To smoothly integrate financial tools and services into their brand's end-user experience, an increasing number of non-tech enterprises have decided to collaborate with financial institutions in recent years. With the help of the phenomena known as embedded finance, companies can strategically offer customers access to loans, insurance, investments, bill-paying facilities, and other financial services alongside their main goods or services.
One of the most popular and lucrative subcategories of embedded finance is embedded payments. Through the integration of payment processing features into non-financial apps, this practice makes it easier and less cumbersome for users to make payments. According to Lightyear Capital, embedded payments will account for an amazing 60% of the embedded finance market's $230 billion (about $710 per person in the US) revenue by 2025.
The value of embedded payments is being recognized by today's software developers and independent software suppliers (ISVs) due to its ability to significantly enhance the user experience and generate income. Read this blog post to see how your company may capitalize on this profitable, fast-growing market.
How Embedded Payments Work
As already established, the integration of payment acceptance facilities into non-finance software or apps is referred to as embedded payments. This approach enables companies to generate income from processing fees while maintaining total control over every aspect of the end-user experience. Customers of these brands no longer perceive the payment procedure as a diversion from their regular brand contact; rather, they no longer can tell the difference.
Are you curious about how embedded payments actually seem in use? Here are a few instances of embedded payments in action across different industries:
Fitness and Wellness
Exercise apps that let users discover available classes in their area, buy class passes or subscriptions, and save payment details.
Healthcare
Patient websites that combine the ability to book appointments, communicate with doctors, and make payments.
Ridesharing
Using apps like Uber and Lyft, users can save their payment information for automatic payment at the end of each trip.
Services for Professionals
platforms for invoicing that let clients pay for services following receipt of an email invoice that can be clicked.
You can see how the payment procedure is included in the consumer experience in each of these examples. They are not bothered by the inconvenience or annoyance of having to put anything on hold to make a payment. Instead of being sent to another website, app, or platform, consumers can pay with a few simple clicks.
What is the Growth Driver for Embedded Payments?
Although the phrase "embedded payments" is new, it is built upon a number of earlier trends and solutions. Let's look at the elements that have aided the rapid growth of embedded payments:
Electronic wallets and frictionless checkout
A rising number of customers are choosing to make purchases from their mobile devices rather than desktop computers, which is hastening the evolution of the online checkout process. Instead of having to rummage through their wallets and manually enter their card information, more and more customers want to be able to pay with just a few clicks. Customers can pay much more quickly than ever before thanks to frictionless payment options like secure card data storage, automated billing and subscriptions, and one-click digital wallets. By enabling users to safely keep payment information, recent developments in payment security, such as card tokenization and biometric identification techniques, have been crucial in the proliferation of these frictionless payment technologies.
The Increase in APIs
The expanding usage of APIs (application program interfaces) by organizations is another factor influencing the expansion of embedded payments. An API is a collection of protocols that enables communication between two distinct software applications, making it easier to integrate with third-party software. Third-party integrations are now a practical alternative for a wider range of organizations because of the proliferation of APIs, which requires less trouble, development resources, and overhead costs. And companies are taking notice. In a poll of more than 300 IT and business decision-makers, 72% of respondents stated that if they could enhance API use, they would anticipate an average growth of their digital enterprises of 26.4%.
The Development of Retail Services
The "software-led payments" strategy is quickly replacing the conventional route to a payment processing account, in which merchants are supported by Independent Sales Organizations (ISOs). This phrase, which was first used by Infinicept, describes the practice of acquiring payment processing capabilities via one's business management software as opposed to an ISO or bank. This is supported by data from Mercator Advisory Group, which predicts a decline in the proportion of merchants receiving services from an acquiring bank or merchant bank from 59% in 2017 to 31% in 2025. The number of merchants using ISVs to provide merchant services is expected to rise by about 10% within the same time, according to Mercator Advisory Group.
An increasing number of software firms in a variety of industries, including restaurants, amusement and entertainment, and healthcare, are evolving into merchant services providers (MSPs), which is facilitating this transformation. The payment facilitator (PayFac) model is specifically being used by ISVs, SaaS providers, and other software developers to become MSPs. Non-payment software providers can immediately enroll their clients with merchant processing accounts by functioning as PayFacs.
Payment Facilitators: Embedded Payments' Technology
Embedding payments is a smart concept, but doing it needs a strong tech stack and infrastructure. Payment facilitators have a role in this. Software businesses may onboard merchants with processing accounts and integrate payment technology into their platforms using PayFac solutions, which give them all the tools, APIs, and backend systems they want.
ISVs and SaaS providers who join PayFacs benefit in a variety of ways, including a profitable revenue stream, increased control over their end-user experience, and increased client retention and satisfaction. Additionally, PayFac merchants benefit from straightforward flat-rate pricing, quick account setup, and access to cutting-edge payment technology that supports a variety of sales channels and payment options.
For ISVs and SaaS providers, the PayFac Roadmap
Those who are thinking in becoming PayFacs have a number of possibilities. The PayFac infrastructure has always been built from the ground up by software suppliers, which entails high overhead costs and lengthy development times before generating a profit. Thankfully, PayFac-as-a-Service (PFaaS), another route to PayFac, has been accessible in recent years. Cardknox Go and other PFaaS technologies provide organizations with all the tools they need to become payment facilitators and embed payments, including software, compliance, risk management, and much more. Businesses who opt for PFaaS can enjoy all the advantages of the conventional PayFac road with a quicker time to market and significantly cheaper upfront expenditures.
Work 365 is a subscription billing system and automatic billing software for Microsoft partners to streamline billing and invoicing process.
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