Embedded Payments | B2B Finance Glossary

What is an Embedded Payment?

An embedded payment is a way for businesses to get their customers to make payments – minus the friction associated with paper-based payments. On top of this, embedded payments make it even easier than paying online through your typical payment portal because they allow your customers to skip the usual checkout process and pay with a single click on your business’s app or website.

While embedded payments might be categorized as both an eCommerce operation and a customer experience strategy, it’s important to note that they help accelerate the payment process and make paying effortless for customers.

The most common form of embedded payments is when companies keep their customers’ selected payment options on file, usually through an account or a loyalty profile. Companies like Amazon and Uber use this method to make payment experiences incredibly convenient.

How Do Embedded Payments Work?

Embedded payment systems function through open APIs – a way for two or more computer programs to communicate with one another. These APIs embed an upstream payment processing tool within a different app or website to allow merchants not operating as banks or financial institutions to oversee the payment process from start to finish. Some companies like PayPal and Stripe have even taken this further into what is known as embedded banking: here, interactions with a formal bank account can be made without requiring the customer to log into an account from the bank’s app or website.

Both embedded payments and embedded banking are part of embedded finance, a fintech segment that includes a range of financial services that can be provided by businesses that are not banks or financial institutions.

What Are the Benefits of Embedded Payments?

Embedded payments help create a stellar customer experience. By offering multiple touchpoints to consumers through the seamless experience of embedded payments, merchants can boost engagement, average order value, and customer loyalty. Additionally, embedded payments can help bring customers into the company’s brand experience more deeply: by making spending effortless on products and services they want and need, businesses can make purchasing processes into a tool that improves brand loyalty over time.

Additionally, embedded payments can help companies avoid cart abandonment. Cart abandonment occurs if an online checkout experience is stressful or subpar, causing the customer to exit the website page even if they have items that they intended to purchase. Embedded payments streamline the payment process, making it easier than ever for customers to purchase items – and for businesses to collect revenue.

On top of that, embedded payments make purchases so easy that many customers are more likely to engage in impulse purchases: on-the-spot purchases that occur without prior planning. When customers reach the point of checkout on a website, they are much more conscious of the money they are spending if they enter their card information or ACH details right before making a purchase. This increases the likelihood that customers will choose to delay their purchases or abandon their purchases altogether. Embedded purchases remove the friction that would otherwise cause a customer to skip making an impulse buy.

How Do Embedded Payments Impact B2B Purchases?

Embedded payments' simplicity and convenience can help boost B2B average order volume and purchase frequency. Customers are much more inclined to trust in the embedded payments experience when they believe that service issues will be handled for them. This trust is vital in creating repeat business and building the kind of brand loyalty that companies need to develop meaningful market share.

Additionally, by automating essential payment processes, embedded payments can help reduce time and money for AR teams. Making online payments frictionless can also significantly reduce DSO.

What is the Future of Embedded Finance?

Embedded finance is necessary because it allows non-financial companies to offer financial products and services to improve customer experience. Effective embedded finance solutions meet the customers where they are and provide them with the exact solution they need.

Embedded finance includes embedded banking, payments, branded payment cards, insurance, and lending. However, many types of embedded finance products and services can vary significantly based on industry, customer use case, and many factors. It’s important to note that as the digitization of consumer and B2B products and services continues to become more prominent, the future of embedded payments will also become more prominent.

Embedded finance helps narrow the gaps among consumers, merchants, and financial institutions. It allows merchants to offer seamless experiences that transform customer relationships and build brand loyalty that can genuinely change the game. Therefore, embedded finance will continue evolving in the coming years and become vital to the B2B and B2C landscapes.