Embedded payments are revolutionising the way consumers pay

Embedded payments are turning the financial industry on its head.

Traditionally, businesses would partner with financial institutions, such as banks, payment facilitators or independent sales organisations, to implement payment processing. The provider would offer financial services in exchange for processing fees (and a small percentage of the transaction). And although this relationship worked for most, services were often inflexible and expensive – limiting a merchant’s growth and profitability.

Seeing a gap in the market for more innovative, customisable financial tools, software providers – or independent software vendors (ISVs) – began integrating payments into their software solutions, developing the first embedded financial services. Embedded finance, and by extension, embedded payments, streamline and optimise the user experience by facilitating seamless transactions within digital platforms.

Imagine a world where every payment experience is so fluid you don’t even realise a transaction has occurred until it is complete. It’s like the last time you took an Uber—you didn’t have to scramble to find cash or a card; the payment just happened. You ordered your ride, arrived at your destination and the app took care of the rest; embedded payments make this possible.

Seamless, “invisible” payments such as these are changing consumer expectations around payment experiences. With growing pressure to provide faster, more convenient payment options, businesses are now looking to software providers rather than traditional financial institutions to meet these needs.

According to research from McKinsey & Company, 50 per cent of small businesses already use a software partner as their payment provider. And with the global ISV market slated to reach $1553 billion by 2031, this trend will continue to disrupt the traditional payments ecosystem.

Why are embedded payments growing so quickly?

Two key factors are driving the charge for new, innovative payment options: consumer preferences for fluid, “invisible” payments and merchant profitability.

Modern consumers, especially those in younger generations, want the option to pay in various ways, including through an app, via a QR code, by text or with a digital wallet. Economic constraints have also left consumers clamouring for more flexible repayment options, such as buy now, pay later (BNPL). These smooth, almost subconscious transactions give consumers more flexibility and allow them to bypass the hassle of re-entering their payment details with each purchase.

Unfortunately, many traditional providers don’t offer these payment features, leaving business owners scrambling to find the right partners to meet consumer demands. Eventually, businesses may find themselves paying à la carte for multiple tools, including:

●      Basic payment acceptance

●      Value-added payment options

●      Business management

●      Scheduling

●      Accounting

●      Customer relationship management (CRM)

●      Analytics and business intelligence

Adopting multiple tools can be costly and inefficient – especially for small- and medium-sized businesses already working under tight margins.

We’re now seeing software partners fill that gap by providing full-service business solutions that offer payment acceptance and a variety of other business tools. This enables companies to cut costs and streamline their operations by partnering with one provider rather than many.

How embedded payments are helping merchants get ahead

The Strawhecker Group found 84 per cent of merchants that accept credit cards are already using at least one service from a software partner. Because many of these providers specialise in specific niches, embedded systems are also better at meeting the unique needs of a business. As an increasing number of software providers look to integrate payments, we will see an influx of creative embedded solutions to help merchants get ahead.

Embedded financial services are expected to expand to include lending, card issuing, insurance and deposit accounts. According to McKinsey & Company, 40 per cent of small businesses want business credit cards from their software providers. An additional 37 per cent are interested in fraud management, with 33 per cent interested in accounting solutions. Those merchants also said they would spend $10,000 annually on these value-added financial services.

Today, we’re seeing software providers enabling merchants to do more with robust, embedded payment solutions that offer multiple benefits: 

• • Ease of use: Developers are experts at building streamlined user experiences. Embedded payments are often more user-friendly than incumbent offerings, allowing merchants to easily meet evolving customer needs – even if they aren’t tech-savvy.
  •  Low, transparent costs: Financial institutions aren’t always transparent with their fees. McKinsey found that software-based payment solutions are more transparent and offer lower prices than their traditional counterparts. 
  • Value-added services: For most software providers, payments aren’t their only focus. Instead, they create helpful, vertical business management tools that allow merchants to manage their accounting, scheduling, payroll, inventory, customer communications and more. This means customers can access everything they need (including payment acceptance) from a central platform.

What does the future hold for embedded payments?

Software-led embedded payments are changing the way businesses operate. As consumers increasingly demand flexible, “invisible” payment options, more merchants will turn to innovative software solutions for their payment processing needs.

Bain & Company found that by integrating payments into their platforms, software providers can potentially address 15 per cent of payments worldwide – roughly $35 trillion in volume. As this trend grows, these providers will carve out an even greater share of the market.

In 2024 and beyond, invisible payments will set the new benchmark for exceptional customer experiences, where payment processes are embedded into the customer journey. This is the future of payments – effortless, integrated and virtually imperceptible. 

NMI is a leading global embedded payments platform, processing more than $200 billion in payments annually. NMI enables partners around the world to serve their customers across the payments ecosystem: including merchant underwriting, onboarding and management, and payments acceptance across online, in-store, mobile and unattended. Learn more about NMI solutions and the future of embedded payments at nmi.com