Embedded Payments as a Strategy: Scaling Your Business With Payment TechnologyWendy Wang
Embedded Payments as a Strategy: Scaling Your Business With Payment Technology
In recent years, a growing number of non-tech companies have chosen to partner with financial institutions so that they can seamlessly integrate financial services and tools within their brand’s end-user experience. This phenomenon, known as embedded finance, allows businesses to strategically provide access to loans, insurance, investments, bill payment, or other financial offerings along with their core products or services.
Embedded payments is one of the most prevalent and profitable subcategories of embedded finance. This practice involves the integration of payment processing capabilities within non-financial apps, allowing customers to make payments with greater ease and less friction. Lightyear Capital forecasts that the embedded finance market will reach $230 billion by 2025, with embedded payments making up an astounding 60% of that total!
With its ability to vastly improve the user experience and drive revenue, today’s software developers and independent software vendors (ISVs) are taking note of the power of embedded payments. If you’re wondering how your business can tap into this lucrative, high-growth market, keep reading this blog post!
Embedded Payments Explained
As mentioned, embedded payments refers to the integration of payment acceptance tools within non-finance apps or software. This strategy allows businesses to maintain full control over every aspect of the end-user experience while also earning revenue from processing fees. For customers of these brands, the process of making a payment no longer feels like a disruption from the primary brand interaction — instead, it is indistinguishable.
Wondering what embedded payments looks like in practice? Here are some examples of embedded payments at work in various industries:
Health and Fitness
Exercise apps that allow users to browse local exercise classes, purchase class passes or memberships, and store payment information.
Patient portals that allow patients to schedule appointments, message doctors, and pay balances all in one place.
Apps like Uber and Lyft that allow users to store payment information for automatic payment at the end of each ride.
Invoicing platforms that allow customers to pay for services upon receipt of a clickable email invoice sent by their service provider.
In all of these examples, you can see how the payment process is seamlessly embedded within the customer’s experience. They don’t feel the frustration or hassle of having to stop what they are doing and make a payment. Instead, they can pay with just a few clicks, without needing to be redirected to another website, app, or platform.
What’s Driving the Growth of Embedded Payments?
Even though the term embedded payments is new, it is built upon several layers of pre-existing solutions and trends. Let’s take a look at the factors that have facilitated embedded payments’ rapid expansion:
Digital Wallets and Frictionless Checkout Experiences
The online checkout experience is evolving fast, especially as a growing number of customers make purchases from their mobile devices rather than desktop computers. Increasingly, customers want to be able to pay with just a few clicks, rather than having to dig through their wallets and manually enter in card details. Frictionless payment alternatives like secure storage of card information, automated billing and subscriptions, and one-click digital wallets are allowing customers to pay much faster than ever before. Recent advancements in payment security, such as card tokenization and biometric authentication methods, have been instrumental in the growth of these frictionless payment technologies by allowing customers to securely store payment details.
The Growth of APIs
Another factor contributing to the growth of embedded payments is the increasing use of APIs (application program interfaces) among businesses. An API is a set of protocols that allows two separate software programs to communicate with one other, thus simplifying integration with third-party software. The growth of APIs has made third-party integrations a realistic option for a wider range of businesses — requiring less hassle, development resources, and overhead costs. And, businesses are recognizing this: in a survey of over 300 IT and business decision-makers, 72% of respondents said they expect an estimated 26.4% digital business growth on average if they could increase API adoption.
The Evolution of Merchant Services
The traditional path to a payment processing account, in which merchants are serviced by Independent Sales Organizations (ISOs), is rapidly shifting toward a “software-led payments” approach. Coined by Infinicept, this term refers to the practice of obtaining payment processing capabilities through one’s business management software, rather than through an ISO or bank. Data from Mercator Advisory Group backs this up — they expect that the number of merchants who receive merchant services through an acquiring bank or merchant bank will drop to 31% in 2025 from 59% in 2017. For the same time period, Mercator Advisory Group also forecasts an increase of nearly 10% in the number of merchants who obtain merchant services from an ISV.
Facilitating this shift is the fact that a growing number of software companies in a wide range of industries — such as restaurants, amusement and recreation, and healthcare — are becoming merchant services providers (MSPs). In particular, ISVs, software-as-a-service, (SaaS) providers, and other software developers are utilizing the payment facilitator (PayFac) model to become MSPs. By operating as PayFacs, non-payment software companies can directly onboard their clientele with merchant processing accounts.
Payment Facilitators: The Technology Behind Embedded Payments
Embedded payments is a valuable strategy, and putting this strategy into practice requires a robust infrastructure and tech stack. And, that’s where payment facilitators come in. PayFac solutions provide software companies with all the tools, APIs, and backend systems needed to onboard merchants with processing accounts and embed payment technology within their platform.
ISVs and SaaS providers that become PayFacs reap many benefits: a lucrative revenue stream, greater control over their end-user experience, and improved customer satisfaction and loyalty. At the same time, merchants who process payments through a PayFac enjoy simple flat-rate pricing, rapid account onboarding times, and access to advanced payment technology that supports various sales channels and payment methods.
The Path to PayFac for ISVs and SaaS Providers
There are several options available to those who are considering becoming PayFacs. Traditionally, software providers have chosen to build the PayFac infrastructure from the ground up, a process that requires significant overhead costs and development work that may take years before seeing any return on investment. Fortunately, another path to PayFac has become available in recent years: PayFac-as-a-Service (PFaaS). PFaaS technologies like Cardknox Go are out-of-box solutions that equip businesses with everything they need to become payment facilitators and embed payments: software, compliance, risk monitoring, and so much more. Businesses that choose the PFaaS route can reap all the same benefits as the traditional PayFac path while enjoying a faster time-to-market and much lower upfront costs.
Embed Payments in Your Software With Cardknox Go
Cardknox’s PFaaS solution, Cardknox Go, makes it easy for industry players to cash in on embedded payments. Cardknox Go’s full suite of embedded payments tools — a robust API, industry-leading payment gateway, automated risk monitoring, and much more — allow ISVs and SaaS companies to integrate payments in their sales channels with incredible ease and flexibility. At the same time, Cardknox Go partners benefit from industry-leading revenue sharing, access to powerful account management features, and robust security and compliance. Ready to learn more? Visit www.cardknox.com/cardknox-go.