It’s official: Embedded payments are the fastest growing segment in embedded finance, expected to account for nearly 63% of the $800 billion embedded finance market by 2030. As demands for faster transactions and optimized customer experiences have reached a fever pitch, embedded payments have emerged as a critical solution for software platforms seeking to improve customer value and retention metrics while gaining a competitive edge in a crowded market.
Forward-thinking software platforms are choosing white-label embedded payment solutions to offer seamless, branded payment experiences without the cost or complexity of developing the underpinning infrastructure themselves. In addition to bringing technical simplicity, payment facilitator (payfac) as a service offerings also shield software platforms from the operational and compliance issues that come with being a licensed provider and pave the way for optimized payment monetization and scalable global expansion.
So, what does the future hold for embedded payments, and how can businesses capitalize on this rapidly growing market? Let’s take a closer look.
Michael Misasi
Embedded Payments: A Brief Primer
The term embedded payments refers to the integration of payment processing capabilities directly into a company’s software or platform. There are two general approaches to embedding payments into your platform: Become a payment facilitator and manage every aspect of payments in-house or partner with a payment provider for white-label payments. Both approaches give platforms access to the benefits of embedding payments, including increased revenue from payment monetization, optimized customer experiences, greater control over the payments process and competitive advantages; however, becoming a payfac adds several layers of complexity and risk.
Partnering with a third-party payment provider is a simpler solution, enabling software platforms to offer a branded payment experience without the burden of developing the technology, managing the operations and taking on the risk themselves. Additionally, white-label payments providers offer the global scalability needed to adapt to different markets and regulatory environments, empowering platforms to expand into new regions without the associated complexity of managing everything in-house. It’s little wonder that 89% of companies choose to partner with established payment providers rather than developing and maintaining these systems on their own.
How to Optimize Embedded Payment Programs
As embedded payments — whether developed in-house or powered by a partner — continue to gain traction, software platforms must pay close attention to emerging trends to stay ahead of the competition. Many platforms were reactive in developing their initial embedded payments offering — whether in response to competitors, customers or something else — and now, seeing the value of embedded payments, are looking to optimize their programs.
Let’s take a look at three common scenarios platforms find themselves in and how they might optimize their embedded payments programs:
They Embed Payments by Becoming a Payfac
Software platforms are realizing that it doesn’t pay to become a payment facilitator when they can partner with providers to reap the benefits of monetizing payments. By January 2024, registered payfacs in North America saw a 6% annual attrition rate; the EU and UK say a 14% annual attrition rate. It’s clear that while many platforms believed becoming a payfac was either the right or only path to embedding payments, they’re changing course after realizing the operational and financial burdens.
By partnering with a provider to enable embedded payments, platforms enjoy the benefits of additional revenue, increased customer loyalty and greater value without the risks and overhead associated with becoming a payment facilitator. This approach will enable more platforms to add payments to their software at a more rapid pace. Any platform considering becoming a payment facilitator themselves should thoroughly research the associated costs — they are often higher than most platforms anticipate.
Optimize by Choosing a Payments Provider That Can Be a True Partner
The right payments partner should provide guidance and support in every aspect of growing a payments program, from merchant onboarding and monetization strategies to risk management and support. Payment providers should offer expertise and capabilities to help you deliver the experience you want for your customers. Don’t settle for a support team that only tells you what happened — insist on a team that can explain why something happened and offer a pragmatic recommendation for improvement.
They Simply Added Payments as a Feature
When many software platforms first got their start in payments, they responded to customer requests for improved billing and payment capabilities, not realizing payments can be a highly profitable business segment of its own. According to Bain & Co., embedded B2B payments will reach $2.6 trillion by 2026, generating $6.7 billion in revenues for platforms and enablers.
To stay competitive and reap the profits, platforms need to take another look at their payments offering to position themselves for maximum profitability.
Optimize by Understanding Your Options and Potential for Payment Monetization
Monetizing your payments is about designing a solution where software plus payments creates tangible value for your customers. Depending on the vertical, common areas of focus include improved authorization rates, accelerated cash flow, lower transaction risk, increased addressable market, easier reconciliation, and better compliance.
Platforms that create value through a combination of software and payments can often charge more than standalone payments providers. Once you’ve identified your value proposition, consider all the ways you can monetize it, including higher SaaS fees, transaction fees, payer fees, or other new fees that directly relate to your value proposition.
They Chose the Wrong Partner
Many platforms knew partnering was the best option but didn’t have enough experience to know how to evaluate which payment provider was best suited for their company. Perhaps they chose the provider with the biggest name or whichever one appeared to offer the largest percentage of revenue share.
Payments can be a risky business. Choosing the wrong payments partner can hinder your ability to grow, lose money for you and your clients, and even put your business at risk. Platforms need to consider their longer term embedded payments strategy and then choose the partner best positioned to help them achieve their goals.
Optimize by Redefining What a Good Onboarding Experience Looks Like
Embedded payments can succeed and fail based on your ability to quickly, efficiently, and compliantly onboard merchants. Look for a partner that can take care of AML and KYC for you without sacrificing speed to market for your clients. If you already have a portfolio of clients, choose a new partner that will migrate them for you, so your merchants don’t miss a beat.
Preparing for the Future of Embedded Payments Is All About the Right Partnership
Now is an exciting — and profitable — time for software platforms to reexamine or add embedded payments to their offering. Over the past few years, platforms have learned that white-label embedded payments have the highest return on investment. All you need to do is make sure you have the right payments partner.
