Optimizing payment embedding: A primer for platforms

It’s official: Built-in payments are the fastest growing segment in embedded finance and are expected to account for nearly 63% of the $800 billion embedded finance market by 2030. As demand for faster transactions and optimized customer experiences has reached a fever pitch, embedded payments have emerged as a critical solution for software platforms looking to improve customer value and retention metrics while gaining a competitive advantage in a crowded marketplace.

Progressive software platforms are turning to integrated white-label payment solutions to deliver seamless, branded payment experiences without the cost or complexity of developing the underlying infrastructure in-house. In addition to providing technical simplicity, payment facilitator (payfac) as a service offerings also protect software platforms from the operational and compliance issues that come with being a licensed provider and pave the way for optimized payments revenue and scalable global expansion.

What does the future hold for embedded payments, and how can businesses take advantage of this fast-growing market? Let’s take a closer look.

Embedded payments: a brief introduction

The term embedded payments refers to the integration of payment processing capabilities directly into a company’s software or platform. There are two general approaches to embedding payments into your platform: Become a payments facilitator and manage every aspect of payments in-house or partner with a payment provider for white-label payments. Both approaches give platforms access to the benefits of payment embedding, including increased payment monetization revenues, optimized customer experiences, greater control over the payment process, and competitive advantages; However, becoming a payfac adds several layers of complexity and risk.

Collaborating with an external payment provider is a simpler solutionallowing software platforms to deliver a branded payment experience without the burden of developing the technology, managing the operations and bearing the risk themselves. Additionally, white-label payment providers offer the global scalability needed to adapt to different markets and regulatory environments, allowing platforms to expand into new regions without the associated complexity of managing everything internally. That’s no wonder 89% of companies choosing to partner with established payment providers rather than developing and maintaining these systems themselves.

How to optimize integrated payment programs

As built-in payments – developed internally or made possible by a partner – continue to gain popularity, software platforms must pay close attention to emerging trends to stay ahead of the competition. Many platforms were reactive in developing their initial embedded payments offerings – whether in response to competitors, customers or something else – and now that they see the value of embedded payments, they are looking to optimize their programs.

Let’s look at three common scenarios platforms find themselves in and how they can optimize their integrated payment programs:

They integrate payments by becoming a Payfac

Software platforms are realizing that it doesn’t pay to become a payment facilitator if they can partner with providers to reap the benefits of monetizing payments. In January 2024, registered payment notes in North America saw an increase of 6% annual turnover rate; the EU and the UK speak of an annual turnover of 14%. It is clear that while many platforms believed that becoming a payfac was the right or only way to anchor payments, they are changing course now that they are aware of the operational and financial burdens.

By partnering with a provider to enable integrated payments, platforms reap the benefits of additional revenue, increased customer loyalty, and greater value without the risks and overhead associated with becoming a payment facilitator. This approach will allow more platforms to add payments to their software faster. Any platform considering becoming a payment facilitator itself should thoroughly investigate the associated costs; these are often higher than most platforms expect.

Optimize by choosing a payment provider that can be a true partner

The right payments partner should provide guidance and support on every aspect of growing a payments program, from merchant onboarding and monetization strategies to risk management and support. Payment providers should provide expertise and capabilities to help you deliver the experience you want for your customers. Don’t settle for a support team that just tells you what happened; demand a team that can explain it Why something has happened and make a pragmatic recommendation for improvement.

They simply added payments as a feature

When many software platforms first got into payments, they responded to customer requests for improved billing and payment capabilities, without realizing that payments in itself can be a highly profitable business segment. According to Bain & Co.By 2026, embedded B2B payments will reach $2.6 trillion, generating $6.7 billion in revenue for platforms and enablers.

To remain competitive and make a profit, platforms must re-examine their payment offerings to position themselves for maximum profitability.

Optimize by understanding your payment monetization options and capabilities

Monetizing your payments is about designing a solution where software and payments create tangible value for your customers. Depending on the industry, common areas of focus include improved authorization rates, accelerated cash flow, lower transaction risk, expanded market reach, easier alignment and better compliance.

Platforms that create value through a combination of software and payments can often charge more fees than standalone payment providers. Once you’ve identified your value proposition, consider all the ways you can monetize it, including higher SaaS fees, transaction fees, payer fees, or other new costs directly related to your value proposition.

They chose the wrong partner

Many platforms knew that working together was the best option, but didn’t have enough experience to know which payment provider was best suited for their business. Perhaps they chose the provider with the biggest name or the provider that seemed to offer the largest percentage of revenue share.

Payments can be a risky business. Choosing the wrong payment partner can hinder your growth, lose you and your customers money, and even put your business at risk. Platforms should consider their longer-term embedded payments strategy and then choose the partner best positioned to help them achieve their goals.

Optimize by redefining what a good onboarding experience looks like

Embedded payments can succeed or fail depending on your ability to onboard merchants quickly, efficiently, and compliantly. Find a partner who can arrange AML and KYC for you without sacrificing the speed at which your customers come to market. If you already have a portfolio of customers, choose a new partner to migrate them for you so your salespeople don’t miss anything.

Preparing for the future of integrated payments is all about the right partnership

Now is an exciting – and profitable – time for software platforms to re-examine or add embedded payments to their offerings. In recent years, platforms have learned that built-in white-label payments provide the highest return on their investment. All you need to do is make sure you have the right payment partner.