Embedded Finance and Financial Inclusion: The Real Opportunity Beyond the Buzzwords

If you’ve been following the fintech space, you’ve likely heard the terms embedded finance, Banking-as-a-Service (BaaS), and connected banking experiences thrown around like confetti at a party. They’re exciting ideas — banking seamlessly integrated into everyday apps and services, delivering convenience and personalization like never before.

But here’s the catch: much of this conversation assumes a foundation that’s already there — a population that is banked, digitally reachable, and connected. What about the billions of people living in markets where financial inclusion is still a massive challenge? Where access to basic banking services remains a distant dream?

This is where the narrative needs to shift.

Why Embedded Finance Must Become the Gateway to Inclusion

In high-penetration markets, embedded finance adds layers of convenience. But in low-inclusion markets, embedded finance must be the entry point — the very gateway that brings people into the formal financial ecosystem.

Let’s look at what this means, how we can visualize it, and what’s really needed to make it happen.

Mapping Embedded Finance Maturity Across Markets

Here’s a simple framework contrasting how embedded finance maturity plays out in high- vs. low-inclusion markets:

• In high-inclusion markets, embedded finance acts as a convenience layer — enhancing already mature banking relationships with seamless integrations, instant credit at checkout, and personalized wealth management.
• In low-inclusion markets, embedded finance is more foundational — a gateway providing wallets, micro-savings, and micro-loans through platforms people already trust, like telcos or local marketplaces.

This perspective flips the usual narrative: embedded finance is not just a luxury add-on; it’s potentially the most effective lever for financial inclusion.

What Does It Take to Build That Gateway?

The leap from exclusion to inclusion via embedded finance requires the right infrastructure — digital, physical, and regulatory.

Here’s a distilled checklist of the must-haves to make it work:

Digital infrastructure:

• Tiered digital ID & e-KYC systems enabling progressive onboarding.
• Mobile-first access, including USSD/IVR for low-connectivity users.
• Payments interoperability across wallets, banks, and mobile money.
• Secure, open APIs for easy embedding into partner platforms.

Physical infrastructure:

• A dense agent and merchant network for cash-in/cash-out.
• Partnerships with trusted local channels like telcos, FMCG distributors, and cooperatives.
• On-the-ground onboarding via agents or pop-up events.

Regulatory enablers:

• Tiered KYC and e-money licensing frameworks.
• Agent banking rules that clarify liability and float management.
• Interoperability mandates to avoid closed loops and fragmentation.

Operational essentials:

• Partner commercial models that align incentives.
• Liquidity management systems for agents.
• Financial literacy and trust-building programs.

Balancing Social Goals and Commercial Viability

Here’s a hard truth: basic inclusion accounts often aren’t profitable on their own. So why should anyone invest in them?

The answer lies in viewing inclusion as a long-term customer acquisition channel rather than a standalone product.

Check out this profitability pathway, illustrating how what starts as a loss leader can evolve into a valuable customer over time:

Over 3-5 years, customers who start with simple wallets and micro-loans often graduate to full financial relationships — including credit, insurance, and wealth products — that generate sustainable revenue.

Plus, cost efficiencies through cloud-native tech, agent networks, and embedded finance partners can shrink servicing costs to make even small revenues meaningful.

Public, Private, or Both? Who Drives Inclusion?

The financial inclusion journey isn’t one-size-fits-all. Different markets have leaned on different drivers:

• India’s public-led digital infrastructure (Aadhaar, UPI) provides universal, interoperable rails that private fintechs build on.
• Kenya’s private-led M-Pesa leveraged telco distribution to quickly build scale and adoption.
• Many countries find a hybrid path, with public sector setting the rails and private sector driving innovation and last-mile delivery.

Here’s a quick visual of how different market conditions shape which model fits best:

Wrapping Up: The Path Forward for Embedded Finance and Inclusion

The promise of embedded finance is vast — but unlocking its full potential means looking beyond convenience for the already banked. It means reimagining embedded finance as a powerful gateway to inclusion in markets where access is still a struggle.

That requires a holistic approach — building the right infrastructure, aligning regulatory frameworks, partnering with trusted local players, and maintaining a clear-eyed view on how social objectives can drive long-term commercial value.

This isn’t a quick fix. But when done thoughtfully, embedded finance can help deliver on one of the fintech industry’s most important promises: to bring financial services to everyone, everywhere, not just the privileged few.

If this resonates, I’d love to hear your experiences and thoughts on what’s working (or not) in your markets. Let’s keep the conversation going!