What are embedded finance and banking as a service, and who holds your money?
More and more apps that are not banks now offer accounts, cards and loans. Behind most of them is a licensed bank you may never have heard of, and the way the pieces connect decides how safe your money is.
The short answer
Embedded finance means financial products, such as accounts, cards, payments or loans, offered inside a non-financial company's app or website. Banking as a service is the arrangement behind many of them: a licensed bank supplies the regulated infrastructure, often through a technology middleman, while the brand deals with the customer.
Key takeaways
- Embedded finance puts banking features inside apps whose main business is something else, from shopping to software.
- In banking as a service, the bank provides infrastructure such as payment system access, while a tech firm handles the customer.
- A middleware firm often keeps the ledger of who owns what, and if its records fail, customers can lose access to money.
- When the middleware firm Synapse went bankrupt in April 2024, partner banks found a shortfall of $60 million to $90 million.
- Deposit insurance protects against a bank failing, not the app or middleman failing, so ask exactly where your money is held.
What is embedded finance?
Embedded finance is the practice of offering financial products inside a service whose main purpose is something else. A ride-hailing app that pays drivers into an in-app account, an online shop that offers a loan at checkout, or accounting software that opens a business account are all examples. The customer never visits a bank; the financial feature is built into a tool they already use.
Some of these features are familiar under other names. Buy now, pay later is embedded lending at the checkout. Stored balances in payment apps are embedded accounts. Some neobanks work the same way: a customer-facing app delivers deposit accounts that a partner bank actually holds2.
Examples of embedded finance (illustrative, no specific firms)
| Where you see it | Financial product | Who usually provides the regulated part |
|---|---|---|
| Online checkout | Instalment loan | A lender or partner bank |
| Gig-work or marketplace app | Account and debit card for earnings | A partner bank |
| Business software | Business account, payments, invoices | A partner bank or payment firm |
| Retail or travel app | Branded card or stored balance | A card issuer or payment firm |
What is banking as a service?
Banking as a service (BaaS) is the wholesale side of embedded finance. A licensed bank lets other companies use its regulated capabilities, such as holding deposits, issuing cards and connecting to payment systems. The Bank for International Settlements' Financial Stability Institute describes the model as one where the bank provides its infrastructure, for example access to payment systems, to make the tech firm's financial offering work, while the tech firm deals directly with the customer1.
Between the two there is often a third layer: a technology firm that connects many apps to one or more banks through software interfaces and may keep the records of each customer's balance2. The CFPB described one such firm, Synapse, as a provider of technology that acted as a bridge between nonbank fintech platforms and their partner banks4.
Figure · The layers behind an embedded bank account
- L4Brand or appsigns up and serves customers
- L3Middleware firmsoftware links and ledgers
- L2Licensed bankholds deposits, issues cards
- L1Payment systemsmove money between banks
Who does what in a bank-fintech partnership?
In July 2024 the Federal Reserve, the FDIC and the OCC, the three US federal bank regulators, published a joint statement on these arrangements3. It notes that a third party, rather than the bank, typically markets the product and gives the customer access to it, and that the third party may also keep the deposit and transaction records, process payments, carry out compliance work, run the app and handle customer service and complaints2.
Typical division of roles, based on the 2024 US joint statement Source: [2]
| Role | Typically handled by | Why it matters to you |
|---|---|---|
| Marketing and sign-up | The app or brand | The name you know may not be the bank holding your money |
| Records of who owns what | Often the third party | If the records are wrong or lost, the bank may not know what it owes you |
| Payments and customer service | Often the third party | Problems may be handled by the app, not the bank |
| Legal responsibility for compliance | The bank | Using third parties does not reduce the bank's duties |
The regulators flagged several weak points: a bank that cannot fully access the third party's records may be unable to work out what it owes depositors; inaccurate or misleading claims about deposit insurance can break federal rules; and rapid growth can outpace a bank's risk controls2. The agencies also asked for public input on a broad range of bank-fintech arrangements covering deposits, payments and lending3.
What went wrong when Synapse collapsed?
Synapse filed for bankruptcy on 22 April 20244. Its partner banks then found that the money they were holding for consumers was less than the balances shown in Synapse's records, a shortfall of between $60 million and $90 million4. Consumers went weeks or months without access to their funds, and many did not get their full balances back4.
The CFPB director, speaking as an FDIC board member in September 2024, said tens of thousands of customers had their funds frozen for months because the banks could not reconcile the records needed to return money to end users5. He backed an FDIC proposal that would require banks to keep records of each end user and their balance in pooled custodial accounts, reconcile them daily and keep access to them even if the nonbank partner fails5.
Figure · The Synapse episode
- Apr 2024Synapse files for bankruptcy
- Jul 2024US regulators' joint statement
- Sep 2024FDIC record-keeping proposal
- Aug 2025CFPB sues Synapse
- Sep 2025Court enters final order
How can I check where my money is held?
The key point is that deposit insurance protects you if an insured bank fails; it does not protect you if the nonbank company you deal with fails6. In an embedded account, that nonbank may be the app, the middleware firm, or both.
Questions to answer before you deposit
- 1
Which bank holds the money?
The app's terms or account agreement should name the partner bank. If you cannot find it, ask.
- 2
Is the account in my name or pooled?
Some embedded accounts sit in a pooled custodial account at the bank, with your share recorded in a ledger kept by someone else5.
- 3
Who keeps the ledger?
If a third party keeps the record of your balance, a failure on its side can delay your access even when the bank is sound2.
- 4
What exactly does the insurance claim say?
Wording such as "insured through our partner bank" depends on conditions being met, and it never covers the app's own failure6.
- 5
Can I verify the bank?
Check the partner bank's licence on the regulator's register; our guide on checking a regulated firm explains how.
Risk warning
An app is not a bank because it looks like one
If an app holds your salary, savings or business takings, treat its failure as a real possibility. Keep large balances directly with a bank or credit union you have verified, and spread money across providers if an app is essential to your work.
What mistakes do people make with embedded finance?
Common beginner mistakes
Assuming the brand is the bank
The company whose logo you see may have no banking licence at all. The licensed bank may be named only in the account terms.
Reading "FDIC insured" as a full guarantee
Insurance covers the partner bank's failure under specific conditions, not the app's or middleman's failure6.
Keeping all your money in one app
The Synapse case showed that customers can be cut off for months when a middle layer fails5.
Ignoring the account agreement
It is the document that tells you who holds your money, who keeps the records and how to complain.
Frequently asked questions
Is embedded finance the same as open banking?
No. Open banking is about letting you share your bank data or start payments through other apps. Embedded finance is about non-financial companies offering financial products themselves, usually with a partner bank. See our guide to open banking.
Why do banks offer banking as a service?
In these partnerships the bank supplies its licence and infrastructure, such as payment system access, while the tech firm brings the customer relationship1. For the bank, it is a way to serve customers through other companies' apps.
Who is responsible if something goes wrong?
The bank remains responsible for complying with the law even when it relies on third parties2. In practice, start with the app's support channel, then contact the partner bank, and escalate to the relevant regulator if needed.
Are regulators changing the rules after Synapse?
US bank regulators issued a joint statement and asked for public input in July 20243, and the FDIC proposed stronger record-keeping requirements for custodial accounts in 20245. Their general guidance on managing third-party risks dates from June 20237; in September 2026 they and the NCUA proposed replacing it8. Check the regulators' websites for the current status of any proposal.
What risks do international regulators see?
The BIS Financial Stability Institute points to operational resilience, financial soundness, consumer protection, anti-money laundering and competition as areas that need policy attention1.
The bottom line
Embedded finance lets apps that are not banks offer accounts, cards or loans, and banking as a service is the plumbing that makes it possible: a licensed bank behind the scenes, often a software middleman, and a brand in front. The Synapse collapse showed what happens when the records connecting those layers break. Before you park money in an embedded account, find out which bank holds it and who keeps the ledger.
Sources
- A two-sided affair: banks and tech firms in banking (FSI Insights No 60) — Financial Stability Institute, Bank for International Settlements, 2024 Primary source
- Joint Statement on Banks' Arrangements with Third Parties to Deliver Bank Deposit Products and Services — Board of Governors of the Federal Reserve System, FDIC and OCC, 2024 Primary source
- Agencies remind banks of potential risks associated with third-party deposit arrangements and request additional information on bank-fintech arrangements — Board of Governors of the Federal Reserve System, 2024 Primary source
- Synapse Financial Technologies, Inc. (enforcement action) — Consumer Financial Protection Bureau, 2025 Primary source
- Statement of CFPB Director Rohit Chopra, Member, FDIC Board of Directors, on Stopping Fintech Deposit Meltdowns — Consumer Financial Protection Bureau, 2024 Primary source
- Issue Spotlight: Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps — Consumer Financial Protection Bureau, 2023 Primary source
- Interagency Guidance on Third-Party Relationships: Risk Management — Federal Reserve Board, FDIC and OCC (Federal Register), 2023 Primary source
- Proposed Third-Party Risk Management Guidance — OCC, Federal Reserve Board, FDIC and NCUA (Federal Register), 2026 Primary source
How we checked this page: every figure above links to the numbered source it came from. Spotted an error? Tell the desk — see our editorial policy.
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