The Rise of Embedded Payments

With consumers expecting 21st-century digital experiences, the one-click capabilities of embedded payment are looking increasingly attractive to merchants and processors.

When it comes time to pay, Uber customers don’t think twice. They open the Uber app, enter a tip for the driver, and click the pay button. It’s a seamless, convenient process for the user bccause it eliminates the need to link to a third-party app and enter her card account information or hand her card to the driver to be swiped through a mobile terminal.

The payment process, which takes place completely in the background, is so intuitive and user-friendly that one-click payment becomes second nature for the user.

Welcome to the world of embedded payments, which is becoming an increasingly popular payment option. And not just for consumer-to-business payments, but for business- business-to-business payments, as well.

Unlike integrated payment solutions—which enable two separate applications to communicate with one another to facilitate payment—embedded payments allow consumers to pay for a product or service without having to leave the app they are using.

To activate embedded payment functionality within an app, consumers need only enter once their card- or bank-account information, which is securely stored in the app. After the card is stored, it is automatically billed each time the consumer clicks the pay button within the app.

“Embedded payments are the modern model for integrated payments,” says Todd Ablowitz, co-chief executive and co-founder of Infinicept, a Denver-based payment facilitator that supports the payment method. “Embedding payments into the digital experience, as opposed to bolting payment on to an app, improves the customer experience and benefits the merchant or business by making their app stickier because of the added value it delivers.”

An ‘Invisible’ Process

In 2027, revenues from embedded financial services, which includes embedded payments, is expected to exceed $183 billion globally, up from $65 billion in 2022, according to Juniper Research. That growth will be driven largely by non-financial businesses incorporating embedded-finance options into their apps or digital products, Juniper notes. The options will usually be woven into the checkout process, according to Juniper.

Currently, the number of market segments where embedded payments can be used is unlimited, as embedded payments are industry-agnostic. They are play well anywhere commerce takes place, whether it’s a brand’s app, a digital marketplace, or social media and messaging, according to Vijay Vachani, general manager for developers and partnerships for Square, the point-of-sale payments unit of Block Inc.

Subscription-based services, gaming, health care, insurance, and other businesses that involve regular or recurring payments from customers are also markets ripe for embedded payments.

“Consumers have increasingly come to expect high-quality, frictionless experiences, especially with the accelerating shift to omnichannel commerce. With embedded payments, businesses are more easily able to meet these expectations, on multiple fronts,” Vachani says.

Another example of embedded payments is the ability to use a digital wallet, such as Apple Pay or Google Pay, to make a payment on a Web site. Yet another involves tapping a buy now button on a social-media platform that allows users to make a purchase without leaving the platform.

In essence, any market segment that experiences friction in the payments process can potentially benefit from an embedded payment solution, payment experts say.

“Embedded payments drive invisible payment solutions that become part of the buying or shopping experience,” says Greg Cohen, chief executive of Fortis Payment Systems LLC. “Granted, paying a doctor after a visit is not a shopping experience, but making a payment through an app [or patient portal] with embedded payments makes the payment process more invisible, and provides value to the business and the consumer.”

In the case of a medical practice, offering embedded payments can speed payment. For example, the patient can be offered the opportunity to prepay her insurance co-payment when electronically checking-in through the patient portal or app prior to the visit. When prepayment occurs, the office does not have to collect payment at the time of the visit and generate a receipt, which improves back-office efficiency.

It is not uncommon for physician practices that offer digital pre-appointment check-in to ask patients to leave a card on file to enable one-click payments in the future.

Embedded payments can also be used to collect the portion of a doctor’s bill not covered by insurance by sending the patient a digital invoice with an embedded payment option, which speeds payment and improves cash flow.

“Physicians have a lot of invoices that are paid slowly or are written off,” Cohen says. “Embedded payments can speed payment and eliminate the need for generating and mailing follow-up invoices and payment reminders.”

While ease of use for the consumer and back-office efficiencies for businesses are the most frequently cited advantages of embedded payments, one other advantage receiving more notice is that embedded-payment apps can be linked to a merchant’s or business’s enterprise resource planning (ERP) system to enable data to flow between the app and the ERP platform.

ERP systems manage day-to-day business activities such as accounting, risk management, and compliance and reporting, and tie together myriad business processes.

Connecting an embedded-payment app to an ERP system can set off a treasure trove of data flowing from the app to the ERP system. That data can be used to create customer profiles, marketing campaigns, and personalized digital experiences, as well as to identify cross-sell and upsell opportunities at checkout.

“If all information [around a transaction] is available to the seller’s server, it can unlock additional use cases like product recommendations and loyalty programs, among others,” says Square’s Vachani.’

But requiring consumers to store a card on file is not the only way merchants and businesses can enable embedded payments. Consumers can store their checking or savings accounts, too. This opens the door to leverage the automated clearing house network for embedded payments.

Leveraging the ACH is the primary way open-banking platform Plaid Inc. enables bank payments for embedded-payment apps, for example. “Our APIs help power nearly a billion ACH-based transfers every year across thousands of apps, making it easier for people to fund new accounts and digital wallets, and send and receive payments,” says John Anderson, head of payments at Plaid. “ACH payments are also prevalent in high-dollar transactions to replace checks and wire transfers.”

Examples of how Plaid is leveraging the ACH include moving money into a Robinhood investment account and buying a car. Automaker Tesla Inc. and auto dealer Carvana use Plaid to streamline car buying by allowing customers to set up direct bank payments.

Similarly, Plaid enables Venmo customers to securely link their bank account to Venmo, allowing them to send money to one another, as well as use their Venmo account to make purchases at merchants such as
Amazon and Uber.

“We’re also excited about the emerging real-time payment rails, including RTP and FedNow,” Anderson says. “We are actively building and partnering on these platforms because the speed and certainty
of settlement will unlock broader innovation in embedded payments.”

RTP is a real-time payments network built by The Clearing House Payments Payments Co. LLC, a company owned by many of the nation’s biggest banks. FedNow is a real-time rail built by the Federal Reserve and expected to become commercially operational by summer.

The ACH ‘Backbone’

Just as embedded payments are quickly gaining traction with merchants, they are also gaining ground in business-to-business payments as B2B buyers come to expect the same type of digital buying and payment experiences retail merchants offer. As a result, B2B sellers are facing increasing competition to win business from B2B buyers that prefer to purchase digitally.

“B2B buyers expect payments to be as easy and convenient as an Uber transaction, where the transaction and payment happen in the background for a smooth experience,” says Brandon Spear, chief executive for TreviPay, a B2B e-commerce platform provider. “Embedded payments make this possible. If a business can offer a more enhanced and seamless customer experience through payments, the likelihood of securing repeat customers and expanding a customer’s share of wallet with your business increases.”

Driving forces behind the growing popularity of embedded payments in the B2B space include buyers’ expectation for real-time underwriting and trade-credit balance confirmation, as well as the option to check out with trade credit right away, followed by an invoice.

“Our equivalent to the Uber use case is our ability to simplify the process for a business buyer and help merchants meet these B2B expectations, including offering trade credit as a payment option at checkout,” Spear says.

In 2022, U.S. Bancorp. rolled out an embedded-payment solution for businesses within Microsoft Dynamics 365, a cloud-based business-applications platform. The partnership with Microsoft allows businesses using Dynamics 365 to use U.S. Bank’s AP Optimizer directly from their business application.

U.S. bank’s AP Optimizer is a modular accounts-payable solution that integrates into a business’s ERP or accounting system. As a result, treasury-management departments can automate invoice processing for business and consumer payment disbursement within Dynamics 365. The solution also allows for automated accounts payable workflows, including matching and reconciliation.

U.S. Bank’s partnership with Microsoft also makes Elavon Inc.’s payment gateway available to use within Dynamics 365, enabling businesses to create a secure end-to-end accounts-receivable payment solution with their ERP system. Elavon is a payments-processing subsidiary of U.S. Bancorp.

“Many businesses rely on Microsoft Dynamics 365 daily to run efficient operations, and these two new embedded solutions will improve efficiencies and enable faster payments for them,” says Anu Somani, head of global payables and embedded payments for U.S. Bank. “We have several more capabilities in the pipeline to embed additional payment tools
within workflows across Microsoft platforms,including Microsoft Teams and Microsoft Power Platform.”

U.S. bank can also embed its payment capabilities directly into any ERP system. “With payment capabilities embedded, an accounts-payable employee can easily identify outstanding payments and send them directly through their ERP system,” Somani adds.

Just as the ACH is being used to facilitate consumer-to-business embedded payments, the same is happening in the B2B space.

“From our experience, ACH is at the backbone of how settlement is happening between the various players in a B2B transaction,” Spear says. “This makes it a critical part of how B2B embedded payments work behind the scenes and is one of the lowest-cost payment channels that the banking infrastructure can deliver.”

‘21st-Century Experience’

U.S. bank’s partnership with Microsoft is an example of the increasing collaboration between banks, fintechs, and software developers when it comes to developing embedded-payment solutions.

While fintechs may have jumped first into embedded payments, banks are now increasing their footprint in the space, largely through partnerships with fintechs and software developers. Subsequently, those partnerships open the door for fintechs and banks to broaden their range of respective services.

“It’s creating a broader distribution system for fintechs and banks, as banks can offer fintechs more financial services to sell and [fintechs can offer] banks more apps to sell,” says Matt Downs, president, WorldPay for platforms, at FIS Inc. “It’s a mutual opportunity for both to come together to better serve businesses.”

With consumers increasingly expecting fast, frictionless, intuitive payment options, embedded payments are a way for merchants and businesses to enhance their digital user experience.

“The experience that embedded payments provide is important because consumers today don’t necessarily want to have to leave a native app to link to a third-party app to make a payment or conduct a financial transaction. It is not a 21st-century experience,” says Seth McGuire, chief revenue officer for Galileo Financial Technologies LLC.  “The value of embedded payments is its seamless nature.”