Why You Can’t Afford to Ignore Embedded Payments

Amanda Kilmer
Date Published
December 15, 2021
Read Time

This seamless and invisible transaction experience, enabled by financial technology known as embedded payments, is proving to be a major competitive advantage for a myriad of companies.

Your first Uber ride was probably a surprising but enjoyable experience. When you arrived at your destination and stepped out of the car, the transaction was fully complete; you didn’t have to pay in cash or pull out your card because payment was already settled in the app.

This seamless and invisible transaction experience, enabled by financial technology known as embedded payments, is proving to be a major competitive advantage for a myriad of companies.

Let's take a look into what embedded payments are, who’s using this tech, and how your company can participate in this revolution.

What are embedded payments?

Embedded payments allow non-financial companies to accept payments natively within their product instead of using a separate point-of-sale tool. Customers no longer have to look for cash or enter their card details for each purchase; their payment details are saved once and continuously reused by simply tapping a few buttons.

Software companies, in particular, are well-positioned to integrate embedded payments into their products. Matthew Harris, a partner at Bain Capital Ventures is confident embedded payments — or what he calls of “merchant payments that are sold and managed through software companies as opposed to traditional payments companies” — will reach as much as 40% of transaction volume in the medium term, up from around 8% in 2019.

Behind the rise of embedded payments

Multiple factors are fueling the rise of embedded payments. The first is the growing adoption of application programming interface (API)-based approaches to software development which has made it possible for different technologies to work together and produce new value.

Cloud computing has played a vital role, as well. Transitioning from on-premise to cloud has enabled fintechs to build, deploy, and scale their products faster and react quickly to market demands. Startups are able to better manage their costs with the cloud’s pay-as-you-go models instead of expensive on-prem set-ups. Cloud tech also makes it easier to store and manage huge amounts of data securely. 

Third, today’s consumers enjoy ubiquitous internet connectivity and have set the bar high when it comes to customer experience expectations. They want nothing less than seamless digital experiences, whether they’re ordering shoes online, picking their favorite show to stream, or purchasing a new SaaS tool for their company.

Simultaneously, more B2B companies are adopting a subscription-based business model, according to Gartner. Using embedded payments to collect payment and billing data to learn about customer behavior may help companies build deeper relationships with users and contribute to longer partnerships.

Last, consumers who weren’t used to online shopping have started to shift to buying online amid months-long lockdowns. As they and other shoppers started enjoying the convenience of one-click orders and fast deliveries, their expectations changed accordingly; many are now less forgiving of any frictions in the payment process. For instance, almost a quarter of people abandon an online shopping cart if they have to create an account and 18% of shoppers leave the site because of a long checkout process.

Companies using embedded payments

Many companies are improving their product and service offerings by using embedded payments including:

  • Squire: Not only can barbershop customers schedule appointments to get a trim but they can also pay their barber immediately within the Squire app. Barbershops can also pay their barbers directly with the embedded debit card and barbers can, in turn, pay their chair fees to the shop owner. 
  • Starbucks: The Starbucks app allows users to order and pay for drinks or food items from their phones. The app also rewards users with points that can be redeemed for future Starbucks purchases.
  • Amazon: Amazon Pay is an e-wallet that enables users to checkout/pay on various non-Amazon retail sites using their Amazon account credentials.

Benefits of embedded payments

Incorporating payment experiences natively into product offerings may provide companies with various benefits.

  • Improved buyer experience: Embedded payments reduce payment friction and cart abandonment, which leads to a streamlined and vastly improved buying experience.
  • Stickier customer relations: Along with a better buyer experience, providing customers with convenient payment experiences and added value will make them think twice about changing providers.
  • Fresh customer insights: Embedded payments enable companies to collect data on customers’ spending behaviors. Combining it with their internal customer data, companies discover new customer insights and are able to better target cross-sell or up-sell campaigns.
  • Competitive differentiation: Embedded payments help companies to differentiate from competitors by offering an all-encompassing experience, which is an especially important consideration when the target is specified or is not mass market.
  • Updated revenue streams: There are multiple ways companies can build and customize new revenue streams for themselves. Earning a percentage of interchange fees processed, charging “convenience” fees like ATM fees, and collecting interest from loans are just a few examples.
  • New added-value products: Embedded payments are the first step in introducing other embedded finance products such as lending, investments, and money transfers.
  • Increased business valuation: Earning more, making customers happy, and outmaneuvering competitors are all positive effects of adding embedded payments and they all lead to increasing the business valuation of both startups and publicly traded companies. Integrating embedded payments also signals that a company has larger ambitions and unlimited potential.
  • Reduced manual processes: Embedded payments enable companies to automate multiple processes since capturing and storing settlement data natively allows companies to execute payment reconciliation instantaneously.
  • Lower money management costs: Companies are able to better manage and reduce costs associated with transferring money via ACH, check, wire, or card rails by incorporating embedded payments.

How to start with embedded payments

Deploying embedded payments typically involves several steps. Companies first need to determine the costs and benefits of deploying and running an embedded payment system. For some, this may involve analyzing the amount of money they process and the fees they may earn. Others may look into whether embedded payments sufficiently improve their products, services, and customer experience.

Companies also need to analyze the complexity of their existing web of merchants and payment processors. Complex payment processes can’t provide the seamless digital experience people expect and can hinder customer relationships. Embedded payments are a better way forward.

Managers may also want to review how much and what type of customer spending data they can extract using embedded payments solutions. Uber and Lyft, for instance, want payment data to help reveal problems drivers face. Payment data may reveal the biggest cost centers for drivers. Rideshare companies can then come up with solutions, such as small loans to cover gas costs.

Businesses that want to move forward with deploying embedded payments will then face two choices. They can handle integrations themselves, potentially spending years on building their tech stack, securing regulatory permits, and negotiating with vendors.

Another option is to partner with Bond. Embedded finance platforms provide an integration layer and help companies avoid years-long work needed to find a bank, integrate with processors and networks, and introduce new financial services. As Bond’s CEO and Co-founder Roy Andrew Ng explains, this is a low-risk option. “We allow you to innovate on us, to try new things and see if you’re actually helping your customers or not, instead of spending years planning every detail and building something only to find that it wasn’t a good fit with your customers in the first place.”

Partnering with Bond means that brands can launch payment products in as little as four weeks. Doing so enables entrepreneurs to avoid investing years of internal resources into building these financial products. Faster deployment allows brands to quickly test new solutions and decide on the next steps.

The future of financial services

It comes as no surprise that the adoption of embedded payments is accelerating. And although deploying this tech was once a tedious process, modern platforms allow companies to easily deploy and upgrade their payment stack.

“The future of financial services is seamless and integrated into the services people use every day,” states Ng. And if you, too, want to be part of this future, contact Bond to learn more about how we can help you on your embedded payments journey.