What is the difference between principal membership and affiliate membership?

For: fintech product and BD leads, platform operators, non-financial businesses considering embedded financial products

Embedded finance is the integration of financial products or services into a non-financial platform or product: a retail app offering credit, a mobility platform offering insurance, a marketplace offering instant payouts. Payments as a Service (PaaS) is one of the primary infrastructure models that makes embedded finance possible – specifically for businesses that need to embed payment capability such as card issuing, funds disbursement or payment processing. PaaS is not the same as embedded finance; it is part of the infrastructure layer that powers it.

On this page:

• What is embedded finance?
• What is the difference between embedded finance and Payments as a Service?
• What financial products can be embedded, and which require PaaS?
• Does a business need its own licence to offer embedded finance?
• What is the difference between embedded finance and embedded payments?
• Who is responsible for compliance in an embedded finance arrangement?
• How does BIN sponsorship relate to embedded finance?

Answer

Embedded finance is the integration of financial products or services – payments, credit, insurance, savings, investment – into a non-financial platform or product. Rather than a customer leaving a platform to access financial services from a bank or financial institution, the financial product is built into the experience they are already using.

What embedded finance covers

The range of financial products that can be embedded is broad. A retailer offering buy-now-pay-later at checkout, a gig platform offering instant pay to workers, a B2B marketplace offering invoice financing to merchants, a travel platform issuing virtual corporate cards for procurement – all are examples of embedded finance. The defining characteristic is that the financial product is accessed within a non-financial context, powered by regulated infrastructure provided by a third party.

Who holds the licence in an embedded finance arrangement

The regulated infrastructure that powers an embedded finance product – the licences, scheme memberships, processing technology and compliance framework – is held by a third-party provider, not by the non-financial business offering the product. A retailer embedding a card, a platform embedding a payout product, a B2B marketplace embedding invoice financing – none of these businesses needs to hold the regulatory authorisations themselves. They access those authorisations through their provider. This is what makes embedded finance commercially viable for businesses outside the financial sector.

What to watch for

• Embedded finance is a broad term that encompasses many different product types and infrastructure models. Identifying which financial product you want to embed is the first step. The infrastructure model required (PaaS, BaaS or other) follows from that.
• Not all businesses that describe themselves as embedded finance providers hold the regulatory licences that underpin the products they offer. Ask any provider to confirm which regulated entity holds the licence for the financial products accessible through their platform.

Answer

Embedded finance describes what a business offers its customers: a financial product integrated into a non-financial platform. Payments as a Service describes the regulated infrastructure that makes it possible: the licences, scheme memberships, processing technology and compliance framework. PaaS is not the same as embedded finance – it is the infrastructure layer that a business builds embedded payment products on top of. A business can offer embedded finance without understanding PaaS; it cannot do so without the infrastructure PaaS provides.

Where PaaS sits in an embedded finance product

It helps to think of embedded finance in three layers. The top layer is the customer experience: the financial product embedded in a non-financial context. The middle layer is the product design and programme management: the decisions about what the product does, how it is governed, and who it is offered to. The bottom layer is the infrastructure: the licences, scheme access, processing technology and compliance framework. PaaS operates at the bottom layer. Embedded finance is the result visible at the top.

When PaaS is and is not sufficient for embedded finance

PaaS is the right infrastructure model for embedded finance that involves payment products: branded cards, disbursements, virtual accounts, spend management, open banking integrations. For embedded finance that involves credit products, deposit accounts or insurance, PaaS alone is not sufficient – those products require different regulatory infrastructure, typically a banking licence or specialist insurance authorisation.

What to watch for

• If someone describes their platform as an embedded finance solution, ask specifically which financial products it delivers and which regulated entity holds the licence for each one. The answer tells you what infrastructure layer is actually involved.
• A PaaS provider can power embedded payment products. It cannot power embedded credit or embedded deposit products without a banking licence. Confirm that the infrastructure your provider holds matches the products you want to embed.

Answer

Payment products – cards, disbursements, virtual accounts, open banking – require PaaS infrastructure, specifically an EMI licence and scheme connectivity. Credit products – buy-now-pay-later, invoice financing, lending – require a credit licence or banking licence. Insurance products require insurance authorisation. Investment products require investment services authorisation. PaaS is specifically the infrastructure model for embedded payment products.

Embedded payment products and what they need

Issuing a branded payment card, enabling instant payouts to workers or merchants, providing a virtual IBAN for payment receipt, building a spend management product with configurable card controls – these all require the card scheme access, EMI licence and processing infrastructure that a PaaS provider holds. The non-financial business delivers the product under the PaaS provider’s regulatory umbrella without needing its own licences.

What to watch for

• Some embedded finance platforms bundle multiple product types – payments plus credit, for example – under a single commercial offering. Confirm which regulated entity holds each licence, and whether the licence covers the specific product you need in the markets you intend to operate in.

Answer

Not necessarily. A non-financial business that embeds payment products through a PaaS provider operates under the provider’s EMI licence and scheme membership. It does not need to hold those licences itself. Whether the business needs its own regulatory authorisation depends on the specific products offered, the markets it operates in, and the nature of its relationship with the end user and with customer funds.

When the provider’s licence is sufficient

For most embedded payment products – branded cards, disbursements, virtual accounts – the PaaS provider holds the licences and the non-financial business operates as a programme client under the provider’s regulatory umbrella. The business is responsible for its customer-facing compliance obligations (KYC, customer onboarding, the cardholder relationship) but does not need its own EMI or scheme membership.

When the business may need its own authorisation

If the business holds customer funds in its own name, operates in a way that constitutes e-money issuance, or provides payment services that require its own authorisation under PSD2, it may need a Payment Institution (PI) or EMI licence regardless of the PaaS arrangement. The FCA’s guidance on EMI authorisation sets out the relevant thresholds for UK businesses. This is a question to resolve with both the PaaS provider and legal advisers before launch.

What to watch for

• The programme agreement with a PaaS provider sets out what the provider covers and what the client is responsible for. Read it carefully, and specifically check how customer funds are held and in whose name.
• If your embedded finance product involves holding or managing customer funds beyond the immediate execution of a payment transaction, take specific legal advice on whether you need your own regulatory authorisation.

Answer

Embedded payments is a subset of embedded finance. Embedded payments refers specifically to the integration of payment acceptance or payment processing into a non-financial platform – a software company building payment processing into its product, for example. Embedded finance is the broader category, encompassing payments plus credit, insurance, savings and other financial products. All embedded payments are embedded finance; not all embedded finance is payments.

Why the distinction matters for infrastructure decisions

A business embedding payment issuance – enabling its customers to make payments via a branded card, a virtual account or a disbursement – needs PaaS and issuing infrastructure. A business embedding payment acceptance – enabling its merchants or users to receive card payments – needs acquiring infrastructure. The two are different parts of the payment stack with different providers and different regulatory frameworks. Confirming which capability your embedded finance product actually requires determines which infrastructure model and which type of provider you need.

What to watch for

• ‘Embedded payments’ in a product context often means payment acceptance for merchants. If your use case is issuing cards or disbursing funds rather than accepting payments, confirm that your provider’s infrastructure covers issuing, not just acquiring.

Answer

Compliance responsibility is divided between the infrastructure provider and the business offering the embedded product. The PaaS provider holds the regulatory licences, maintains scheme rule compliance, operates the AML monitoring infrastructure and manages PCI DSS for the card data environment. The business offering the embedded product is responsible for its own customer-facing compliance: KYC and customer onboarding, the end user relationship, and compliance with any sector-specific regulations that apply to its own business.

How the programme agreement defines the compliance division

The precise division is set out in the programme agreement between the PaaS provider and the business. It is one of the most important documents in any embedded finance arrangement and should be reviewed carefully. The common areas of ambiguity are: who conducts KYC checks on end users, who is responsible for transaction monitoring for the client’s specific customer base, and how compliance incidents are escalated and managed. Clarity on these points before launch is significantly easier to achieve than after.

What to watch for

• Do not assume that because a PaaS provider handles ‘compliance’, your business has no compliance obligations. The provider handles regulatory infrastructure compliance. You handle customer-facing compliance for your own end users.
• If your embedded finance product serves a sector with its own regulatory requirements – financial services, healthcare, government – confirm whether those sector-specific obligations fall to you or to the provider, and get the answer in writing in the programme agreement.

Answer

BIN sponsorship is the specific card scheme participation arrangement used within a PaaS model when a business wants to issue branded Visa or Mastercard cards as part of an embedded finance product. When a non-financial business embeds a branded card into its platform, the card is issued under the PaaS provider’s BIN – the provider holds principal membership of the scheme and extends that membership to the client. BIN sponsorship is the mechanism; embedded finance is the product experience it enables.

A business embedding a card product into its platform is, by definition, using BIN sponsorship as part of the PaaS arrangement. A business embedding only payment acceptance or open banking functionality may not be using BIN sponsorship at all.

For a full explanation of how BIN sponsorship works within a card programme, see: BIN sponsorship explained: the complete guide for fintechs and PSPs.