Business & Finance

Embedded Payment Systems: Benefits, Challenges, and Implementation

Embedded Payment Systems: Benefits, Challenges, and Implementation
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As the eCommerce sector continues to rapidly grow and expand across the world, the greatest revenue opportunity isn’t for the merchants — it’s with software platforms. Embedded payments, which is the integration of payment functionality directly within a software platform, is a major subset of the embedded finance opportunity, estimated to be worth $7.2 trillion by 2030.

With embedded payments, merchants do not need to integrate with additional services to accept payments from their customers, which results in a frictionless payment experience, increased sales opportunities, and lower technical debt and overhead. If you’re a software platform or independent software vendor, then your clients are going to expect embedded payments to be part of their platform experience.

But embedded payments aren’t just about what your clients want — they’re also about the direct benefits software platforms can enjoy, all of which can be game-changers for any platform looking for more growth and increased revenue.

6 Benefits of Embedded Payment Systems:

1. More Control over the Payment Experience

Let’s be clear — if a platform does not offer embedded payment functionality, then their clients are going to go looking for it. This means that clients might leave for another software platform that offers payments. Or, if the client does stay with a platform that does not offer payments, then the platform will have to integrate and troubleshoot for the third-party payment solution of the client’s choosing.

But when platforms embed payments, they completely own the payment experience, which means they have greater autonomy over decisions, benefit from optimizations and integrations, and have more choice over features and functions. This also helps ward off future headaches by eliminating the need to integrate with different third-party payment solutions. The platform gets to decide how much of the process it owns and how embedded payment systems are implemented.

2. More Opportunity for Increased Revenue.

The biggest opportunity for revenue is through processing fees. Platforms that embed payments can choose to monetize every payment that every client accepts through the platform. That is how platforms like Shopify can generate over a billion dollars in revenue each quarter, by attaching processing fees to every payment made to their merchants.

There is also the revenue that comes with added growth, as embedded payments attract new clients interested in the functionality. That added revenue builds up over time, as attested by JP Morgan’s findings that the platforms that embed payments see a 2- to 5-time increase in revenue per client.

3. Greater Potential for Global Expansion

Embedded payment systems are very enticing for merchants looking for easier ways to sell to new customers across borders. However, navigating the matter of international regulations and cross-border fees can be complicated — to the point that even platforms that have integrated payments for domestic transactions might be overwhelmed when attempting to offer international payment services.

Yet with the right embedded payment or PayFac-as-a-Service solution partner, platforms can hand off the responsibility for handling the complicated issues related to cross-border routing and local acquiring support — paving the way for access to more clients across the world.

4. Increase in the Company’s Market Value

Success breeds success. With an increase in revenue through processed transactions, plus expansion into new markets, the platform’s market value will increase. This, in turn, makes the company more attractive to investors and buyers. It is such a boost in value that more and more private equity firms insist that the SaaS companies they’re investing in or purchasing include payment functionality in their platforms.

5. More Likely to Attract Additional Clients

When software platforms offer more value to their clients through embedded payments, they make their marketing department’s job easier. Because by offering a single source for payments, the platform is eliminating the need for the clients to have to make multiple integrations. This goes a long way toward helping clients free up their technical and operational resources, which not only makes the payments process easier but also cuts costs and boosts their revenue. That’s an easy selling point to prospective clients.

6. Existing Clients Are More Likely to Stay with the Platform

The only thing that might be as important as attracting new clients is retaining existing ones. As businesses look to consolidate vendors, platforms that provide a robust offering of what they need, including payments, remain the more attractive option.

As a result, existing customers are more likely to stay with a platform that offers embedded payments rather than shop around for alternatives. Plus, because they’re invested in the software and the payment functionality, they’re more likely to depend on the platform to help run their business, which makes them more reluctant to leave.

Challenges of Embedding Payments

So, if the benefits are so great, then why aren’t embedded payments a universal feature in all software platforms? Unfortunately, any platform that is interested in embedding payments by becoming a registered payment facilitator must first address some major challenges.

  • Embedded payment functionality requires considerable resource investment: Processing payments requires tech infrastructure, software development, banking licenses, and managing all compliance requirements. It’s an investment that not only requires millions of dollars but also detailed institutional knowledge to succeed.
  • Payments compliance and licensing are complicated and costly: Imagine having to obtain specific certifications, pass an underwriting process, and ensure compliance with payment card industry (PCI) standards and other mandates to process payments. Now imagine having to do that for every country your clients operate in. Also, every step of the compliance and licensing process carries its own separate fee.
  • There are necessary steps for onboarding every client: Any platform that wants to provide payment services needs to be able to navigate the complex process of ensuring every client is a legitimate business that’s accurately reporting revenue. This requires specific paperwork such as KYC (Know Your Customer) and AML (Anti-Money Laundering), in addition to having to test functionality, provide personnel training, and offer support for every client.

Software companies that want to embed payments into their platforms must decide whether they want to shoulder all that burden themselves or partner with a third-party payments provider that can offer them an embedded payments solution.

How to Embed Payments the Right Way

Embedded payment systems can have big benefits for software platforms — if they are implemented the right way. A well-executed third-party solution makes it easy for software platforms to control the full experience, including onboarding clients as merchants, accepting payments, executing payouts, and more.

Choosing the right embedded payments partner significantly reduces the risk for software vendors by alleviating many of the responsibilities. That’s part of the reason why, in BlueSnap’s recent poll of technology leaders, we found that only 30% of respondents currently monetize payments through their own platforms.

And while 37% were considering becoming payment facilitators, the vast majority (88%) would opt to embed third-party technology into their platform instead of attempting to build their own payment facilitation solution.

Choosing to work with an embedded payments partner provides additional advantages, as they’re responsible for handling compliance issues, updating software, and providing clients with technical resources. This can help to solve some of the challenges of embedding payments into a platform so you can concentrate on enjoying the benefits.

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