How embedded payments are changing the face of B2B commerce

However, as with BNPL, the value to the merchant comes through increased sales conversion and larger basket size. Platforms don’t generate revenue through interest and generally pay a certain percentage fee to enablers Best Upcoming Embedded Payment Trends such as Affirm to operate. Some $1.4 trillion poured through online retailers and marketplaces in the US in 2021. Around $50 billion of that went through a BNPL platform, or between 3% and 4% of total sales.

Done correctly, an embedded payments solution will improve your cashflow by allowing buyers to receive invoices daily, weekly, or monthly and make payments on terms that they control. It’s also vital to allow data, such as PO numbers, to be added to invoices and support integrations into Procure-to-Pay and Enterprise Resource Planning platforms. FundThrough is a revenue-based funding platform that got its start helping small businesses bridge cash flow gaps. Before heading up partnerships and new product development at FundThrough, she was a serial entrepreneur. She sold two venture-backed technology companies where she worked and partnered with Microsoft, 20th Century Fox, Pepsi, and Molson.

With FISPAN, because updates are made in real-time and open bill payments can be made automatically, this leaves less room for errors to occur. The future of embedded finance will depend on moving beyond the basic payment transactions that have become table stakes, according to Ng. To stay relevant and keep ahead of customer needs, B2B merchants must stay abreast of trends in consumer commerce. B2B customers will inevitably bring their expectations as consumers into their B2B purchasing experience. A key deliverable of an embedded payment solution for B2B merchants is the implementation of a completely digital and automated onboarding experience into theirA/R process. Getting paid as soon as possible is a powerful incentive to keep them coming back to an online platform rather than defaulting to their usual sales processes.

Special Trends

While system integrations enable streamlined service and seamless customer journeys, the use of APIs can lead to numerous operational challenges–such as breaches of system security and user data confidentiality. To mitigate these issues, strict risk management controls and security frameworks are necessary. Oversights on this front can entail huge reputational risks for financial entities. More and more, non-finance companies are moving into the finance space by offering banking products. The global embedded lending industry will grow at a compound annual growth rate of 27.5% from 2022 to 2029. In a post-COVID world we have seen dramatic changes in the way customers pay, from the further shift towards a cashless society to a digital revolution in e-commerce payments.

Until relatively recently, the technology to just plug financial products or services into your business simply didn’t exist. It wasn’t until the early-to-mid 2010s that the industry began to see the rise of “platformification” — a new business model that enables a company’s core service to be utilized as a component of another firm’s broader proposition. The business model was initially embraced by fintechs and the developer community due to the significant execution risk reduction and speed to market benefits. It’s obvious that fintechs aren’t the only ones looking for access to financial services anymore—however, the technology has historically been inaccessible, even between leading financial institutions themselves. The IDC report states that 73% of financial institutions around the world have technology infrastructures for payments that are ill-equipped to handle payments for 2021 and beyond. In the effort of making financial experiences more smooth and invisible to the end user, embedded finance continues to bring together financial institutions, technology players, and other companies from industries outside of finance.

Skaleet, your technology partner to help you quickly launch new financial services.

Verified Payments UAB is supervised by Bank of Lithuania under the Electronic Money Regulations (Licence No. 27). Thus, the number of B2B embedded finance applications will skyrocket in the current year, and solutions like lending and insurance are likely to be added as essential parts of any business. As a result, embedded finance has taken the financial world by storm and evolved into an unimaginable $43 billion industry, with its growth to continue in 2022. Businesses are transforming their approach to debt management by leveraging the insights offered by cloud-based, data-driven platforms to craft tailored dunning strategies. This is empowering collections teams to iterate on their approaches with increased agility and efficiency – without the need for IT professionals. As borrowing becomes increasingly digitalised, a growing number of companies are switching from legacy systems to AI-powered debt recovery solutions, implementing robust collections management tools to manage recovery.

This creates a virtuous cycle where the “better together” value proposition accelerates customer acquisition, while the additional revenue can be reinvested in the business to spur further growth. Adoption curves vary, with retail and e-commerce platforms serving as the major use cases for embedded finance solutions today. While payments and lending will continue to be the largest segments of embedded finance, we expect to see growth in insurance, tax, accounting, and other services. The rise of embedded finance marks a new era, not only for banking transactions but also for how consumers and businesses build and manage relationships with financial services more broadly. All of this goes away if you can offer your users an embedded payment processing solution. They can enjoy a plug-and-play service without the hassle of additional onboarding flows or integrations.

Ost European brands are looking to join the embedded finance boom and will do so via embedded payments offering. The flexibility and efficiency of embedded lending is driving a surge in adoption rates, with the BNPL market growing at 39% per year. But an open-door lending policy increases the potential of widespread adoption from high-risk consumers, further negatively impacting non-repayment rates. The embedded banking platform API segment is predicted to offer an absolute opportunity of US$ 41.1 Bn by the end of 2032. Growing demand for embedded banking platform APIs is directly proportional to the adoption levels of embedded banking solutions among organizations. The embedded banking market is expected to reach US$ 106.8 Bn by 2032, growing at a CAGR of 22.1% over the forecast period.

It has to be integrated (you can’t do business without it) but it’s time consuming and expensive. Different payment methods needed different integrations and contracts and often required third-party acquirers to boot. That’s different portals to log into and different support numbers to call. More companies in more verticals looking for streamlined application programming interface integrations for digital payments. With each passing day embedded payments is becoming a bigger part of the payments ecosystem, and it takes an army of different companies to make that happen at scale.

Why is the Demand for Embedded Banking Solutions Increasing?

Along with this comes greater pressure for software companies to find the right payments gateway partner as digital payment volume increases, putting the squeeze on speed and security. But it’s going to take much longer than people think,” says Andries Smit, founder and chief executive at fintech Upside. Fintechs including Europe’s Klarna are becoming household names with embedded finance features like buy now, pay later that sit on top of practically any ecommerce website and shake up the way loans are traditionally awarded. Global $43bn industry,it’s the fintechs and tech startups, not the banks, that have led the charge.

• Our recent Embedded Finance Report found that there’s a universal demand for embedded finance products, especially amongst small/medium businesses that tend to be overlooked by traditional banking providers.
• For the ISVs and PayFacs that choose the platform, “We’re opening distribution channels for them in different countries,” he said.
• For B2B embedded ACH, we anticipate that platforms will see just under $4 billion of net revenue from value-added services related to ACH in 2026, compared with less than $0.5 billion for enablers.
• Because the hotel is paid by the supplier rather than its clients, once the line of credit is in place, gone is the need for resources to chase unpaid invoices.
• This could be achieved through embedding payments in the checkout journey on a universal level, similar to the user experience that is expected when ordering through Uber or Deliveroo.

By the simple act of blending the financial component of getting a ride home with reliable drivers, GPS and maps, they’ve created a service many would now find it hard to imagine being without. You take out a mortgage or car finance because you want to buy a house or a car — not because you want a mortgage or car loan. Consumer finance is always a steppingstone in the process of getting something you want — a means to an end. Throughout the pandemic, customers have been opting for a more digital-only experience, which, in turn, led to an enormous spectrum of previously undiscovered opportunities. White Papers Get the latest research and reports to optimise your debt management.Case Studies See how other companies are leading the way.Videos Webinars, interviews, and online events.

Market Insights on Embedded Banking covering sales outlook, demand forecast & up-to-date key trends

It’s very likely that you’ll get your next loan from a company other than your bank. In fact, consumers are increasingly making all sorts of decisions about money and executing on them without the help of their traditional financial services provider. The emergence of this new business model correlated with the maturation of the fintech industry, which has put an enormous amount of effort and investment into refining and professionalizing clever ideas. Many of those companies began to offer their service via an application programming interface, or API. These effectively let a company bolt-on service to their existing offerings — like payment transfer, credit or insurance. Actually, the technology of plugging financial products or services into a business is not unique.

If your finance team is looking to minimize tedious and redundant work, embedded banking just might be the solution you’ve been looking for. However, hurdles exist in moving forward with the embedded finance model. As seen below, 77% of consumers said they would not trust financial products obtained from a nonbank. It may be that the invisibility of the bank or fintech in the mix may be a handicap with some segments.

Rise of the “super-app”: Opportunity or threat?

For B2B embedded ACH, we anticipate that platforms will see just under $4 billion of net revenue from value-added services related to ACH in 2026, compared with less than $0.5 billion for enablers. The region has several diverse factors driving the market growth, including a vast economy, a large young population, and an abundant skilled workforce. As a result, the region has enormous potential to grow its fintech industry in 2022 and beyond. In May 2021, a global platform provider, Adyen Singapore Pte Ltd, received approval from the Monetary Authority of Singapore . Under this approval, the company can implement merchant acquisition and domestic money transfer services under the Payment Services Act 2019 . Investors will ramp up their targeting of jurisdictions considered to be underdeveloped in terms of financial services — making more deals in regions like Africa, Southeast Asia, Latin America, and the Middle East.

35% of consumers had already used embedded financial services with technology/electronics sellers, for instance, most typically in the form of a credit card or an extended warranty. Although competition will continue to compress providers’ margins, the revenues for platforms and enablers should still increase from $2 billion to $11 billion within banking and cards. Consumer payments account for more than 60% of all embedded finance transactions. 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 . Platforms and enablers shared the $12 billion revenue at an average take rate of just under 40 basis points each.

Developer of payment management and processing solutions for businesses. Its products include payment gateways, link-based payments, UPI-based money transfer solutions, recurring payments, and payouts to verify identity. It also provides solutions for bank account verifications, refunds and chargebacks, transaction monitoring, marketplace settlements, and payment splitting. Today, fintechs offering services via API are abundant, meaning companies can cherry-pick the services from different providers they’d like to combine and offer to their own customers.

As of 2021, we estimate that around $12 billion in B2B loans transacts via embedded finance. This is based on a total SMB loan value of just under $400 billion, where the individual loans are less than $1 million in value. Of this total, embedded penetration stood at around 3%, underpinned by the market shares of the relative embedded finance balance sheet providers, such as Cross River Bank. We anticipate rapid growth through 2026, with a fivefold increase in embedded B2B lending, bringing the loan volume to between $50 billion and $75 billion, or around 15% of the total, which will also rise slightly to around $430 billion. Historically, merchants signed up for payment services via independent sales organizations to be approved by an acquiring bank—an arduous process that could take months. Over the past 15 years, new software-centric firms have created a function in the value chain, the payment facilitator, that underwrites merchants on the acquiring bank’s behalf and streamlines the delivery of payment acceptance capabilities.

BNPL

This will enable them to fast-track the rollout of new products and services, and tap into new revenue streams. About Bain Capital Bain Capital is one of the world’s leading private investment firms with approximately $160 billion in assets under management. We pioneered the value-added approach to investing and have invested at the forefront of the technology industry in more than 370 companies since our founding in 1984. Embedded finance has brought challengers and stiff competition to banking territory. For those institutions and platforms already struggling with technology debt, embedded finance could prove too high a hurdle in the battle to stay relevant.

My advice would be to run small pilots with the solution or service before fully embedding it into your processes or committing the resources. Once your team feels confident in its value, you can begin to scale while simultaneously iterating on your processes to work out the kinks and ensure success. However, since APIs have an excellent combination potential, the integration of new services can give an extra https://globalcloudteam.com/ advantage in ongoing market competition. Furthermore, APIs can provide a clear idea of whether your product is in demand and what chance it has to attract other players. Some of the leading companies in this landscape are Bankable, Banxware, Bond, Cross River, Finix, Flywire, and Marqeta, among others. As per Future Market Insights, nearly 35-45% of the market share is currently covered by the top players.

Artificial intelligence isn’t new ground on Wall Street, with financial firms deploying the tech in various operations, from call centers and virtual chatbots to underwriting customers and navigating compliance and regulations. There were 724 exits in the first three quarters of 2021, compared with 575 for full-year 2020, according to CB Insights. High-profile initial public offerings included Coinbase and Robinhood, while SoFi and MoneyLion went public via SPAC deals. It’s hard to think of a more compelling benefit than generating more revenue while improving the stickiness of your platform. You don’t need us to tell you that competition can be fierce and so the more indispensable your service, the better.

Without the need to find a cab on the street or plan ahead for a car service before fumbling for your wallet while the cars behind you honked to get around you, the customer experience was reimagined in a big way. The monumental shift to a seamless cab-hailing experience set a new precedent for travelers, transforming the entire industry. In much the same way that point-of-sale finance products make ad-hoc borrowing fast and efficient, purchasing ancillary goods and services is also becoming a seamless experience. There’s a buzz in the payments industry following Apple’s announcement that it will enable “tap on phone” on its devices.