Internal Audit in Embedded Finance: A Growing Challenge

One of the most transformative developments shaping this landscape is embedded finance — the seamless integration of financial services such as payments, lending, or insurance into non-financial platforms. From e-commerce marketplaces offering instant credit at checkout to ride-hailing apps providing digital wallets, embedded finance is blurring traditional boundaries and redefining customer expectations.

While this innovation brings opportunity, it also introduces new dimensions of risk. For internal auditors, embedded finance represents a complex and evolving frontier — one that demands a deeper understanding of technology, partnerships, and regulatory alignment.

Understanding Embedded Finance and Its Implications for Risk Management

Embedded finance thrives on connectivity. It relies on application programming interfaces (APIs) that link banks, FinTechs, and non-financial platforms in real time. This interconnectedness drives efficiency and customer convenience but also introduces layered dependencies and new forms of risk.

From a risk management perspective, these models can blur lines of accountability. Who is ultimately responsible for customer due diligence, data protection, or transaction monitoring — the financial institution, the technology provider, or the host platform? In a jurisdiction such as Malta, where FinTech adoption continues to grow and regulators are observing the space closely, understanding these responsibilities becomes essential to maintaining trust and compliance.

Internal audit functions must therefore take a broader view of the risk landscape. Traditional audit approaches that focus narrowly on in-house operations are no longer sufficient. Instead, auditors need to evaluate how the organisation manages risks across its ecosystem — assessing governance, third-party oversight, data integrity, and operational resilience.

 

Auditing Partnerships and APIs with Non-Financial Platforms

Auditing in the world of embedded finance requires an appreciation of the partnership-driven model that underpins it. FinTechs in Malta increasingly collaborate with retail platforms, service providers, and digital marketplaces to deliver financial products directly to end users. These relationships often involve complex data flows and shared compliance responsibilities.

Internal auditors must assess not only the robustness of their organisation’s own controls but also how partner entities uphold critical standards. This includes reviewing API security, contractual clarity, data-sharing protocols, and incident response mechanisms. Effective audits also evaluate how well the organisation monitors third-party performance and ensures continuous compliance with local and European regulations, including anti-money laundering and data protection requirements.

The challenge lies in balancing innovation with assurance — ensuring that agility does not come at the expense of governance.

 

BDO Malta’s Role in Supporting FinTechs and Embedded Finance Providers

At BDO Malta, we work closely with FinTechs and startups that are entering or expanding within the embedded finance space. Many of these organisations are ambitious, fast-moving, and eager to capitalise on Malta’s growing reputation as a FinTech hub. However, they often face questions about where they stand in their maturity journey — how to structure internal controls, when to formalise governance frameworks, and how to manage risks without constraining innovation.

Our approach begins with understanding each client’s business model, growth trajectory, and strategic priorities. We then help them assess their position against industry best practices and regulatory expectations, identifying practical steps to enhance oversight and resilience. This may include reviewing governance arrangements, assessing third-party risk management practices, or establishing internal audit frameworks proportionate to the organisation’s size and complexity.

BDO Malta’s goal is not to slow innovation, but to enable sustainable growth. By helping FinTechs embed sound governance and risk practices early, we support their ability to scale confidently, attract investment, and maintain the trust of customers and regulators alike.

 

Key Considerations for Internal Audit in a Rapidly Evolving Field

Internal audit functions operating in embedded finance must evolve in parallel with the industry. Some key priorities include:

· Mapping ecosystem risks: understanding the end-to-end flow of transactions and data across interconnected entities.

· Assessing governance and accountability: ensuring clarity on roles, responsibilities, and oversight mechanisms in multi-party arrangements.

· Evaluating third-party controls: reviewing how partners, vendors, and API providers safeguard data and maintain compliance.

· Testing operational resilience: verifying that systems can withstand disruptions and that incident management processes are effective.

· Staying ahead of regulatory expectations: maintaining awareness of evolving European and local requirements around digital finance and customer protection.

For internal auditors, the challenge is to remain adaptable while preserving independence and objectivity. Embedded finance may be complex, but it also offers an opportunity for internal audit to demonstrate strategic value — by helping organisations navigate new risks with confidence and foresight.

 

Final Thoughts

As Malta continues to position itself as a leading FinTech centre, embedded finance will remain at the forefront of financial innovation. Internal auditors have a critical role to play in ensuring that this innovation is responsible, secure, and sustainable. By combining technological understanding with sound governance principles, auditors can help FinTechs build trust in an increasingly connected financial ecosystem.

At BDO Malta, our mission is to stand beside these innovators — ensuring that as they grow, they do so with integrity, control, and resilience.

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