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By all appearances, embedded finance is the future. From ride-hailing apps offering insurance to e-commerce platforms extending credit at checkout, financial services are increasingly dissolving into the platforms we use every day. And in Nigeria, where fintech innovation continues to outpace policy, this trend is picking up steam.
Yet while embedded finance offers exciting possibilities, convenience, scale, financial inclusion, it also introduces new and often overlooked risks. For Nigeria’s traditional financial institutions, this is not the time to sit back. It’s also not the time to jump in blindly. The opportunity is real, but so is the danger.
Read also: How embedded finance can help more African MSMEs grow
The allure—and the blind spots
Embedded finance allows non-financial platforms to offer payments, loans, insurance, and even investment products, often powered by the infrastructure of regulated financial institutions. This has opened up new markets and made financial services more accessible to millions. But what happens when these services go wrong?
When fraud occurs on a ride-hailing platform offering microloans or a social commerce app mishandles users’ payment data, who takes the fall? Increasingly, it’s the regulated partner, the bank in the background, facing scrutiny from customers, regulators, and the media.
We have already seen glimpses of these issues play out. In 2023, Flutterwave, one of Nigeria’s fintech giants, faced serious allegations of fraud through its point-of-sale infrastructure. While Flutterwave denied wrongdoing, the case highlighted the thin line between technological innovation and compliance oversight.
The Nigeria Inter-Bank Settlement System (NIBSS) reported over ₦17 billion in fraud losses in 2022, with mobile and web platforms being the most affected. Many of these channels are the same ones where embedded finance now thrives. The concern isn’t whether embedded finance contributes to this problem directly, but whether our systems of oversight have kept up with its growth.
Read also: AI, AfCFTA, embedded finance to shape fintechs’ 2025 — Oturu
A matter of strategic risk, not just innovation
Banks and financial institutions must rethink how they assess and manage third-party risks. Embedded finance blurs traditional boundaries, between service provider and customer, between bank and platform, and this creates confusion about liability, due diligence, and consumer protection.
Take the explosion of “buy-now-pay-later” (BNPL) models, for instance. In Nigeria, startups like Carbon and M-KOPA offer instant credit through embedded partnerships. But who owns the credit risk? Is it the platform marketing the service or the financial institution underwriting it?
Without robust governance, banks risk exposure to poor lending decisions made in their name. Worse, they may not even have direct contact with the end customer to enforce repayments or manage disputes.
A new governance playbook
To avoid becoming the silent victims of innovation, financial institutions need a new playbook, one that places strategic risk at the heart of all embedded finance partnerships. This means conducting rigorous due diligence on potential partners, not just assessing their financial soundness but also scrutinising their data protection practices, fraud history, and overall business ethics. It also requires the development of real-time monitoring systems capable of detecting transaction anomalies across third-party platforms, ensuring that risks are flagged and addressed promptly. Additionally, institutions must engage proactively with the Central Bank of Nigeria (CBN) and other regulators to clearly define liability boundaries, so that there is no ambiguity around responsibility when failures occur. Finally, a forward-looking approach would involve advocating for and participating in collaborative regulatory sandboxes, where financial innovations can be tested under supervision, allowing risks to be understood and managed before full-scale deployment.
Read also: Embedded finance can help SMEs unlock capital, drive financial inclusion – OnePipe CEO
The path forward
Embedded finance is not going away. If anything, it will become more embedded in our lives, our phones, and our commerce. For banks, the question is not whether to engage; it’s how to do it safely and sustainably.
Ignoring this shift is no longer an option. But neither is blind participation.
Nigeria’s financial institutions must approach embedded finance not just as a growth opportunity but as a strategic risk management challenge. The winners in this next phase will not just be the fastest; they will be the ones who move forward with eyes wide open.
Abayomi Fashina (Fash): Tax and Risk Professional | BSc, MSc, AAT, ACA
