Embedded Payments: What Does it Mean for Card Issuing?

The days of payment processing centred around a physical plastic card with a point-of-sale terminal are long gone.

As the world of finance continues to evolve, smart payment systems have become increasingly popular. The latest technologies are reducing friction, opening new revenue channels, streamlining processes, and enhancing the customer experience during the checkout process.

Embedded finance is the incorporation of financial services into a non-financial services system, like an app or platform. It is invisible to the end user and comes in many shapes and forms including:

• Embedded payments
• Embedded card payments
• Embedded lending
• Embedded investment
• Embedded insurance
• Embedded banking

This latest payment trend is set for explosive growth, with predictions that its transaction value will double to $7 trillion by 2026.

Embedded payments are set to generate more than 60% of the total value attributable to embedded finance – growing from $16 billion in revenue in 2020 to $141 billion by 2025.

So, let’s dig deeper into what embedded payments really are…

What are embedded payments?

Embedded payments allow businesses to control customer experiences under a single brand, making the payment provider ‘invisible’ to the end user.

It began as a way for B2C brands to provide their customers with a seamless checkout experience. This is now following suit in the B2B sector.

This type of payment removes the need for traditional legacy systems and processes, such as inputting card details. It allows making a payment to be frictionless and instant.

A popular example of embedded payments in our day-to-day lives is Uber. Uber users can choose between a range of payment methods, including debit and credit cards, and digital wallets. Users seamlessly pay in the app with their saved payment method.

What is the difference between B2C and B2B embedded payments?

Although they may seem interchangeable, there is a big difference between B2C and B2B embedded payments.

B2C embedded payment transactions typically involve a single buyer using a single payment method, usually a debit or credit card. After the initial setup within the app, there is no interaction between the customer and the payment method.

B2B payment solutions, on the other hand, are much more complex. These transactions may involve several stakeholders and a variety of payment options such as net terms, purchasing cards, and credit cards.

B2B embedded payments are expected to triple to £2.6 trillion by 2026.

More and more B2B marketplaces are embedding BNPL for business or other credit terms into the checkout journey – enticing B2B buyers and providing a competitive edge over other purchasing options.

How do embedded card payments work?

Non-financial institutions use embedded card payments to generate online transactions themselves, without involving a third-party provider.

Through their chosen embedded payments system, customers can seamlessly pay directly from their financial institution to the company, instead of having to visit a third-party merchant.

After making a purchase for the first time, the company’s embedded payment system will save the customer’s physical or virtual card details. Securely storing this information offers customers a frictionless payment experience.

Acceptance of the transaction is at the foundation of the embedded payments proposition. Although embedded payments may seem new and innovative, these transactions still include the processing of payments through traditional card networks such as Visa and Mastercard.

We are seeing more financial institutions shift to this customisable payment method – now authorising, approving, or declining transactions in real-time in a more frictionless manner.

What are the benefits of embedded payments?

Embedded payments offer several benefits to both the customer and the business.

The benefits to the customer

1. User experience – Customers no longer need to use legacy banking apps or third-party platforms to complete their transactions. Embedded payments allow for the checkout process to be seamless and streamlined. A frictionless checkout experience means customers will want to stay loyal to your business.

• Faster transactions – In a world where consumers want convenience and everything to be instant, embedded payments are a rapid way for consumers to complete their transactions.

• More accessible – An easy-to-use platform with a seamless checkout experience is far more accessible compared to those not using embedded payments; meaning it can be adopted by several generations and those with impairments.

• Security – Embedded payments provide more compliance and protection when users are spending their money. Tokenisation ensures that card details are always protected and enables the option for digital wallets.

• Increased offerings – The use of embedded payments can help expand a business’s product offering, such as financial services, alongside its core product, which is more desirable to the customer.

Amazon is a great showcase of a business that has done this. They introduced a flexible payment method that allows shoppers to finance purchases up to £100 on their account.

The benefits to the business

1. Increase in conversion rate – Adopting an embedded payments solution will make your transactions more convenient and quicker, meaning more customers are likely to convert to your product/service.

• Increase in profitability – By removing the third party from the equation, companies can reduce their outgoings whilst generating more revenue from wider product/service adoption.

• New revenue streams – Offering embedded finance services allows your business to find new revenue channels.

• Customer insights & data – Embedded payments gives your company insight into your customers’ purchasing habits and preferences. Enabling you to create a more personalised and user-friendly experience.

• Streamlined processes – Integrating embedded payments allows for a faster and easier purchasing experience for the customer, which in turn streamlines backend processes for the business.

Revolut has recently embedded chat messaging into its financial services app. Customers can now chat (as well as send GIFs and stickers) with other users when sending and requesting fund transfers – allowing for an overall more streamlined process.

Cards in embedded finance

Today, smart card issuance means delivering an immediate, digital-first payment experience.

Combining traditional payment cards with virtual cards and scalable, resilient payment solutions, allows customers to skip the usual laborious checkout experience and pay with a single click. 

PayPal is a famous example of streamlining card payments through embedded finance. The payments system allows users to pay, send money, and accept payments without having to enter their payment details each time. Offered on eCommerce websites across 202 countries, the embedded payments platform has been adopted by over 173 million people across the globe.

Using a modern card issuance provider, like Carta Worldwide, opens the door to more innovative, secure, and flexible card programmes for your financial institution.

Using a modern issuer processor

Using a modern card issuance provider, like Carta Worldwide, opens the door to more innovative, secure, and flexible card programmes for your financial institution.

Authorisation, fraud detection, and card management are basic modules that are still incorporated into modern issuing platforms. But as the industry involves and innovates, more components and services are being added:

• BNPL – With one in twelve consumers now using Buy Now, Pay Later to cover essential purchases, it is growing more popular to incorporate a BNPL scheme into your service offering to meet your customers’ demands.

• API integrations – Using an API integration is a quick and simple way for your business to access embedded payment services. It will integrate easily with your pre-existing technology stack, minimising developer work.

• Build Your Own Card (BYOC) strategies – Introducing a BYOC strategy will make your product offering more desirable. It will allow your cardholders to customise the features that they want to enjoy on the card, such as travel and cashback offers.

• Tailored card programmes – From the insights and data gathered from your embedded finance solution, uncover what your customers’ wants and needs are. Then, you can tailor a card programme that addresses their needs.

• Virtual cards – A virtual card works in the same way as a physical card, it’s just digital and eco-friendly! A virtual card can be programmed quickly and gives your customers the flexibility to tailor it to their specific needs. Virtual card payments are on-demand and faster for your customers.

Conclusion

In a world full of modern technologies, embedded payments are becoming increasingly popular.

B2C and B2B embedded payments may seem relatively similar – however, there are some key differences businesses must consider when tailoring each offering.

Onboarding an embedded payments solution comes with many benefits, both to the business and the customer. These range from a better user experience for the customer and increase in revenue for the business.

With embedded payments set for rapid growth, the industry has a strong future ahead of it. It is forecasted that by 2030, 74% of digital consumer payments will be conducted by non-financial institution platforms.

Partnering with a modern issuer processor, like Carta Worldwide, can help you integrate embedded finance into your pre-existing solution. Whether you want to incorporate BNPL or a BYOC strategy into your offering a modern issuer can help you do just that.