Embedded Finance and Banking-as-a-Service: How Licensed Entities Are Powering the Next Wave of Fintech

Introduction

Embedded finance — the integration of financial services into non-financial platforms and products — is reshaping how consumers and businesses access banking, payments, lending, and insurance. When a ride-sharing app offers instant payouts to drivers, when an e-commerce platform provides buy-now-pay-later at checkout, or when a SaaS tool includes built-in invoicing and payments, that is embedded finance in action.

Behind every embedded finance product is a licensed financial entity providing the regulated infrastructure. This creates enormous demand for fintech licenses and has spawned the Banking-as-a-Service (BaaS) industry — companies that provide licensed financial infrastructure to platforms via APIs. This article examines the embedded finance and BaaS landscape, the licensing requirements, market data, and strategic implications for both license holders and platforms.

The Embedded Finance Market: Size and Growth

Embedded finance is one of the fastest-growing segments in all of financial services:

How Embedded Finance Works: The Value Chain

The embedded finance value chain consists of four layers, each with distinct licensing requirements:

The critical insight for license holders is that embedded finance creates a new revenue model: instead of serving end customers directly, you can monetize your license by providing regulated infrastructure to platforms. This B2B2C model can be significantly more scalable than direct-to-consumer operations.

Licensing Requirements for BaaS and Embedded Finance

The licensing requirements depend on which part of the value chain you occupy and what financial services you enable:

Embedded Payments

Enabling payments within a platform requires a PSP or EMI license. The license holder processes the payment and manages regulatory compliance, while the platform provides the customer interface. In the EU, the platform may need to register as an agent of the licensed entity.

Embedded Lending

Offering credit products (BNPL, invoice financing, working capital loans) through a platform typically requires a consumer credit license or banking license, depending on the jurisdiction and product type. Some jurisdictions allow marketplace lending models with lighter licensing requirements.

Embedded Insurance

Distributing insurance products through a platform requires insurance distribution authorization in most jurisdictions. The platform acts as a distributor while the licensed insurer or MGA underwrites the risk.

Embedded Banking / Accounts

Offering bank accounts or e-money accounts through a platform requires an EMI or banking license. This is the most demanding embedded finance use case from a regulatory perspective, as it involves holding customer funds and maintaining safeguarding obligations.

Revenue Models for License Holders in BaaS

Licensed entities providing BaaS infrastructure typically monetize through several revenue streams:

The most successful BaaS license holders combine multiple revenue streams to create a blended margin of 40-60% at scale. The key is transaction volume — the more platforms you serve, and the more volume those platforms generate, the higher your revenue without proportional cost increases.

Risks and Regulatory Concerns

Regulators in several jurisdictions have raised concerns about BaaS and embedded finance models, particularly around:

• Regulatory perimeter: Who is responsible for compliance when multiple parties are involved in delivering a financial service? Regulators are increasingly clarifying that the license holder bears ultimate responsibility.
• Agent oversight: When platforms act as agents of licensed entities, the license holder must ensure the platform complies with all applicable regulations — including AML, consumer protection, and marketing standards.
• Customer confusion: Consumers may not understand who is providing the financial service — the platform they see or the licensed entity behind it. Regulators are pushing for clearer disclosure.
• Concentration risk: If a single BaaS provider serves many platforms, its failure could affect millions of end customers. Regulators are beginning to assess systemic risk from BaaS concentration.

These regulatory concerns create an opportunity for well-run, properly licensed entities. As regulators tighten oversight of BaaS models, the value of a robust compliance framework and strong regulatory relationships increases. License holders that can demonstrate to regulators that they maintain effective oversight of their platform partners will have a significant competitive advantage.

Strategic Implications: Why License Holders Should Consider BaaS

For companies that already hold fintech licenses — or are considering acquiring them through Dealable24 — BaaS represents a compelling strategic opportunity:

1. Revenue diversification: Serving multiple platforms diversifies your revenue base and reduces dependence on any single customer segment.
2. Scalable economics: Transaction-based revenue scales efficiently because the marginal cost of processing additional transactions through your licensed infrastructure is very low.
3. Competitive moat: Your license is the foundation of the value chain. Platforms cannot operate without you, and switching BaaS providers is complex and costly.
4. Market reach: By powering embedded finance across multiple platforms, you reach far more end customers than you could through direct distribution alone.
5. Acquisition premium: License holders that have built successful BaaS businesses command premium valuations because of their scalable, recurring revenue models.

Conclusion

Embedded finance and BaaS are not just trends — they represent a structural shift in how financial services are distributed and consumed. For fintech license holders, this shift creates an opportunity to move from being a direct service provider to being the licensed infrastructure layer powering financial services across entire ecosystems. The licenses listed on Dealable24 — EMIs, PSPs, and banking entities — are the foundational assets needed to participate in this transformation. Whether you are building a BaaS platform from scratch or looking to add BaaS revenue to an existing licensed business, the market opportunity is substantial and growing rapidly.