A Practical Guide To Embedded Payments: Everything You Need To Know

In the UK, BNPL accounts for roughly 5% of online transactions, while in Sweden it makes up 23% of all transactions online. Deepening relationships with business clients is vital to a software company’s success. Happy customers generate more lifetime value and the revenue earned from payments can be invested back into the ISV’s core software so they can continue to add enhancements that attract new business and drive scale. If so, banks will need to develop a BaaS strategy today, with a realistic understanding of their cost structure and the path to transformation. They should also clearly see the impact that a significant increase in customer demand for integrated banking experiences will have on their businesses. It also helps the software provider become more of a one-stop-shop for its customers.

By 2026, we expect B2B payments to reach $33.3 trillion, with embedded payments taking a considerably higher share as buyers shift to eCheck, virtual cards, and value-added ACH to streamline operations and simplify AP/AR reconciliation. During this time, the B2B embedded payments market will nearly quadruple from $0.7 trillion to $2.6 trillion, with revenues growing proportionally from $1.9 billion to $6.7 billion (see Figure 6). Payment acceptance has evolved significantly since the days when businesses used “Knuckle Busters” to capture an imprint of credit card details.

Examples of embedded finance

This move embeds payments for customers working in the burgeoning healthcare events space, manages multiple merchant relationships and automatically complies with relevant regulations. Increasing comfort with technology providers may also be influencing the broader delivery of financial services. More than a third of respondents would consider using generative AI for financial advice and/or planning services, an unusually high figure for a capability that was little known to the general public less than a year earlier.

The term is used in several different contexts, so embedded payments companies, and how do they work? When businesses use embedded payment solutions, they get to offer customers a much better checkout experience. For example, if payments are built into a merchant’s website, customers won’t be taken to a third-party checkout page that the business has no control over. Additionally, there are cases where businesses provide banking services to restore savings accounts offered by conventional financial institutions. Understanding or getting a grip on «embedded finance» is challenging, like other new concepts. Simply put, embedded finance relies on financial services and tools such as payment processing or lending by any non-financial provider.

The Growth of Embedded Finance and Payments

Some may be comfortable with growing deposits and earning revenues relatively passively, at least early on, but many will look for opportunities to differentiate themselves and boost revenues through more advanced products and support. The embedded-finance product portfolio is likely to expand further as customer-onboarding and product-servicing processes are gradually digitized and real-time risk analytics and services grow more sophisticated. According to our estimates, the market could double in size within the next three to five years.

See our latest rankings of the power brokers in banking as well as general finance, the rising stars to watch and profiles of the five top teams in banking. Embedded investment firms include programs like Robinhood, Cash App, and Acorns that combine stock market investing. Without leaving the app or interacting with an investment advisor, selling, buying, and exchanging stocks are possible. The Encyclopaedia OpenPayddia, quenching your curiosity around every type of payment you can think of.

Omnichannel Payments

Embedded finance is the perfect tool to be leveraged by B2B networks in order to turn the tide on slow and late payments. Financial institutions could migrate to a new digital core system upon which to build this new platform, but in the short-term, few will. Leveraging these insights allows companies to fine-tune marketing strategies and boost conversion rates. In this hotly contested market, 90% of today’s revenue pool could migrate to software vendors, major technology firms, and other contenders. By 2026, platform revenue will more than double to $14 billion, with take rates remaining largely flat. Meanwhile, enabler revenue will rise only slightly to $7 billion, with a significant drop in pricing and take rates, from an average of 38 to about 20 basis points, due to increased competition.

Viasat has seen a lift in authorization rates by approximately three percent since switching to the new payment platform. However, when it comes to further streamlining internal, back-end payment processes, why shouldn’t a finance manager have the same level of efficiency in their business tools that they do in their consumer lives? Now, that might be a bit of an exaggeration considering the complexity of managing corporate finances compared to your personal spending—but there’s certainly room for improvement. Marketers see embedded finance as a way to create stickier relationships with consumers to drive repeat purchases, and to drive retention with employees, French said.

Payment Data and Analytics

The good news is that enabling partners to distribute banking products can be a low-margin, high-volume business for banks. Banks often struggle with their cost structures, which are frequently based on legacy technology and enabled through manual processes and operations. To offer BaaS, banks must undergo digital transformations, but many already have. My work with incumbent banks suggests that more than two-thirds have undergone the digital transformation and modernization necessary to be competitive in BaaS. Lightspeed was able to provide its users with better offerings, build a stronger differentiation from competitors, and open up new revenue streams with embedded payments. They can now serve their users and the small to medium-sized businesses they run better.

Payments can also be embedded into both front-end product environments and back-end systems, so whether a business is looking to offer a new customer feature or streamline their back office operations, embedded finance can help. Get the latest insights on the future of payments and the growth of new digital business models. Embedded finance presents a huge opportunity not just for fintech companies and businesses, but also for consumers. It gives consumers options to increase convenience and savings, like zero-interest point-of-sale loans, or rewards for using a brand’s e-commerce app. In this article, we’ll explore what embedded finance is, the different types of embedded finance, and outlooks for growth and future trends in the embedded finance industry.

Streamlined payment solutions for businesses

Any ecommerce merchant that’s tried to liaise with an external provider to solve an issue with a customer order, from a parcel carrier to a returns management provider, knows how time-consuming this can be. By the time a resolution is found, that’s one fewer customer your business is going to retain. In the same way that customers will blame the brand and not the parcel carrier if their order is delivered late, merchants cannot simply pass off a failed transaction on a third-party payment platform as ‘not their fault’. Embedded payments go beyond enhancing user experiences; they’re a goldmine of monetization possibilities. It is essential to stay ahead and plan for increased transaction volumes, user growth, and potential feature expansions such as different forms of payment.

• Embedded lending or embedded payments act as a bridge between customers, brands, and financial solution providers.
• You head to the checkout – only to be confronted with a bunch of fields to fill out for your chosen payment method.
• One of the most notable examples of digitization is in the fintech sector, particularly how traditional businesses engage finance on a new level by integrating financial mechanisms into their overall business plan.
• As much as 33 percent of global card spending—50 percent in the US—now takes place online,2McKinsey Global Payments Map, 2022.
• New use cases then emerged, among gig workers and sole proprietors, and our research indicates that the market growth will continue alongside the rise of a broad set of enablers, including Galileo, Treasury Prime, Stripe, and Marqeta.
• Conversely, many other industries have been slower to advance digitally, because of a lack of disintermediation, regulatory influences, or customer preferences, and are therefore harder for embedded finance to penetrate.

From research we conducted with Boston Consultancy Group (BCG), 69% of SMBs state that they’d change their payment processor if the solution were more integrated into their business process. Embedded payments are becoming a major selling point for SaaS platforms and marketplaces. By embedding payments into your platform offering, you gain full control over a functionality that’s crucial to the small and medium sized businesses (SMBs) that frequently use your platform. GoCardless integrates with BNPL providers to collect payment in installments via direct debit, working easily with embedded payment links on your website.

Banks Need an Embedded Fintech Factory

It’s as if Plaid turns on the stream of user-permissioned financial data to these companies, then they transform it into embedded finance products and services. Embedded fintech provides a way for financial institutions to offer a wider range of services, engage their customers, and deliver more value. Historically, if a bank wanted to offer a new product, say a new type of investment or a different type of loan, they would need to spend months, if not years, developing, building, and launching a new product. With the rise of embedded fintech, they can embed these offerings in their current products. This lowers the economic risks and allows traditionally slow-moving banking companies to become more nimble and adjust to changing customer needs.