Embedded Finance and the Unbundling of the Bank — TGB Intelligence Report Q4 2025

The bank, taken apart

In July 2024 the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a joint statement on arrangements in which banks use third parties to deliver deposit products and services to end users. In these arrangements, the agencies said, a third party rather than the bank typically markets, distributes or otherwise provides access to the product directly to the end user. The agencies noted that such arrangements are sometimes referred to as banking-as-a-service or embedded finance, depending on their structure and the parties involved. In some of them the bank relies on one or more third parties to maintain the deposit and transaction system of record and to process payments. The agencies said they had observed these arrangements evolve and expand to include more complex structures.

That description captures the core of the unbundling. The customer sees a brand, the money sits on a bank balance sheet, and one or more technology firms run the ledger, the payments and the interface in between. Apple Card shows the layers clearly. Apple Card is issued by Goldman Sachs Bank USA, Salt Lake City Branch, Mastercard is the payment network, and the 7 January 2026 announcement states that neither Apple Inc. nor Apple Payments Services LLC is a bank. The brand that owns the customer relationship holds no banking licence, while the bank that holds the licence is largely invisible to the customer.

The demand side of the market has expanded with it. The World Bank's latest Global Findex found that nearly 80% of adults worldwide now have a financial account, up from 50% in 2011, although 1.3 billion adults still lack one. In low- and middle-income countries, 42% of adults made an in-store or online digital merchant payment in 2024, up from 35% in 2021. About 900 million adults without an account own a mobile phone, including 530 million with smartphones. That gap between device ownership and account ownership is the space that embedded models are built to fill.

The common thread in what follows is that each layer that has left the bank has been followed by a regulator asking who is accountable for it.

The distribution layer is scaling faster than the licence

Businesses running on Stripe generated $1.9 trillion in total volume in 2025, up 34% from 2024 and equivalent to roughly 1.6% of global GDP, according to the company. Stripe said its programmable financial services power more than 5 million businesses, either directly or through platforms. PayPal's total payment volume rose 7% to $1.79 trillion in 2025, its net revenues rose 4% to $33.2 billion, and its active accounts reached 439 million. Adyen processed €1,394.3 billion in 2025, up 8% including a single large-volume customer and 21% excluding it.

Selected payment and fintech platforms, scale at the latest reported date

Source: Stripe, Stripe publishes 2025 annual letter and announces tender offer (newsroom release), 24 February 2026; PayPal Holdings, Inc., PayPal Reports Fourth Quarter and Full Year 2025 Results (earnings release), 3 February 2026; Adyen N.V., Adyen publishes H2 2025 financial results (press release), 12 February 2026; Klarna Group plc, Klarna accelerates U.S. growth and delivers $1bn revenue driven by rapid banking service adoption (Q4 2025 results release), 19 February 2026; Nu Holdings Ltd., Nu Secures Approval to Establish US National Bank (Form 6-K press release), 29 January 2026.

The figures are not directly comparable, because each company defines volume differently, but together they show how much payment activity now reaches customers through non-bank interfaces. ### From processing to embedded products The platforms are moving beyond acceptance into products that used to be the preserve of banks. Adyen said issuing volumes in its embedded financial products were up eightfold year on year as platforms embedded cards into their core workflows. Its net revenue rose 18% to €2,364.2 million and its EBITDA margin reached 53%, against 50% in 2024. Stripe and OpenAI developed the Agentic Commerce Protocol. That points to software agents as a possible next distribution channel. The economics of the float remain important for these platforms, as they are for banks. PayPal earned $1,230 million in interest on customer balances in 2025, against $1,284 million in 2024. That is a decline of $54 million. Platforms that hold customer money earn on the float much as deposit-taking banks do, and so share their exposure to interest rates. Klarna shows how a payments brand can deepen into banking. Its gross merchandise volume rose 32% to $38.7 billion in the fourth quarter of 2025, and revenue rose 38% to $1.082 billion. It had 118 million active consumers and 966,000 merchants. The company described its trajectory as an evolution from payments network to global digital bank. Its 15.8 million banking consumers, up 101%, generated $107 of revenue per user, against $30 for the average consumer. It also had 4.2 million active Klarna Card users. The revenue gap between banking users and payments users is the commercial case for rebundling.

Sponsor banks: where the risk lands

The unbundled model has a weak point at the join between the platform and the bank. The bankruptcy of Synapse Financial Technologies exposed it. Synapse provided application programming interfaces and technological infrastructure that allowed businesses to integrate banking services into their own applications. In those arrangements, according to the FDIC, the banks did not maintain the customer ledgers or the deposit amounts attributed to each individual customer. Synapse filed for bankruptcy protection in late April 2024. In early May 2024 one of the partner banks froze deposits that had been placed through Synapse and the fintech companies it served. The FDIC said the episode affected consumers' ability to access funds placed at banks for a number of months.

Supervisors had already begun to act on individual sponsor banks. On 14 June 2024 the Federal Reserve Board issued an enforcement action against Evolve Bancorp and Evolve Bank & Trust, finding in examinations conducted in 2023 that the bank lacked an effective risk management framework for its fintech partnerships.

What the agencies set out

The July 2024 joint statement listed the ways risk can build up in these structures. A bank that lacks sufficient access to a third party's system of record may be unable to determine its own deposit obligations. Arrangements can create significant and rapidly increasing funding concentrations, and rapid growth can leave risk management and operations struggling to keep pace. They may also produce material and rapid balance sheet growth without commensurate capital formation. End users may not know that deposit insurance does not protect them against the failure of the third party. The statement did not create new supervisory expectations; it re-emphasised existing guidance. Its central message was that a bank's use of third parties does not diminish its responsibility to comply with the law. Alongside it, the agencies requested information on bank-fintech arrangements covering deposit, payments and lending products, and said they were considering whether further steps were needed.

The FDIC followed with a rulemaking proposal. Its staff memo of 17 September 2024 recommended publishing a proposed rule with a 60-day comment period on custodial deposit accounts with transactional features. The FDIC noted that many consumers now open deposit accounts indirectly through fintech companies to make purchases, send or receive money and pay bills. The proposed records would identify, for each custodial account, the beneficial owners, the balance attributable to each and the ownership category. Banks would have to reconcile against those records no less frequently than at the close of business each day. Where a third party keeps the records, the bank would need direct, continuous and unrestricted access to them.

The direction of travel is consistent: the ledger, the reconciliation and the liability are being pulled back towards the regulated bank. For a sponsor bank, that raises the cost of each partnership and makes concentration in a few large programmes harder to justify.

Federal oversight of the platforms themselves has moved the other way. Public Law 119-11, approved on 9 May 2025, disapproved the CFPB rule that defined larger participants in a market for general-use digital consumer payment applications, so that rule has no force or effect. The combination leaves more of the supervisory burden for embedded products with the bank partner than with the app.

Rebundling: platforms seek licences, banks buy programmes

If the licence is where the accountability sits, the logical response for a large platform is to acquire one. On 15 December 2025 PayPal applied to the Utah Department of Financial Institutions and the FDIC to establish PayPal Bank, a proposed Utah-chartered industrial loan company. PayPal said that since 2013 it has provided access to over $30 billion in loans and working capital to more than 420,000 business accounts. It said the bank would let it provide lending to small businesses in the United States more efficiently while reducing reliance on third parties. PayPal Bank expects to offer interest-bearing savings accounts and would seek direct membership of card networks in the United States.

Nu, which reports 127 million customers, announced on 29 January 2026 that the OCC had conditionally approved the formation of a de novo national bank, Nubank, N.A. It had applied on 30 September 2025. Once fully approved, the charter would allow Nu to launch deposit accounts, credit cards, lending and digital asset custody in the United States. Approvals from the FDIC and the Federal Reserve are still pending, and Nu must fully capitalise the bank within 12 months and open it within 18 months.

The OCC has also granted charters to newer entrants. On 12 December 2025 it conditionally approved five national trust bank charter applications: de novo charters for First National Digital Currency Bank and Ripple National Trust Bank, and conversions of BitGo, Fidelity Digital Assets and Paxos from state trust companies. Subject to conditions, they would join approximately 60 other national trust banks supervised by the OCC.

Klarna has held a licence for longer. It has operated as a licensed bank in the European Economic Area since 2017, and its prospectus said deposits funded 95% of its lending activities in the twelve months to 30 June 2025. That funding structure is closer to a bank's than to a typical fintech lender's.

Banks are also buying back the front end. On 7 January 2026 Apple and Chase announced that Chase will become the new issuer of Apple Card, with a transition expected in approximately 24 months. The portfolio purchase is estimated to bring over $20 billion of card balances to Chase. JPMorganChase said it expected to recognise a $2.2 billion provision for credit losses in 4Q25 related to the forward purchase commitment. The deal suggests that a scale bank with a low funding cost and existing card infrastructure can still be the natural owner of an embedded programme's balance sheet, even when the brand belongs to someone else.

Licence moves by platforms and banks, December 2025 to January 2026

Source: Office of the Comptroller of the Currency, OCC Announces Conditional Approvals for Five National Trust Bank Charter Applications (NR 2025-125), 12 December 2025; PayPal Holdings, Inc., PayPal Submits Applications to Establish an Industrial Bank to Expand Access to Financial Services for U.S. Small Businesses (press release), 15 December 2025; JPMorgan Chase & Co., Chase to become new issuer of Apple Card (press release), 7 January 2026; Nu Holdings Ltd., Nu Secures Approval to Establish US National Bank (Form 6-K press release), 29 January 2026.

Data rights: open banking diverges by jurisdiction

Access to customer data is the layer that decides whether a third party can compete with a bank on its own customers. The United States, the United Kingdom and the European Union are handling it very differently.

United States: a rule under reconsideration

The CFPB published its Personal Financial Data Rights final rule under section 1033 on 18 November 2024. The rule generally requires covered institutions to provide information about transactions, costs, charges and usage to consumers on request. Its compliance dates were originally set to run from 1 April 2026 through 1 April 2030. On 29 July 2025 the court hearing a bank-led challenge to the rule granted a motion to stay proceedings. In August 2025 the CFPB issued an advance notice of proposed rulemaking seeking comment on four issues related to implementing section 1033. One is how data providers might charge fees to defray the cost of responding to customer-driven requests. The notice said a court order had stayed the compliance dates by 90 days, which at that point put the first one at 30 June 2026, and that the CFPB planned to propose extending them. On 29 October 2025 the court in the same case stayed the rule's compliance dates, according to the CFPB. The 30 June 2026 date set out in the August notice therefore does not apply while that stay is in place. For banks, the reopening of the fee question matters most: a right to charge for data access would change the economics of data aggregators that rely on access to bank accounts.

United Kingdom: scale, then a statutory footing

In the United Kingdom, open banking had over 16 million active users and open banking payments grew 53% in 2025, according to the Financial Conduct Authority (FCA). The FCA said that going further requires putting open banking on a commercially sustainable footing. It expects the Treasury to introduce legislation in 2026 giving it new powers to set open banking rules.

European Union: access rights hard-wired

On 27 November 2025 the European Parliament and the Council reached a deal on new payment services legislation designed to make the sector more open and competitive. Under the agreed text, authorised open banking providers must be able to access payment account data, and the legislation includes a list of prohibited obstacles to data access. Users will get a dashboard to monitor and manage the data-access permissions they have given. Banks will have to give payment institutions access to payment accounts on a non-discriminatory basis. The regulation applies to banks, payment institutions and technical service providers and, in some cases, to electronic communications providers and online platforms. Payment service providers will have to check that a payee's name and unique identifier match. In impersonation fraud, the provider must refund the full amount if the customer reports the fraud to the police and informs the provider. Online platforms will be liable to payment service providers that have reimbursed defrauded customers if they were told of fraudulent content and failed to remove it.

Access to the device is the other gatekeeper. Under commitments the European Commission made binding on 11 July 2024, Apple must give third-party wallet providers free access to the NFC input on iOS devices, without having to use Apple Pay or Apple Wallet. The commitments remain in force for ten years and apply throughout the EEA.

Customer data and access rules, latest status

Source: Consumer Financial Protection Bureau, Personal Financial Data Rights Reconsideration: advance notice of proposed rulemaking (Federal Register document 2025-16139), 22 August 2025; Consumer Financial Protection Bureau, Personal financial data rights (compliance resources web page), 6 January 2026; Financial Conduct Authority, Open banking and the FCA (web page), 16 December 2025; European Parliament, Payment services deal: More protection from online fraud and hidden fees (press release 20251121IPR31540), 27 November 2025; European Commission, Commission accepts commitments by Apple opening access to 'tap and go' technology on iPhones (IP/24/3706), 11 July 2024.

The pattern is clear: the EU is legislating access and fraud liability together, the United Kingdom is moving to a statutory footing, and the United States has reopened its rule. Banks with European and US franchises face two different answers to the same question of who pays for data access.

Public rails and public money

Public infrastructure is a second force behind unbundling, because it lets non-banks reach customers without building bank-grade rails. India is the clearest case. UPI accounted for 84% of retail payment volume in 2024-25, and UPI transactions rose 41.7% by volume and 30.3% by value. Digital transactions made up 99.9% of the volume of non-cash retail payments. The Reserve Bank of India has used the rails to embed further services: it permitted linking of prepaid payment instruments through third-party UPI applications and allowed small finance banks to extend pre-sanctioned credit lines through UPI.

In the United States, Federal Reserve Financial Services announced in September 2025 that it would raise the FedNow network transaction limit from $1 million to $10 million, effective November 2025. At that time the service had more than 1,400 participating organisations across all 50 states. A higher limit widens the range of business payments that can settle instantly.

In the euro area the public response is a new form of money. The ECB Governing Council decided to move to the next phase of the digital euro project, as announced on 30 October 2025. If the regulation is adopted in 2026, a pilot and initial transactions could take place from mid-2027, and the Eurosystem should be ready for a potential first issuance during 2029. The ECB estimates development costs at around €1.3 billion until first issuance and annual operating costs at approximately €320 million from 2029. It said a digital euro would protect Europe's monetary sovereignty and economic security, and that safeguards such as holding limits would ensure it does not create financial stability risks. For banks, the digital euro would be both a competitor for payment balances and, depending on its final design, a product they may be asked to distribute.

Stablecoins: unbundling the deposit itself

The most direct challenge to the bundled bank is a payment instrument that sits outside the deposit base. The United States enacted the GENIUS Act on 18 July 2025. A permitted payment stablecoin issuer must hold identifiable reserves on an at least 1 to 1 basis. Issuers may not pay holders any form of interest or yield solely for holding, using or retaining a payment stablecoin. The Act takes effect on the earlier of 18 months after enactment or 120 days after the primary federal regulators issue final implementing rules. Three years after enactment, digital asset service providers may not offer or sell a payment stablecoin in the United States unless a permitted issuer issued it.

Banks are not excluded from this market. The Act allows insured depository institutions to issue payment stablecoins through a subsidiary, and on 16 December 2025 the FDIC Board approved a proposed rule setting out how its supervised banks would apply. The proposal was published in the Federal Register on 19 December 2025 with a 60-day comment period, and in February 2026 the FDIC extended the deadline from 17 February to 18 May 2026. The OCC's conditional approvals of December 2025 also included a de novo charter for First National Digital Currency Bank.

The Bank of England has taken a more restrictive line. On 10 November 2025 it published a consultation on a regime for sterling-denominated systemic stablecoins. Systemic issuers would be allowed to hold up to 60% of backing assets in short-term UK government debt, with the remaining 40% held in unremunerated accounts at the Bank. Issuers that are systemic at launch could initially hold up to 95% of backing assets in short-term government debt. The Bank proposed temporary holding limits of £20,000 per coin for individuals and £10 million for businesses. Their stated purpose is to safeguard continued access to credit as the financial system adapts to new forms of digital money. The Bank is also considering central bank liquidity arrangements to support systemic issuers in times of stress. Its regime would not cover stablecoins used to buy and sell cryptoassets, which it described as the predominant use of stablecoins today. The consultation was open until 10 February 2026.

Stablecoin regimes for payment use, United States and United Kingdom

Source: United States Congress, Public Law 119-27, Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), 18 July 2025; Bank of England, Bank of England launches consultation on regulating systemic stablecoins (news release), 10 November 2025; Federal Deposit Insurance Corporation, FDIC approves proposal to establish GENIUS Act application procedures (press release), 16 December 2025; Federal Deposit Insurance Corporation, Approval Requirements for Issuance of Payment Stablecoins by Subsidiaries of FDIC-Supervised Insured Depository Institutions; Extension of Comment Period (Federal Register, 91 FR, FR Doc. 2026-02665), 11 February 2026.

The UK proposal's holding limits and unremunerated reserve share are aimed directly at limiting how much deposit funding could migrate. The Bank for International Settlements (BIS) set out the central bank case against relying on stablecoins as money. It said stablecoins fall short of the requirements to be the mainstay of the monetary system when tested against singleness, elasticity and integrity. It contrasted them with banks, which can elastically expand and contract their balance sheets within regulatory limits. Its preferred path is a trilogy of tokenised central bank reserves, tokenised commercial bank money and tokenised government bonds on a unified ledger. Usage is nevertheless growing among payment firms. Stripe said volume at Bridge, the stablecoin orchestration platform it acquired, more than quadrupled. The policy debate is therefore no longer about whether stablecoins will be used for payments, but about whether that use will run through bank subsidiaries, licensed trust banks or non-bank issuers.

Embedded credit comes inside the perimeter

Point-of-sale credit is one of the most visible embedded products, and the United Kingdom is bringing it into regulation. Deferred payment credit (DPC), the FCA's term for unregulated buy now, pay later, is interest-free credit repayable in 12 or fewer instalments within 12 months or less, and is currently exempt from regulation. DPC lending grew from £0.06bn in 2017 to over £13bn in 2024. According to the FCA's 2024 Financial Lives Survey, 20% of UK consumers, or 10.9 million adults, used DPC in the 12 months to May 2024. The Government legislated on 14 July 2025 to bring DPC lending under FCA regulation.

The FCA published its final rules on 11 February 2026. From 15 July 2026, lenders that offer DPC agreements to finance purchases from a merchant will come under its regulation, although merchants that offer their own agreements directly will not. Lenders will need to carry out a proportionate creditworthiness assessment before each agreement, and borrowers will be able to complain to the Financial Ombudsman. Firms that do not already hold consumer credit permissions will need to register for the Temporary Permissions Regime from 15 May.

The regime narrows the conduct gap between embedded credit and bank credit. Klarna's provisions for credit losses fell to 0.65% of GMV in the fourth quarter of 2025, from 0.72% in the third. Its deposit funding of 95% of lending in the year to 30 June 2025 also brings it closer to a bank's balance sheet model. In India, the RBI's decision to allow small finance banks to offer pre-sanctioned credit lines through UPI places credit on a public rail, with a licensed bank as lender. PayPal's planned bank is similarly built around small business lending.

Implications for banks

The evidence from 2025 points to a stable division of labour rather than a simple loss of business for banks. Platforms have won much of the customer interface: the volumes at Stripe, PayPal and Adyen show that. Regulators have kept the obligations with the licence: the US agencies' statement, the FDIC's records proposal and the Federal Reserve's action against Evolve all place the burden on the bank.

Three implications follow. First, sponsor banking is becoming a specialist business that rewards control of the ledger, daily reconciliation and the discipline to refuse growth that operations cannot support. Banks that cannot meet those standards will find the model more costly than the deposits it brings.

Second, large platforms are converging on bank charters: PayPal cites reduced reliance on third parties, Nu has conditional approval for a national bank and Klarna's licence lets it fund lending with deposits. That turns some of today's distribution partners into tomorrow's direct competitors for deposits.

Third, the next contest is over who issues digital money. The GENIUS Act lets insured banks issue through subsidiaries, while the Bank of England proposes holding limits to protect credit supply. The ECB is preparing a public alternative, with a potential first issuance during 2029. Banks that build tokenised deposits and stablecoin capability now will be better placed whichever model prevails.

For incumbents, the strategic question is less whether to embed than where to sit. The Apple Card transfer shows that a bank can still own the balance sheet behind a brand it does not control. The open question for 2026 is whether the platforms that are applying for licences will accept the full cost of being a bank once they hold one.

Primary sources: Klarna Group plc, Klarna accelerates U.S. growth and delivers $1bn revenue driven by rapid banking service adoption (Q4 2025 results release), 19 February 2026; PayPal Holdings, Inc., PayPal Reports Fourth Quarter and Full Year 2025 Results (earnings release), 3 February 2026; Stripe, Stripe publishes 2025 annual letter and announces tender offer (newsroom release), 24 February 2026; Board of Governors of the Federal Reserve System, FDIC and OCC, Joint Statement on Banks' Arrangements with Third Parties to Deliver Bank Deposit Products and Services, 25 July 2024; PayPal Holdings, Inc., PayPal Submits Applications to Establish an Industrial Bank to Expand Access to Financial Services for U.S. Small Businesses (press release), 15 December 2025; Nu Holdings Ltd., Nu Secures Approval to Establish US National Bank (Form 6-K press release), 29 January 2026; Klarna Group plc, Prospectus (Form 424B4), 9 September 2025; Federal Deposit Insurance Corporation, Memo to the Board: Notice of Proposed Rulemaking on Requirements for Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors, 17 September 2024; Financial Conduct Authority, Open banking and the FCA (web page), 16 December 2025; Financial Conduct Authority, PS26/1: Regulation of Deferred Payment Credit (unregulated Buy Now Pay Later) (web page), 11 February 2026; JPMorgan Chase & Co., Chase to become new issuer of Apple Card (press release), 7 January 2026; World Bank, Mobile-phone technology powers saving surge in developing economies (Global Findex 2025 press release), 16 July 2025; Adyen N.V., Adyen publishes H2 2025 financial results (press release), 12 February 2026; Board of Governors of the Federal Reserve System, Federal Reserve Board issues an enforcement action against Evolve Bancorp, Inc. and Evolve Bank & Trust (press release), 14 June 2024; Board of Governors of the Federal Reserve System, Agencies remind banks of potential risks associated with third-party deposit arrangements and request additional information on bank-fintech arrangements (press release), 25 July 2024; United States Congress, Public Law 119-11 (S.J. Res. 28), disapproving the CFPB rule on larger participants in general-use digital consumer payment applications, 9 May 2025; Office of the Comptroller of the Currency, OCC Announces Conditional Approvals for Five National Trust Bank Charter Applications (NR 2025-125), 12 December 2025; Consumer Financial Protection Bureau, Personal Financial Data Rights Reconsideration: advance notice of proposed rulemaking (Federal Register document 2025-16139), 22 August 2025; Consumer Financial Protection Bureau, Personal financial data rights (compliance resources web page), 6 January 2026; European Parliament, Payment services deal: More protection from online fraud and hidden fees (press release 20251121IPR31540), 27 November 2025; European Commission, Commission accepts commitments by Apple opening access to 'tap and go' technology on iPhones (IP/24/3706), 11 July 2024; Reserve Bank of India, Annual Report 2024-25, Chapter IX: Payment and Settlement Systems and Information Technology, 29 May 2025; Federal Reserve Financial Services, FedNow Service will raise transaction limit to $10 million to meet increased demand (press release), 9 September 2025; European Central Bank, ECB moves to next phase of digital euro project (press release), 30 October 2025; United States Congress, Public Law 119-27, Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), 18 July 2025; Federal Deposit Insurance Corporation, FDIC approves proposal to establish GENIUS Act application procedures (press release), 16 December 2025; Federal Deposit Insurance Corporation, Approval Requirements for Issuance of Payment Stablecoins by Subsidiaries of FDIC-Supervised Insured Depository Institutions; Extension of Comment Period (Federal Register, 91 FR, FR Doc. 2026-02665), 11 February 2026; Bank of England, Bank of England launches consultation on regulating systemic stablecoins (news release), 10 November 2025; Bank for International Settlements, Annual Economic Report 2025, Chapter III: The next-generation monetary and financial system, 29 June 2025; Financial Conduct Authority, PS26/1: Regulation of Deferred Payment Credit, feedback to CP25/23 and final rules (PDF), 11 February 2026.