Embedded Finance: What It Takes to Prosper in the New Value Chain Bain & Company
As your business grows, the volume of transactions may increase, potentially overloading your payment infrastructure if it’s not designed for scalability. Ensure the chosen payment API complies with PCI DSS standards, which guarantee secure handling of payment data. Look for features like tokenization, encryption, and fraud prevention to bolster security and protect sensitive financial information. By adhering to these standards and incorporating these features, you build trust with customers, safeguard data, and minimize risks. → Using Plaid IDV and Transfer, embedded finance startups can safely and securely gain access to the financial and identification data they need to onboard new customers and fund accounts.
They receive more of their business services directly from the software provider rather than going outside that relationship for payments. A reported 76 percent of consumers were confused by bills from their health care providers in 2015. Now, with the health care market moving toward high deductible health plans (HDHPs), consumers are facing an increase in financial responsibility. 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.
The merchant completes the sale
APIs help businesses to significantly streamline and automate payment acceptance, processing, management and posting, all from a single, secure solution. By integrating payment acceptance technology into your existing applications and interfaces, your business is able to consolidate payment processing operations to a single platform. In turn, this helps to reduce manual intervention needed by your A/R team to handle incoming payment information. With all payment methods and channels flowing through a single user-interface, your organization is able to accelerate payment processing and cash application operations.
As more companies switch to paying with commercial cards, the amount that suppliers pay in transaction fees rises. For businesses that accept a lot of purchasing or government cards, qualifying for Level 3 Interchange rates can produce significant savings. Software providers that extend this feature to customers can stand out by helping their customers reduce the cost of payment acceptance. Consumers have grown accustomed to the ease of paying for goods and services without fumbling between apps or opening their physical wallets to remove a credit or debit card. Embedded payments allow for the simple tap of a digital wallet, or the ability to securely store payment credentials for future purchases.
Embedded Payment Processing API: What You Should Know In 2023
B2B embedded payments have not penetrated as deeply as consumer embedded payments, in part because of a heavy reliance on checks and ACH payments relative to other payment methods, such as eCheck and virtual cards. In 2021, US customers spent $1.7 trillion via embedded payments, generating $12 billion in net revenue, based on an aggregate take rate of around 75 basis points (see Figure 5). Platforms and enablers shared the $12 billion revenue at an average take rate of just under 40 basis points each. In 2021, US consumers and businesses poured $2.6 trillion in transactions through embedded financial services. When consumers tap “confirm” on a rideshare app, they are usually too busy scanning the road ahead to consider the technical acrobatics occurring in the blink of an eye. When they click “pay now” in their online shopping cart, they rarely appreciate the feats of engineering happening in the background.
The global marketplace is booming, and businesses can use embedded payments to stay competitive. Let’s take it one step further and compare embedded payments with non-integrated payments. The likelihood of errors increase, because manual entry is required in order to process payments. More broadly, companies quickly recognize the value of embedded payment solutions. According to a McKinsey report, embedded finance reached $20 billion in revenue in the US in 2021, telling us that this space will only continue to grow. For small businesses, startups with low sales volume and seasonal businesses, choosing a volume-discounted payment processor makes little sense.
Authorization is requested by the payment network
Those that own distribution will be able to offer unprecedented convenience to end users, sparking large new revenue streams. Assuming the platform does not take any credit risk, it can expect to take between 50 and 200 basis points of the total principal. This means B2B lending revenues, which equated to only $0.2 billion in 2021, should rise to $1.3 billion by 2026 (see Figure 9). This is still significant, especially when compared with the transaction returns of BNPL, but PoS has higher servicing costs as a consequence of the business model. It’s also a tool for better understanding consumers and their spending habits and needs.
So, keep reading the article to discover everything about embedded payment processing API. Now, with fintech platforms such as Ramp and Divvy, businesses can more easily get their own business credit cards and offer them to all employees. Embedded payments can also give consumers the option to pay directly from their bank accounts while saving merchants on fees. WorkWave, which offers software for field service providers, enables workers to accept payments securely using mobile devices in the field. The company also offers online payment links so customers can pay immediately while viewing an invoice.
The Future Of Embedded Payments: What The Consumer-Centric Approach Means For Banks And Businesses
Some embedded financial services have been around for a while, like airline credit cards, car rental insurance, and payment plans for high-priced items. Now embedded finance is taking hold online, as e-commerce retailers are offering banking services directly on their websites without re-directing customers to a bank. This phenomenon is enabled by third-party ‘banking-as-a-service’ companies that use API integrations to embed financial services into the user experience of non-financial companies.
- If you’re operating a strictly e-commerce business, there’s a good chance you don’t need point-of-sale (POS) equipment or terminals to accept in-person payments, but you’ll likely need a gateway.
- As I outlined in December, the most important considerations when preparing to transition over to embedded payments are processing volume and payments complexity.
- By using secure encryption, tokenization, and authentication protocols, businesses are able to ensure that sensitive payment information is protected across all customers.
- Embedded payments and integrated payments are terms that are sometimes used interchangeably, but they are distinct.
- When it comes to every checkout or payment transaction, no matter what vertical or industry, customers should find it effortless to navigate the payment process without feeling overwhelmed or confused.
In just a few clicks, users on their platform can order, send, and manage new POS terminals and seamlessly collect payments from their customers online and in person. On the other hand, a non-embedded payment solution requires you to manually enter all transaction data and sales information because your payment processor doesn’t communicate with your POS. A TSP is a company that offers payment tokenization services to merchants and payment processors. Payment tokenization replaces sensitive payment card data with a unique token, reducing the risk of fraud and making payments more secure.
Embedded Finance: What It Takes to Prosper in the New Value Chain
On the flip side, physical storefronts such as restaurants and retail stores need payment processing hardware so that they can accept swiped, chipped and keyed-in payments from in-person customers. Once the decision is made, the payment processor is notified of the payment’s approval or denial. Assessing and managing the risk of fraudulent or unauthorized payment transactions. This involves implementing various security embedded payment processing measures and fraud prevention tools to minimize the risk of fraudulent activities. Risk management is critical for protecting both merchants and consumers, as it helps to prevent financial losses and protect sensitive data. Additional or incremental revenue that a merchant of any kind, but especially an online platform or service provider, can generate by taking payments within their application, solution or website.
In payments, successfully harnessing this data allows you to better understand your customers. Tracking payment performance and analyzing user behaviour can provide valuable insights into customer preferences, peak transaction periods and popular payment methods. A seamless user experience is at the heart of a successful embedded payment solution. Before you decide whether embedding payments is right for your platform, let’s take a look at some examples of embedded payments done right. This option is ideal for platforms that are looking to get up and running as quickly as possible.
Related Posts
Thus, embedded payments offer greater convenience for customers and greater profits for businesses. An embedded payment processor is software that’s natively built into an SaaS company’s existing suite of products to create a seamless checkout workflow. The provider offers solutions for every aspect of the business, including payment processing. Businesses that operate using the embedded model own every part of the customer journey. Put simply, embedded payment systems operate via open APIs that ’embed’ an upstream payment processing tool within a different app or website. This allows merchants who are not banks or financial institutions to oversee the entire payment process from beginning to end.
