Embedded Finance Ecosystems and Market Concentration

1. Introduction

Embedded finance refers to the integration of financial products and services directly into non-financial platforms, applications, marketplaces, and business ecosystems.

Instead of visiting a bank, insurer, lender, or payment provider separately, a consumer or business receives the financial service within another platform.

Examples include:

payments within e-commerce platforms;

buy-now-pay-later facilities at checkout;

embedded business loans;

insurance embedded into travel or vehicle purchases;

payroll-linked financial services;

wallets within mobility applications;

merchant acquiring;

investment services embedded into consumer applications; and

banking-as-a-service infrastructure.

Embedded finance can increase competition and financial inclusion. However, it can also create market concentration because large platforms control customer access, transaction data, distribution channels, and increasingly the financial infrastructure itself.

The fundamental competition concern is:

A powerful non-financial platform may use control over its ecosystem, customer data, distribution, or payments infrastructure to extend market power into financial services and exclude independent financial competitors.

2. Structure of an Embedded Finance Ecosystem

A typical embedded-finance ecosystem can be represented as:

Consumer → Digital Platform → Embedded Financial Product → Financial Institution → Payment/Banking Infrastructure

Several layers may be involved:

Customer-facing platform

Payment gateway

Banking-as-a-Service provider

Licensed bank or financial institution

Card network

Identity/KYC provider

Credit-scoring system

Data provider

Insurance provider

Cloud and technological infrastructure

Concentration at multiple layers can produce ecosystem-wide market power.

3. Why Embedded Finance Can Produce Concentration

Embedded finance combines several sources of competitive advantage.

First: Customer access

The platform already has millions of users.

Second: Data

The platform may know:

transaction history;

purchasing behaviour;

income indicators;

location;

business turnover;

customer preferences;

repayment behaviour.

Third: Distribution

Financial products can be offered at precisely the moment when consumers need them.

Fourth: Network effects

More merchants attract more consumers, while more consumers attract more financial providers.

Fifth: Switching costs

Customers may accumulate:

balances;

rewards;

transaction histories;

credit profiles;

loyalty benefits.

This can make migration difficult.

4. Platform-to-Finance Leveraging

A central competition concern is leveraging.

Suppose a company is dominant in e-commerce.

It then introduces:

payments;

lending;

insurance;

wallets; and

merchant finance.

The company may use its existing platform power to obtain an advantage in financial markets.

This creates:

Platform dominance → data advantage → financial-market entry → increased ecosystem dependence → greater platform dominance.

The conduct becomes particularly problematic where competitors cannot obtain equivalent access to customers or data.

5. Data as a Source of Market Power

Data is one of the most important competitive assets in embedded finance.

A large platform may observe transactions in real time.

For example:

An e-commerce platform knows how frequently a merchant sells products, the average value of sales, refund rates, customer retention, and seasonal demand.

It can potentially use this information to offer credit more accurately than an independent lender.

This can produce a data feedback loop:

More transactions → more data → better financial products → more customers → more transactions.

Smaller competitors may therefore face a structural disadvantage.

6. Data Advantage vs Data Monopoly

Possessing useful data is not automatically anticompetitive.

Competition concerns become stronger where the platform:

prevents competitors from accessing necessary data;

combines datasets unavailable to rivals;

restricts data portability;

contractually prohibits customers from using competing providers;

uses sensitive data to favour its own financial product; or

degrades competing financial services.

Thus, the relevant distinction is between:

competitive data advantage

and

strategically maintained data foreclosure.

7. Network Effects

Embedded finance can exhibit both direct and indirect network effects.

For example:

More consumers → more merchants → more transactions → more financial data → better lending → more merchants → more consumers.

This creates a reinforcing ecosystem.

Once the ecosystem becomes sufficiently large, entrants may struggle because they cannot reproduce the incumbent's:

customer base;

transaction volume;

data;

merchant network;

financial relationships.

8. Payments as a Gateway Market

Payments are particularly important because they sit at the centre of many embedded-finance ecosystems.

A dominant platform may control:

checkout;

wallet;

merchant acquiring;

payment authentication;

transaction data.

This can give it a strategic advantage when entering adjacent markets.

For example:

Platform + payments + merchant data + lending

may create a substantially stronger competitive position than any individual service alone.

9. Tying and Bundling

Embedded finance can create tying concerns.

Suppose a dominant marketplace requires merchants to use its:

payment service;

merchant bank account;

lending product; or

insurance service

as a condition of marketplace participation.

This can prevent independent financial providers from competing for those merchants.

The competition analysis would consider:

whether the platform is dominant;

whether the products are distinct;

whether customers are coerced;

whether rivals are foreclosed;

whether efficiencies justify the arrangement.

10. Exclusive Dealing

A platform might require merchants to obtain financing exclusively from its affiliated lender.

Alternatively, it could require:

"Merchants using our marketplace must use our payment service."

Such restrictions may create substantial foreclosure when the platform controls an important distribution channel.

The effects are particularly serious where:

the platform has a large user base;

merchants cannot realistically multi-home;

alternative channels are weak; and

the agreement is long-term.

11. Self-Preferencing

A platform may rank its own financial products more prominently than competitors.

For example, during checkout:

Platform's own credit product — Apply now

may appear prominently, while independent lenders are hidden or made difficult to access.

Self-preferencing can also involve:

preferential search ranking;

better API access;

lower transaction fees;

superior customer data;

default status;

faster approval mechanisms.

The central concern is whether platform control is being used to distort competition between affiliated and independent financial providers.

12. Case Law 1 — Google Shopping

Case: Google and Alphabet v Commission
Court: General Court of the European Union
Year: 2021

Google Shopping concerned Google's treatment of its own comparison-shopping service within its general search results.

Principle

A dominant platform can abuse its position when it uses control over an important platform to systematically favour its own downstream service and disadvantage competing services.

Embedded-finance relevance

The same reasoning can be applied to an embedded-finance platform that controls customer access and promotes its own:

wallet;

credit;

insurance;

payment service; or

investment product.

The important issue is whether the platform's control over distribution gives its affiliated financial product an artificial advantage.

13. Case Law 2 — Microsoft v Commission

Court: European Commission / General Court / CJEU
Subject: Interoperability and leveraging

Microsoft concerned Microsoft's conduct involving interoperability information and its ability to leverage control over a dominant software platform.

Principle

A dominant platform can face competition scrutiny where its control over interoperability prevents competing products from competing effectively.

Embedded-finance application

Suppose a dominant platform controls APIs connecting merchants to payment or lending providers.

If it:

withholds API functionality;

provides inferior access to competitors;

imposes discriminatory technical requirements; or

gives its own financial services superior interoperability,

Microsoft provides an important analytical precedent.

14. Case Law 3 — United States v Microsoft

The U.S. Microsoft litigation provides a foundational precedent on monopoly power and exclusionary conduct.

Microsoft's operating-system dominance was used to strengthen its position against competing technologies.

Embedded-finance relevance

A dominant platform may similarly possess an ecosystem advantage:

Marketplace → payments → data → lending → insurance

If platform power is deliberately used to exclude competing financial services, the conduct may raise monopolisation concerns.

The central distinction is between:

innovation-based ecosystem expansion

and

exclusionary ecosystem leveraging.

15. Case Law 4 — Visa and Mastercard Interchange-Fee Litigation

The European Commission and European courts have repeatedly examined aspects of card-payment arrangements, including interchange fees and restrictions affecting competition between payment systems.

Principle

Payment infrastructure can itself become a competition bottleneck.

Fees or rules imposed within payment networks can affect:

merchants;

acquiring banks;

issuing banks;

competing payment methods.

Embedded-finance relevance

Embedded finance frequently depends upon payment infrastructure.

Therefore, concentration in payment networks can affect the competitive conditions under which embedded financial services operate.

A platform controlling both the customer interface and payment infrastructure may possess particularly strong bargaining power.

16. Case Law 5 — Mastercard v Commission

Court: Court of Justice of the European Union
Year: 2014

The litigation concerning Mastercard's multilateral interchange fees examined whether payment-system arrangements restricted competition.

Principle

Rules within a payment network can have significant effects on competition even when they are part of an apparently integrated financial system.

Embedded-finance relevance

Embedded-finance platforms increasingly combine:

payment acceptance;

wallets;

merchant services;

lending.

The Mastercard jurisprudence demonstrates the importance of analysing the competitive effects of network rules and payment infrastructure, not merely consumer-facing prices.

17. Case Law 6 — Commercial Solvents v Commission

Court: Court of Justice of the European Communities
Year: 1974

Commercial Solvents established important principles concerning vertical foreclosure.

A dominant undertaking controlled an upstream input and used that position to disadvantage downstream competitors.

Embedded-finance application

Consider:

Platform infrastructure → payment data → lending

If a dominant platform restricts access to an essential upstream resource—such as transaction information or payment functionality—to disadvantage competing lenders, Commercial Solvents becomes relevant.

The concern is leveraging upstream infrastructure into downstream financial markets.

18. Case Law 7 — Bronner v Mediaprint

Court: CJEU
Year: 1998

Bronner established a demanding test for compulsory access to infrastructure.

Embedded-finance relevance

A financial platform cannot automatically be required to share every technological resource with competitors.

A competitor seeking access must demonstrate genuine indispensability.

This is important because competition law must balance:

interoperability;

innovation;

proprietary investment; and

access for competitors.

19. Case Law 8 — IMS Health v NDC Health

Court: CJEU
Year: 2004

IMS Health addressed refusal to license an important data structure.

Principle

Under exceptional circumstances, refusal to provide access to an indispensable resource may be abusive.

Embedded-finance relevance

The case is particularly important where a platform controls:

transaction data;

merchant data;

proprietary scoring information;

essential APIs.

A competitor would need to establish more than mere usefulness. It would need to demonstrate genuine competitive indispensability.

20. Case Law 9 — Amazon Marketplace Decisions

Competition authorities have examined Amazon's use of marketplace data and its relationship with sellers.

The underlying concern is that a platform may simultaneously act as:

marketplace operator; and

competitor to marketplace participants.

Embedded-finance relevance

The same structural conflict can arise where a platform is simultaneously:

marketplace;

payments provider;

lender;

insurer.

The platform may possess commercially sensitive information about competitors and then compete against them using that information.

This creates a significant vertical integration and data-use concern.

21. Case Law 10 — Meta Platforms / Facebook Data Cases

European competition authorities have examined the interaction between data practices and market power in the context of large digital platforms.

Embedded-finance relevance

Embedded finance similarly raises the possibility of combining data from different markets.

For example:

social data + transaction data + purchasing data + identity data

may create an informational advantage that financial competitors cannot reproduce.

The competition question is whether such data integration substantially raises entry barriers or forecloses rivals.

22. Vertical Integration

Embedded finance naturally encourages vertical integration.

A single ecosystem may contain:

Marketplace

↓

Payments

↓

Identity/KYC

↓

Credit scoring

↓

Lending

↓

Insurance

↓

Investment

The more layers controlled by one undertaking, the greater the possibility of vertical leveraging.

However, vertical integration can also produce genuine efficiencies.

For example:

faster credit decisions;

lower transaction costs;

improved fraud detection;

reduced underwriting costs.

Competition law must therefore distinguish efficiency from foreclosure.

23. Killer Acquisitions

Embedded finance also creates potential merger-control concerns.

A dominant platform may acquire a small fintech that possesses:

innovative lending technology;

merchant data;

payment technology;

identity infrastructure;

alternative credit-scoring models.

Even if the target has low current revenue, the acquisition could eliminate an important future competitor.

Therefore, authorities may need to examine:

potential competition;

innovation;

data assets;

ecosystem effects;

entry possibilities.

24. Ecosystem Expansion

One of the most important characteristics of embedded finance is ecosystem expansion.

A company may begin as:

E-commerce platform

then move into:

payments → wallets → lending → insurance → investment.

Each new service increases customer dependence.

This can produce cumulative ecosystem concentration even where no single market initially appears monopolised.

25. Switching Costs

Embedded finance can create significant switching costs.

Consumers and businesses may accumulate:

transaction history;

loyalty points;

financial records;

credit relationships;

payment credentials;

merchant integrations;

accounting integrations.

Leaving the ecosystem may therefore be expensive.

High switching costs can reduce competitive pressure even where nominal alternatives exist.

26. Multi-Homing

Multi-homing is an important competitive safeguard.

If a merchant can simultaneously use:

Platform A payment;

Platform B lending;

Platform C insurance;

then platform power is constrained.

But if technical or contractual restrictions make multi-homing difficult, concentration may increase.

Competition authorities should therefore examine:

Can users realistically use multiple competing embedded-finance providers at the same time?

27. Financial Data Portability

Data portability can reduce concentration.

Users and merchants should ideally be able to transfer relevant financial information between providers subject to:

privacy;

security;

regulatory requirements.

Portability reduces the incumbent's ability to rely upon historical data as an artificial switching barrier.

28. Algorithmic Credit Discrimination

Embedded lenders often use platform data for automated credit decisions.

A platform may have information unavailable to independent lenders.

This can create:

data advantages;

algorithmic advantages;

lower underwriting costs;

customer targeting advantages.

If the platform deliberately prevents competing lenders from obtaining comparable information, it may strengthen its competitive position.

The competition issue is therefore not simply who owns the algorithm, but whether access to critical data is being strategically restricted.

29. Cross-Subsidisation

A large platform may subsidise financial services using profits from another market.

For example:

Marketplace profits → subsidised payments → lower payment price → competitor exit → later financial-service expansion.

Cross-subsidisation is not automatically unlawful.

The question is whether pricing strategies amount to:

predatory pricing;

exclusionary rebates;

margin squeeze; or

other exclusionary conduct.

30. Margin Squeeze

Suppose an integrated platform controls an upstream payment infrastructure and competes downstream in lending.

It could theoretically:

charge competitors high infrastructure fees;

provide its own downstream service at low prices.

Competitors may then be unable to earn a viable margin.

This is the classic margin-squeeze structure.

The analysis is particularly relevant in vertically integrated embedded-finance ecosystems.

31. Consumer Choice and Financial Inclusion

Market concentration does not necessarily produce immediate consumer harm.

Embedded finance may produce substantial benefits:

easier access to credit;

lower transaction costs;

financial inclusion;

faster payments;

simplified insurance;

personalised financial products.

Therefore, competition law should not punish integration merely because a platform becomes successful.

The concern arises when success is converted into exclusionary control.

32. Regulatory Overlap

Embedded finance sits at the intersection of several regulatory regimes:

competition law;

banking regulation;

payment regulation;

consumer protection;

data protection;

financial-services regulation;

cybersecurity;

securities regulation.

A competition authority must therefore understand that a practice may be:

technically compliant with financial regulation

while still potentially producing anticompetitive effects.

Conversely, competition remedies must not undermine legitimate financial-stability requirements.

33. Important Competition Questions

A regulator examining embedded-finance concentration should ask:

Market power

Does the platform possess substantial power?

Data

Does it possess uniquely valuable transaction information?

Access

Can competitors access customers on reasonable terms?

Interoperability

Can users connect independent financial services?

Multi-homing

Can customers use several providers simultaneously?

Exclusivity

Are merchants restricted from using competitors?

Self-preferencing

Are affiliated financial products favoured?

Tying

Must users purchase financial products as a condition of platform access?

Acquisitions

Are emerging fintech competitors being acquired?

Foreclosure

Are independent financial providers being eliminated?

34. Remedies

Potential remedies include:

1. Data portability

Permit customers and merchants to transfer relevant information.

2. API interoperability

Require reasonable access to interfaces.

3. Non-discrimination

Prevent affiliated products from receiving artificial advantages.

4. Restrictions on exclusivity

Limit arrangements that prevent multi-homing.

5. Data-use separation

Prevent commercially sensitive competitor information from being used unfairly.

6. Structural separation

In extreme circumstances, separate platform and financial operations.

7. Merger scrutiny

Examine acquisitions for ecosystem and potential-competition effects.

35. Case-Law Synthesis

36. Conclusion

Embedded finance has the potential to transform competition in financial services because it shifts financial products from traditional banking channels into digital ecosystems controlled by technology platforms.

The greatest concentration risks arise when one platform controls several complementary layers:

customer access + transaction data + payments + identity + credit scoring + financial products.

This can create a powerful feedback loop:

More users → more transactions → more data → better financial products → greater customer dependence → more users.

The principal competition-law risks therefore include:

leveraging;

self-preferencing;

tying and bundling;

exclusive dealing;

discriminatory access;

refusal to supply;

interoperability restrictions;

data foreclosure;

margin squeeze;

cross-subsidisation;

killer acquisitions; and

ecosystem-based exclusion.

The cases of Google Shopping, Microsoft, United States v Microsoft, Mastercard, Commercial Solvents, Bronner, and IMS Health provide particularly useful doctrinal foundations.

Ultimately, embedded finance should not be treated as anticompetitive merely because it creates integrated and convenient financial services. The decisive issue is whether ecosystem integration produces genuine efficiencies or is deliberately used to convert platform, payment, or data dominance into durable control over adjacent financial markets.