Financial inclusion stands as a cornerstone for societal well-being. It impacts individuals, businesses, and governments on a national scale. Recent Government reports have witnessed the steepest surge in absolute poverty in three decades. Not only that, but the Resolution Foundation reported over 11 million working-age individuals in Britain possess savings of less than £1,000, while food bank usage has soared

Between these stark realities lies a profound issue of access to financial services. Research by PwC in 2022 disclosed that approximately 20.2 million adults in the UK were financially underserved. This deficiency in access perpetuates a vicious cycle, hindering individuals from participating fully in the economy, saving effectively, and planning for the future.

In light of these challenges, it is imperative to view financial inclusion not merely as a matter of convenience, but as a fundamental issue of equity and opportunity. While governments bear the primary responsibility for fostering inclusive financial systems, the evolution of technology presents a promising avenue for addressing these disparities.

Serving the unbanked

Embedded finance – integrating financial services into non-financial experiences – is a quickly growing market with an ever-increasing array of use cases. One such is the issuance of digital wallets (or e-wallets) by traditionally non-financial organisations, and this is an essential part of driving better financial inclusion.

Digital wallets are an easy way to extend banking services to previously unbanked customers. People in the UK, for instance, may struggle to open a traditional bank account due to poor credit history or lack of fixed address but can use a digital wallet due to lower entry barriers. This could be part-managed by the public sector for example. By using embedded finance solutions, governments can create digital wallets or accounts for individuals who can’t access traditional banking services. 

Another area where embedded finance can play a critical role is lending. Again, many may struggle to access credit from traditional banks but may desperately need it in this current economic climate. However, if more service providers can offer credit, it may be easier to manage costs. Retailers like Iceland in the UK are exploring loan services: the Iceland Food Club offers interest-free micro-loans of up to £100 on pre-payment cards that customers pay back at £10 per week. Embedded lending technology can make it easy for other businesses to seamlessly offer similar credit schemes to their customers and help spread out biting costs.

Regulating the future

Embedded finance can dramatically improve access to financial services because it can be offered at the point of need and convenience. The implementation of embedded finance must be done carefully and with full compliance. As financial technology grows, regulatory frameworks are evolving to keep up, and companies looking to incorporate fintech offerings need to be aware of and abide by them.

For instance, the European Commission last summer published proposals for the Payment Services Directive 3 (PSD3, updating PSD2) and the Payment Service Regulation. The proposals intended to improve consumer protection and security, thus levelling the playing field between banks and non-banks and fueling open banking, among others. Although the process of finalising these proposals and the Member State transition period mean there is little time before these new regulations come into force (Deloitte estimates at the end of 2026), these new regulations illustrate a sector coming under greater scrutiny and susceptible to reshaping as new payment challenges emerge.

Overseas, in November, the US Consumer Financial Protection Bureau proposed new rules to regulate Big Tech’s digital payments and smartphone wallet services. A rapidly evolving sector is an exciting space to operate in but agility is needed to adapt to the changing regulatory landscape. That’s why many organisations embracing embedded payments will collaborate with a payments partner to help them navigate shifting rules while still rolling out services at scale.

Financial services for all 

In shaping the future of finance, neo-banks and other alternative providers of financial services stand at the forefront with their agile, tech-driven services and unwavering commitment to customer experience. Fintech-led digital innovations recognise the importance of facilitating financial well-being and enhance it through features like spending trackers and budgeting tools. 

Embedded finance emerges as the bridge to giving customers a fair opportunity to access financial products and services from providers they trust and whom they are already engaged with. By going beyond traditional banking, the industry democratises consumer access and uplifts those marginalised from legacy systems that have underserved them. 

As financial services continue their journey, inclusion must take centre stage. It’s time to embrace embedded finance as the driving force of a thrilling new era for products and services. 

Written by By Ivo Gueorguiev, co-founder Paynetics