Retailers offer buy now pay later at checkout. Commerce platforms issue cards and run wallets. Brands launch loyalty accounts that hold value. Embedded finance has made it easy for any business to sell a financial product. What it has not done is make the regulatory risk disappear. At Relace, we think the firms that identify what risks are theirs before they launch will grow fastest long-term.
Selling financing makes you part of financial services
Whether a brand becomes regulated depends on the product it offers, not on what it calls itself. Buy now pay later is now regulated in the UK and a retailer offering it takes on reporting and conduct obligations. Payment plans on high-value goods can amount to credit that needs permissions of its own.
The shift is often gradual. A commerce platform adds payments, then a wallet, then a card, then a loyalty programme. Each step looks small. Together they move the business into financial services and this brings licensing requirements that differ in every market it operates in.
Investors notice even when founders do not. Early-stage firms that have not worked out their regulatory position meet the question in due diligence: which of your activities are regulated and do you hold the right permissions? A vague answer can at a minimum cause a delay in closing the round as you develop a clear answer and, at worst, can put investors off entirely.
A partner can carry the licence, not the responsibility
Most brands do not build financial products themselves. They embed those of a provider. Large payment and lending providers take on much of the regulatory work: the brand distributes their service under their permissions and the provider handles much of the reporting. That lightens the load. It does not remove it.
What the provider cannot take over is how the product lands with the brand’s own customers. An interest-free instalment plan can still lead someone to spend more than they can afford, and the people most exposed are often the least financially confident. The brand chose to put that product in front of them, so the outcome is still the brand’s concern.
Other regimes can apply as well. In the UK, the Consumer Duty reaches well beyond traditional finance, into retail and other consumer sectors that sell financial products alongside their own. Before launch, a firm should know every regime its offer brings into play, not only the one its partner holds the permissions or licence for.
Obligations grow with you
A firm’s obligations are shaped by the activity it carries out and who it is. Scale, customer numbers and the potential for harm all shape how closely a regulator looks. The same product draws different scrutiny in a boutique than in a national chain.
Most firms follow a similar path:
- Sell the product and outsource the work. The provider carries most of the regulatory load and the brand takes specialist advice on the balance.
- Operate under someone else’s licence. As an appointed representative, the firm works under a principal’s permissions and buys compliance as a service.
- Bring compliance in-house. As the business grows, a head of compliance takes over the relationship with the regulator directly.
The step from instalment plans to lending, accounts or banking is not linear. Each new product and each new market adds obligations and the required effort grows much faster than the product list. Firms that plan for the next stage before they reach it avoid rebuilding their controls under pressure.
Customer data is the next exposure
Embedded finance runs on customer data, and that is where many brands underestimate the risk. Using shopping behaviour to decide who sees a credit offer sounds like good targeting. It is also processing personal data for a purpose the customer may never have agreed to. Data protection law binds a brand to what it told customers when they gave consent and a new financial use may need a new consent.
AI raises the stakes. Staff paste customer information into general-purpose AI tools and the rules for AI are still far less settled than those for finance or healthcare. Heavily regulated firms have responded by restricting those tools, keeping models inside their own environments and limiting what internal data they can reach.
The firms buying from you are asking the same questions. Where does our data go? Which models process it and for what purpose? We see buyers turn down vendors that cannot answer clearly. A brand selling financial services should expect those questions from its partners, its regulator and its customers.
Shortcuts compound
Every founder feels the pull to ship first and tidy up later. For an unregulated business, that can be a reasonable bet. For a firm selling financial products, it rarely is. A licence application in a new market or for a new product brings past decisions back into view, and the people answering for them are the firm’s own compliance team.
“Take the risk and pay the fine” treats the fine as the whole cost. It is usually the smallest part. The larger cost is the friction it creates in every later conversation with a regulator, a partner or an investor.
The better question is what the customer actually gets: a faster service or a better one. Firms that work back from what a regulator would need to see to keep their service safe and build that in from the first version, move faster over time because they are not rebuilding as they grow.
Where to start
For a brand about to add a financial product, the first steps are clear:
- Name the activity. Write down exactly what the product does for the customer: deferring payment, extending credit, holding value or moving money. That decides which rules apply.
- Split the work with your partner. Agree in writing which permissions, reporting and customer outcomes sit with the provider and which stay with you.
- Check the wider regimes. Consumer protection, data protection and sector rules can apply even where the financial licence is someone else’s.
- Map the next stage. Know which product or market would move you into a new tier of obligations and plan for it before you get there.
- Be ready to explain your data. Know where customer data goes, which tools touch it and the basis for it before a partner or regulator asks.
Selling financial services is a real opportunity for brands with loyal customers. The risk comes with it and only part of it can be handed to a partner. That is what we are building Relace for. Any firm offering a financial product can see which obligations are its own and demonstrate that it meets them.