Embedded finance: a game-changing opportunity for banks

Banks often struggle with their cost structures, which are frequently based on legacy technology and enabled through manual processes and operations. To offer BaaS, banks must undergo digital transformations, but many already have. My work with incumbent banks suggests that more than two-thirds have undergone the digital transformation and modernization necessary to be competitive in BaaS. Using an embedded payments approach allows software companies to onboard merchants extremely quickly, further improving their metrics. Payment facilitation technology enables flexible infrastructure and greater reach. This allows you to quickly underwrite and onboard new merchants to your platform without going through the grueling process.

This is very convenient for its customers who would otherwise have to pay relatively high rates from traditional insurance providers. Embedded finance is the application of this same principle across a broader range of financial services such as pensions or loans, not just the payments element. People demand integrated experiences, and they are ready to share their data in exchange for better service. Embedded finance helps you gain access to a larger customer base and collect valuable data on customers’ needs and spending habits to be used for further improvements.

Industry Events

Make the right decisions with the latest insights and advice on business growth and payments innovation. Read more about the benefits of becoming a payfac or using a payfac-as-a-service provider, like Stripe. One participant said that almost 90% of transactions happen through digital channels. Small Business Trends contacted several experts to get a complete overview of what cash flow is and why it’s so important to your enterprise. Concerns have
also been raised about data privacy and the use of personal financial
information. Financial institutions and fintech firms must ensure that they are
open and transparent about how they use personal data and that they are fully
compliant with all applicable regulations and data protection laws.

To name one recipe for success, life science-focused software provider Veeva is adding services that help healthcare salespeople and administrative staff, not just nurses and clinicians. Its recent acquisition of healthcare events management and payment company Physicians World is a harbinger. This move embeds payments for customers working in the burgeoning healthcare events space, manages multiple merchant relationships and automatically complies with relevant regulations. Software companies that address the needs of particular industries are poised to win big. The towering, one-size-fits-all SaaS behemoths still hold most of the market share but can’t offer the same ground-level industry knowledge of smaller, verticalized competitors.

Increased Conversion Rates

BNPL is essentially a form of money lending which divides payments up into instalments. It makes purchases more attainable for consumers rather than paying in one lump sum using a traditional card-based method. Adding various value-added services represents a golden opportunity for businesses to expand their platform and maintain market relevance. Embedded payments thus fill a much-needed gap in the market by making this process completely painless. The Starbucks rewards app offers a great example of how embedding payment processing, loyalty rewards, and even consumer lending within one interface leads to enhanced consumer participation. Watch experts from Goldman Sachs TxB, Nacha, and Modern Treasury discuss the impact of embedded payments on companies and banks.

But every business has to have a way to be paid for the goods or services it provides. “Modernizing the commerce experience — whether it’s SMBs, whether it’s enterprises or customers … it’s going to happen at an accelerating pace,” he told Webster. The supplier who accepts a 1% discount to get paid 30 days faster now has the cash to negotiate lower rates from its own suppliers. Simply put, project managers are seeking to use modern payments to get money disbursed to their subcontractors, improving cash accelerating across the ecosystem. It’s going to become harder than any time in recent memory to operate a small business, he predicted. If you’re a veterinary practice owner or manager, there are a number of good reasons why you should prioritize ease of use when selecting practice management and financial software.

A Practical Guide To Embedded Payments: Everything You Need To Know

One of the most difficult challenges is ensuring that embedded finance
products and services are secure and safe from cyber attacks. Embedded
finance removes these impediments by providing financial services directly
through the products and services that people already use. Prices are fixed (based on live local conditions) beforehand and payments are processed and recorded by the app itself. This dispels uncertainty about costs and reliance on cash, making the journey even easier than hailing a traditional cab. The passenger simply exits the cab at the end of the journey without the inconvenience and delay of finding cash or making a card payment. BaaS providers enable companies to offer valuable services to their customers without their customers knowing that a third party is involved.

• CEO and Co-Founder of Extend, the digital payment infrastructure for financial institutions to enable modern card experiences.
• As part of these products, customers want seamless payment experiences that are fast and transparent.
• For banks who are teaming up with young fintechs to keep up, a fundamental change in perspective and redefinition of business models is a must.
• GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with.
• For the software providers, the convergence of payments and banking is an opportunity worth tens of trillions of dollars.
• Qualifying for regulatory certification alone would be both excessively expensive and time-consuming.
• This helps companies recoup significant revenue otherwise lost in payment processing fees paid out to third parties.

Outside the accounting department, this means your engineering team can refocus on core products. Goldman Sachs predicts $1T in global value will be unlocked over the next decade through modernizing B2B payments and financial systems. Factors contributing to this growth include payment services that efficiently accelerate cash flow while effectively bridging long outstanding gaps within legacy financial institution systems. Paying with a single click makes the checkout experience much easier for consumers, which also increases purchase frequency.

Maximize Your Platform’s Payment Processing Capabilities with VoPay

Customer loyalty is only one side of the beneficial coin of embedded payments for your platform. Platform users need to process payments to run their business, for example, when they sell goods online. Rather than choosing and managing their payments providers themselves, they can turn to your platform directly for their payments needs. The payment gateway functions as an intermediary between the platform and the customer’s bank, securely transmitting transaction information and facilitating the transfer of funds.

And they may concentrate on specific sectors with large or growing addressable markets, where they can scale up and steadily improve the user experience. They’re highly digitized, with universally accepted checkout and payment options. In 2021, transaction revenue via cards was weighted toward platforms at $0.75 billion, contrasted with enablers at $0.35 billion, of https://www.globalcloudteam.com/ which over 90% resulted from debit transactions. By 2026, we expect both levels to rise based on higher volume of embedded transactions by nonfinancial institutions. This should cause revenues to reach just over $4 billion for platforms and $1.3 billion for enablers. In the same period, we expect enabler SaaS fees to scale proportionally, growing to over $5 billion.

stands to gain from embedded finance?

Jumping into the deep end of the pool too soon could backfire, causing you to lose focus on your core software, alienate customers and waste time and money. It’s important to understand the differences so that you can choose the model best aligned with your maturity, resources, and customer profiles. The rise of digitally-connected experiences happening online and in apps blurs the boundaries of which entity—software company or payment services provider—is responsible for accepting and routing payment transactions.

For example, invoice financing is a popular way for businesses to efficiently leverage their existing accounts to improve cashflow. Where it was once the job of an ecommerce merchant to simply provide goods for sale, the emphasis on proving consistent, end-to-end shopping experiences has led to an expansion of the ecommerce value proposition. Shoppers who are in this situation might well come back and complete the transaction later – or they may not. According to Baymard Institute, 18% of consumers cite ‘a long and complicated checkout process’ as the main reason for cart abandonment.

Voice of the Industry

If platforms or enablers are willing to accept some of the underlying credit risks, they could earn significantly more. They could fund loans off of their balance sheet, take a first-loss exposure in a structured financing, or receive a credit performance fee as a partial or full substitute for their share of finance charges. For embedded-finance providers, success demands clear differentiation in the form of product breadth or depth, or the provision of ancillary program embedded payments trends management services. 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. Viasat chose Adyen for Platforms to simplify its payments infrastructure in a way that boosts their global expansion. Viasat has seen a lift in authorization rates by approximately three percent since switching to the new payment platform.