Embedded finance in India: Growth with guardrails

Embedded Finance, or EmFi, is the art and science of integrating a financial transaction seamlessly into a customer decision at the moment of intent. While the term may sound recent, the underlying approach has existed in India for decades--from bank and NBFC representatives stationed at electronics and appliance stores during Dussehra and Diwali, to on-spot loan processing at retail outlets.

What was once a manual convenience is now a digital default. Riding this technology bandwagon, the financial landscape of the country is changing fast adapting to the needs of consumers, aligning to expectations, and delivering services for convenience. With internet banking, mobile banking, UPI, and card payments already in place, the next big leap for the financial sector in India is EmFi.

This shift is happening at scale. India today has 1.163 billion mobile phone users, a population of 1.4 billion, a young demographic of around 30, and a rapidly digitizing consumer base. UPI has made real-time, low-cost digital payments universal. It now drives more than 85% of digital payment volumes, supported by a 111% expansion in UPI QR infrastructure to over 678 million merchants, with monthly transactions crossing 18.4 billion, making India the world’s largest real-time payments ecosystem and merchant network. With a deep digital foundation, EmFi has moved from “potential concept” to “practical capability”.

The Embedded Finance Ecosystem: A Connected Operating Model

As expectations shift from discrete financial interactions to seamless digital journeys, EmFi requires a new orchestration model. Financial products must operate inside contexts where users transact, shop, travel, work, or borrow. This is where the EmFi ecosystem comes together enabling regulated financial services to be delivered through non-financial platforms at scale.

The core participants include:

1. Customers: The end user of services or products

2. Embedders: Brands integrating financial services across touchpoints to improve customer experience

3. Enablers: Technology providers linking embedders and providers to enable secure data exchange

4. Providers: Banks and NBFCs licensing financial products and underwriting risk

5. Regulators: Bodies ensuring compliance with the law of the land

EmFi brings embedders, enablers and providers together to deliver seamless omni-channel journeys, allowing customers to access financial services through non-financial platforms, improving convenience and expanding market reach.

The India Story: Where Embedded Finance is Already Working

With a strong digital foundation, EmFi is already functioning at scale across consumer, merchant and enterprise segments. India is not just adopting EmFi; it is operationalising it. One of the most visible examples is payments everywhere with UPI as the core enabler. UPI has made real-time digital payments frictionless to integrate, allowing e-commerce platforms, service apps and even IoT devices to embed payment options.

Another fast-growing segment is embedded lending and BNPL at checkout. Large merchants, platforms and payment service providers are integrating short-term credit to improve affordability. The India BNPL market reached $30.88 billion in 2025 and is expected to grow to $78.50 billion by 2030, registering a 20.52% CAGR.

Banking-as-a-Service (BaaS) and fintech stacks are transforming product distribution. Banks and fintech’s are exposing APIs for account creation, card issuance, payouts, and KYC, enabling non-financial firms to white-label regulated products. Embedded insurance and micro-insurance are also gaining traction. From trip protection at travel checkout to device insurance at point of sale and mobility insurance in ride-sharing apps, contextual coverage sold digitally is replacing traditional distribution.

In the enterprise layer, SME and supply-chain finance embedded inside ERPs and marketplaces is driving credit access. Platforms are offering cash-flow products, invoice discounting, and receivables financing, where funding decisions happen instantly within business workflows.

India’s EmFi market stands at more than ~$6.0 billion and is expected to exceed ~$29 billion by 2030, driven by payments, lending, embedded insurance, and SME-focussed credit products.

Future Possibilities: From Features to Financial Behaviour

EmFi is evolving from “inserted financial products” to invisible financial experiences designed around user behaviour.

The next stage will include embedded banking for SMEs and gig workers, enabling integrated current accounts, invoicing, tax management, payroll, and working capital credit inside platform dashboards. Alongside this, contextual savings and investment nudges will emerge, where spare change can be auto-routed to investments at the point of payment. Cards and wallets embedded for vertical niches will streamline supply-chain payments, corporate spending, and creator payouts.

Another major area of expansion will be insurance micro-products at micro-moments, offering one-day motor insurance, single-trip health cover, and embedded warranties at purchase points. Embedded identity and credit scoring using alternative data will leverage digital footprints, GST filings, telecom signals, and behavioural insights to enable instant lending. Over time, platform financial ecosystems such as super apps for finance will take shape in agriculture, education, mobility, and healthcare, providing payments, credit, insurance, savings, and collections within continuous customer journeys.

By 2030, retail and e-commerce are expected to dominate 49% of the EmFi market, followed by healthcare, education, telecom, real estate, travel, media, and entertainment. India’s advantage lies in its digital public infrastructure—Aadhaar, UPI, FASTag, and Jan Dhan—which lowers onboarding costs and expands financial access.

Challenges: High-Scale Innovation Comes with High-stakes Risks

With significant power comes responsibility. EmFi’s advantages come with friction points, from managing collaboration across sectors to navigating data usage, safeguarding against breaches and instituting fraud surveillance. The first major concern is data privacy, as EmFi requires sensitive financial information to be exchanged between multiple participants.

Closely linked is consumer protection, because when financial services become invisible within non-financial journeys, transparency, responsible pricing, and grievance redressal become critical to safeguard customer interests. Another key challenge is bridging the digital divide. Connectivity, digital literacy, and device access gaps persist in underserved regions. Finally, regulatory complexity requires navigating compliance across payments, lending, insurance distribution, data consent, and disclosure norms.

Manoeuvring the Hurdles: Priorities for Banks, NBFCs & Regulators

To unlock the full potential of EmFi while safeguarding customers and institutions, stakeholders must build a coordinated risk management agenda. Strengthening fraud prevention will be essential. Geo-tagging payment infrastructure and linked transactions can provide spatial intelligence and detect anomalous behaviour across networks. Enhancing two-factor authentication through biometrics and eKYC adds defence against identity theft and account takeover attempts. Creating negative databases for fraudulent beneficiary behaviour and analysing repeat patterns can help institutions identify emerging threats early. On the systemic side, real-time fraud monitoring & information sharing across banks, non-banks, payment operators and law enforcement can significantly reduce response times. An integrated information platform will ensure that fraud alerts, suspicious transactions and coordinated remediation actions are streamlined across the ecosystem.

Banks & NBFCs can foster partnerships and establish sector-wide standards. Government & regulators must bridge infrastructure gaps, improve digital literacy, and expand connectivity for holistic inclusion.

The Journey often is more important than the destination

With limitless potential to effectively turn the country into a more inclusive whole, EmFi is here and is here to stay. How well we can use it, is something which shall depend on the collective goodwill of all the relevant stakeholders. India has the structural advantage with UPI, Aadhaar and a large digital population, to change the Financial Landscape of the country forever. How efficiently & fast we undertake this voyage, is completely dependent upon us.

(Chandra is Partner and Leader – Financial Services Consulting (Domestic), EY India; Das is Senior Executive Vice President and Head Digital & Transaction Excellence Unit, Bandhan Bank. Views are personal.)