory development continues in parallel. Merchants building on regulated open banking infrastructure — including Pay by Bank via Fena — are building on a foundation that regulators are actively developing rather than tolerating.

What this means for UK Shopify and WooCommerce merchants today

The embedded finance landscape for UK ecommerce merchants is not a single decision — it's a set of layered choices about which financial services to offer customers and which infrastructure to use to run the business.

The most immediately actionable decision for most merchants is at the payment layer. Pay by Bank via Fena is a directly available, FCA-regulated embedded payment option that reduces transaction costs, eliminates chargeback exposure, and offers a checkout experience that a growing proportion of UK shoppers prefer. It doesn't require replacing existing payment methods — it adds a more cost-efficient option alongside them.

Beyond payments, the embedded finance landscape is developing rapidly. BNPL for relevant product categories, merchant financing products for working capital access, and AI-driven payment personalisation are all moving from emerging to established over the next few years. Merchants who understand where the technology is going and build on open banking infrastructure now are better positioned to extend into these capabilities as they become available.

Frequently asked questions

What is embedded finance in ecommerce?

Embedded finance is the integration of financial services — payments, lending, BNPL, insurance — directly into ecommerce platforms and purchase experiences, rather than requiring customers to access them through separate financial applications. In ecommerce, it makes financial services available at the point of need, within the shopping journey.

How does embedded finance improve ecommerce conversion rates?

By removing the friction of accessing financial services separately and offering payment flexibility at the moment of purchase. Customers who face affordability barriers can use BNPL or payment plans without leaving the checkout. Customers who prefer bank-authenticated payment can use Pay by Bank without entering card details. Both reduce drop-off at the payment stage.

Is Pay by Bank an example of embedded finance?

Yes. Pay by Bank integrates bank-authenticated, account-to-account payment directly into the ecommerce checkout — it's financial infrastructure (open banking payment rails) embedded in the purchase experience. For UK merchants, Fena's Pay by Bank integration for Shopify and WooCommerce is a directly available example of embedded finance at the payment layer.

What are the risks of embedded finance for UK merchants?

The main challenges are technical integration complexity, regulatory compliance obligations, cost management, and customer trust. Working with FCA-authorised providers who understand the compliance context reduces regulatory risk. Conducting cost-benefit analysis before adoption prevents the scenario where the embedded service costs more than it contributes. Building on well-designed, well-communicated implementations preserves customer trust.

How does open banking enable embedded finance?

Open banking provides the regulated infrastructure for account-level payment initiation and data access, on which embedded finance products are built. Pay by Bank is the most established example, enabling direct bank-to-merchant payment without card networks. Variable Recurring Payments (VRPs) will extend this into recurring billing. Richer account data access enables personalised financial product offerings at the individual customer level.

What is the difference between BNPL and Pay by Bank as embedded finance options?

BNPL defers or splits the payment, enabling customers to purchase now and pay over time — it's embedded lending. Pay by Bank processes the full payment immediately but through a different payment infrastructure — bank-to-bank rather than card networks. They address different customer needs: BNPL helps customers manage affordability; Pay by Bank offers a faster, more secure payment route for customers paying in full.

How should UK merchants decide which embedded finance products to offer?

Start with the payment layer — it's the most directly controllable, the most measurable, and carries the clearest cost-benefit comparison. Pay by Bank via Fena is the most straightforward first step. Beyond payments, evaluate BNPL for relevant product categories based on your average order value and customer demographics. Embedded lending and insurance products are worth evaluating as your product and customer base mature.