POS vs. Online Payments – What’s the Difference?

Consumer payment preferences have dramatically changed over the last 10 years – driven by both convenience and necessity.

Online shopping and the ability to have purchases delivered to your doorstop had already gained popularity in 2020. Then Covid exploded and in many cases, consumers were forced into the online realm – whether they liked it or not.

Now, the global market for digital payment solutions is expected to grow at a CAGR of 15.20% from 2023 to 2030, surging in market value to $24.31 trillion by 2030.

The growing adoption of smartphones, wider internet penetration, increased Ecommerce activities and innovative payment technologies are driving digital payments.

Digital payments encompass everything from credit card transactions, ACH transfers, digital wallet payments, peer to peer (P2P) payments and more.

And many of these payments extend across channels, meaning they can be used online, on a mobile device and at the point of sale (POS).

While Covid put online and mobile commerce in the driver’s seat, there has been a return to shopping in the physical environment and paying in-store at the POS. This “return” to retail and dining is propelling the market for payment terminals, up to $152 billion by 2029, a CAGR of 8.68%.

Companies considering an embedded payment strategy or seeking to expand on an existing payment installation must understand the nuances between POS and online payments – from both a consumer and partnership standpoint.

What are Point of Sale Payments?

Point of sale (POS) payments refer to electronic payments (not cash) made in a physical environment – whether retail or restaurant. Here, goods or services are typically purchased through a POS payment terminal, although in some cases, mobile to mobile payments may be exchanged. POS payments have evolved significantly from the days of swiping a credit or debit card in a payment terminal, incorporating advanced technologies to enhance security and convenience.

POS Terminal Payments

A POS terminal is a device that facilitates the transaction process by capturing payment information and processing the transaction. Modern POS terminals are equipped with various functionalities, including the ability to read magnetic stripes, EMV (Europay, MasterCard, and Visa) chips and contactless payment methods.

EMV Technology

EMV technology has become standard for card payments across the world, ensuring enhanced security through chip card technology. Unlike magnetic stripe cards, EMV cards generate a unique transaction code for each purchase, significantly reducing the risk of fraud.

Contactless Payments

Contactless payments allow consumers to complete transactions by simply tapping their card or mobile device at the POS terminal. Utilizing near-field communication (NFC) technology, contactless payments offer speed and convenience, making them increasingly popular in busy retail environments.

What Are Online Payments?

Online payments refer to transactions conducted over the internet, encompassing purchases made through computers and mobile devices. This method has seen exponential growth, driven by the rise of Ecommerce and the increasing use of smartphones.

Payments Made with a Computer

Online payments via computers typically involve entering card details onto a website’s payment page. This process includes multiple layers of security, such as encryption and tokenization, to protect sensitive information. Payment providers act as intermediaries, authorizing transactions and ensuring funds are transferred securely from the customer to the seller.

Payments Through Mobile Phones

Mobile payments have perhaps had the biggest effect on how consumers pay today. With the advent of mobile wallets like Apple Pay, Google Wallet and Samsung Pay, users can store their card information securely on their devices and in many cases, use biometric authentication (such as fingerprints or facial recognition) to authorize transactions. Additionally, mobile payment apps often support other payment methods, such as direct bank transfers and P2P payments.

How Do Point of Sale Payments and Online Payments Work Together?

The integration of POS and online payment systems is the foundation of an effective omnichannel payment strategy, enabling organizations to provide a seamless shopping experience across different platforms.

POS and online payments complement each other by catering to different consumer preferences and shopping contexts. For example, a customer might browse products online, make a purchase through a mobile app and pick up the item in-store, where they might also buy additional items using a POS terminal. This synergy not only enhances customer convenience, but also increases sales opportunities.

Unified Payment Systems

Many businesses are adopting unified payment systems that integrate POS and online payment processing. This approach provides a cohesive view of transactions across all sales channels, facilitating better inventory management, streamlined accounting and improved customer service. Unified systems also support features like cross-channel returns and exchanges, further enhancing the consumer experience.

Security Considerations

Both POS and online payment systems must adhere to stringent security standards to protect against fraud and data breaches. Technologies such as encryption, tokenization and multi-factor authentication are employed to secure transactions across all channels. By maintaining robust security measures, businesses can build trust with their customers and safeguard sensitive information.

Get Multi-Channel Embedded Payments with Payfactory

The continued evolution of payment technologies, from EMV and contactless payments at POS terminals to secure online transactions via computers and mobile devices, highlights the importance of a comprehensive multi-channel payment strategy.

At Payfactory, we leverage the strength of both payment models to enhance the customer experience and drive sales. Our embedded payment facilitation platform offers both POS and online payment options, backed by encryption and tokenization across all payment channels. Low to no-code development ensures quick and simple partner deployment through software platforms and gateways. Coupled with a seamless merchant experience and fast onboarding, ISVs, resellers and gateways can begin generating revenue in days – not months. Contact Payfactory to learn more about our multi-channel payment solutions

Maximizing Embedded Payment Revenue in Software

Embedded payments are transforming the landscape of financial transactions, seamlessly integrating payment functionalities into software applications and platforms.

Not only do embedded payments enhance the customer experience, but they also open up significant revenue opportunities for software platforms.

According to Juniper Research, the global revenue from embedded payments for embedded finance vendors will reach $59 billion in 2027, up from $32 billion in 2023. This incredible growth of 84% is driven by the increasing demand for a frictionless payment experiences and the strategic advantages that embedded payments offer to software companies.

For software platforms, embedded payments are crucial because they streamline the payment process for users, reducing the need for external payment gateways. This integration leads to improved customer retention and satisfaction, as users enjoy a more cohesive and efficient experience.

And software companies that embed payments directly into their platforms can capture a share of the transaction revenue, creating a lucrative new income stream.

What are the Revenue Opportunities in Embedded Payments for Software Platforms?

One of the most direct ways that software platforms can create new revenue is through transaction fees.

By facilitating payments directly within their ecosystem, software platforms can charge a small percentage on each transaction. This model is particularly effective for platforms with high transaction volumes, such as e-commerce, ride-sharing and food delivery services.

Another significant revenue stream comes from subscription fees for premium payment services.

Software platforms can offer enhanced payment features, such as faster processing times, advanced fraud protection and detailed analytics, for a monthly or annual fee. This tiered approach allows companies to cater to different segments of their user base, from small businesses to large enterprises, maximizing their revenue potential.

Additionally, embedded payments enable software platforms to offer value-added services like financing options, loyalty programs and personalized promotions. These services not only enhance user engagement and satisfaction but also provide additional revenue streams.

In fact, SaaS providers that offer embedded finance products to their customers can unlock two to five times more revenue.

How Can Software Platforms Quickly Monetize Embedded Payments?

Monetizing embedded payments quickly requires a strategic approach that leverages the platform’s existing strengths while seamlessly integrating new payment functionalities.

The first step is to partner with a reliable and knowledgeable payment vendor that offers flexible integration options and robust security features. This ensures that the payment experience is smooth and secure, instilling customer trust. To learn more about what to look for in a payments partner, check out our blog, 6 Factors for ISVs to Consider When Choosing a Payment Processor.

Next, software platforms should focus on the user experience by making the payment process as intuitive and frictionless as possible. 

This can be achieved through user-friendly interfaces, seamless integration with existing workflows, and support for multiple payment methods, including credit cards, digital wallets and ACH. By prioritizing the user experience, software platforms can drive higher transaction volumes and increase revenue from transaction fees.

To accelerate monetization, platforms can also roll out premium payment features and value-added services to their user base.

Offering these services on a subscription basis or as part of a tiered pricing model can generate steady, recurring revenue. Additionally, promoting these features through targeted marketing campaigns and personalized recommendations can boost adoption rates and overall revenue.

Finally, data analytics plays a crucial role in monetizing embedded payments.

By leveraging transaction data, platforms can gain insights into user behavior and preferences, allowing them to tailor their offerings and optimize pricing strategies. Data-driven decision-making can also help identify new revenue opportunities and enhance the overall effectiveness of the embedded payment system.

Get Seamless Embedded Payment Facilitation with Payfactory

Embedded payments present a significant revenue opportunity for software platforms, driven by the growing demand for seamless and integrated payment experiences. By capitalizing on transaction fees, subscription services, and value-added offerings, platforms can unlock new income streams and enhance user satisfaction. The key to quickly monetizing embedded payments lies in strategic partnerships, user-centric design and data-driven insights.

For companies looking to harness the full potential of embedded payments, Payfactory offers a comprehensive payment facilitation platform designed to streamline payment integration and maximize revenue. With a focus on security, flexibility and user experience, we enable software platforms to effortlessly embed payment functionalities and tap into lucrative revenue opportunities. Learn more about our platform or contact us for a consultation.

Adopting Embedded Payments Across the Ecosystem – Highlight on Higher Education

Paying for goods, services or bills can take place virtually anywhere today, thanks to the rise in digital payments – a market that exceeded $111B in 2023 and is estimated at $193B by 2028.

Digital payments mean just that – payments done digitally, whether through contactless payment terminals, smart devices, mobile phones or even just a laptop. The increased adoption of smartphones, government initiatives in real-time and P2P payments and greater convenience will continue to propel digital payments.

Fast on the heels of digital payments are embedded payments, where payment processing is literally embedded into software so that it is transparent to the consumers. The payment processor and the software provider are seamlessly blended and become one brand and one experience.

Digital payments are an integral aspect of embedded payments, as the embedded payment offering should be enabled for all digital payment types, across all payment ecosystem touchpoints.

How do embedded payment and digital payments work together across verticals? Today we highlight higher education and the myriad of payment touchpoints in this sophisticated ecosystem.

The College Campus – a City within a City

Colleges and universities are no longer just academic institutions. They have become destinations for sports tournaments, concerts, theater productions, public lectures and more. In fact, 23 universities make at least $125M annually from their sports teams alone.

Some of the largest higher education institutions in the U.S. are mini cities, where students can meet their everyday needs without leaving campus, from meals to shopping to healthcare.

In each location, payments are being accepted. This could be:

  • Through a software system that specializes in a certain area of campus, such as ticketing
  • As a broader software offering
  • As a stand-alone solution provided directly by a payment processor.

“Colleges and universities have more choice than ever when it comes to who they partner with for payments,” said Ruston Miles, Payfactory’s CEO. 

“There are more than 400 software providers serving higher education – even if their software wasn’t specifically designed for the HigherEd environment. A great example is healthcare software, which is used in hospitals on campus, or box office platforms that serve the stadium but might also work with theaters on Broadway.

The key is that all of these software vendors are now offering digital payments – online, mobile, NFC – as an embedded solution so that they can not only capture the revenue from their software deployment, but also the revenue from payments.”

When considering an embedded payment strategy, colleges and universities must answer the following:

1. What are the payment touchpoints? In a campus system, this would be the locations where payments are made.

2. How do customers / students like to pay at these touchpoints? There could several ways to pay at one touchpoint, such as a concession stand where a card is dipped or tapped in real-time, or where a mobile order is placed from the stands.

3. What is the best solution to provide these payment types? This will vary based on location. In many cases, one location might be served by one or more software vendors or even payment processors.

The Higher Education Payments Ecosystem

So how do embedded payments work across a campus? It will vary with each location, but in Payfactory’s experience with higher education institutions, some of the most common areas for embedded payments are in:

– The bookstore, where point-of-sale (POS) payment terminals equipped with NFC are common for face-to-face transactions, and mobile / online payments are done for book ordering or store pickup.

– Hospitals or clinics, where mobile payments have become increasingly common, either before, during or after an appointment.

– Self-service vending machines for snacks and supplies, where kiosks and POS payment terminals provide card and digital wallet transactions.

– The Bursar’s Office, where tuition and fee payments can be done within the office or via mobile or online links.

– Ticketing for sporting events, concerts and the theater can be done at the box office but most often are now purchased digitally from a phone, an app or a laptop prior to the event.

 

Choosing an Embedded Payments Partner – The Payfactory Difference

Payfactory has extensive experience in embedded payments for software companies across a variety of industries, including higher education.

Our CEO, Ruston Miles, has worked on the implementation of payment and security solutions with over 100 colleges and universities in the United States, and has served as a member of the PCI Security Standards Council Board of Advisors since 2019 – pioneering the first PCI-validated point-to-point encryption (P2PE) solution in 2012 as the founder of Bluefin Payment Systems.

Founding Payfactory in 2021, he knew that embedded payment facilitation would drive the future of payments with a seamless implementation and go-live experience for software customers, and little to no development required for software platforms – facilitating a new revenue stream with minimal integration costs.

Combined with our extensive experience, Payfactory is spearheading a new era of payments and security in higher education.

Learn more about Payfactory’s platform or contact us to set up a consultation.

Drive Profits, Deepen Relationships with Embedded Commerce

By Dale Laszig

 

For the past decade, tech startups have reshaped fundamental approaches to retail, hospitality, insurance, healthcare, investment, finance, logistics and other sectors. Using embedded commerce as a primary engine, these innovators gained record adoption during the pandemic, setting the stage for further enhancements across a range of industries, products and services.

Recent advancements in artificial intelligence, machine learning and payment facilitation have enabled software developers to create agile, responsive and personalized experiences at scale. There seems to be no limit to the capabilities and reach of these deeply embedded solutions, both at the component level and across wide-scale deployments of various vertical applications.

From Static Interfaces to API Interconnections

At the component level, application program interfaces (APIs) have become easier to deploy, thanks to a new generation of REST APIs and low-code, no-code solutions. Experts cite speed and flexibility as chief advantages of REST APIs, noting that REST architecture is easy to use and popular among mobile app and IoT developers. For example, REST APIs are stateless, meaning no client information is stored between “get” requests. In addition, cacheable data streamlines client and server interactions and keeps resources identifiable and accessible.

Low-code and no-code applications enable end-users to modify and customize applications without having to hire a developer or write extensive code. Many of these solutions include preconfigured communications protocols for off-the-shelf deployments. SAP defines low-code as a way to use embedded functionalities to design and develop applications that requires some knowledge and skill. By contrast, “No-code is a method that benefits from a similar user experience as low-code, but goes the extra mile by allowing non-technical business users to develop applications without having to write even a single line of code.”  

Artificial intelligence has also evolved from basic scripts and rules engines to intuitive collaborations between humans and machines. Futurist and author Bernard Marr contrasted generative AI to experimental prototypes from the 1950s that used algorithms to analyze data. “Unlike traditional AI systems that follow predetermined patterns and rules, Generative AI has the unique ability to create,” he wrote. “It can generate new content like audio, art, and text, all by learning from a set of data without explicit instructions.”

From Aggregating Merchants to Facilitating Payments

Over time, improvements in application design made it easier for end-users to add features and functionality to software solutions. Payment facilitation is a case in point; the payfac movement began by aggregating micro-merchants into a single merchant entity and later became a way to subsume technology, not just merchants, into a single application. The evolution from early payfac models to today’s sophisticated processing solutions has been a force-multiplier for numerous businesses and industries, according to Ruston Miles, Chief Executive Officer and Founder of Payfactory.

Reflecting on the payfac adoption cycle, Miles proposed that early promoters sold payfac sizzle such as fast merchant onboarding and customer checkouts but overlooked the steak, which was far more interesting to software developers. These coders, already well-versed in APIs, machine learning and software languages, seized on payment facilitation as a way to create uninterrupted customer experiences by embedding payment flows into existing applications.

“The first evolution of payfac was all about speed boarding and was a 100% digital experience available through APIs,” he said. “But looking at it from a boarding perspective, that is a one-time thing. The digital experience is also one-time, as is the API implementation.”

From Integrated Payments to Embedded Payments

The earliest models of embedded payments were called “integrated payments,” Miles stated, where side-by-side software and payments vendors are joined together to provide an “integrated” solution to the merchant. From the start of the process, it’s evident and understood that these are separate vendors – right from the contracting of the merchant, through application, onboarding and implementation, to payment gateway, reporting, chargeback services and even parties that provide monthly statements and bank deposits.

With embedded payments seamlessly placing the entire experience digitally into the software, where it appears one vendor owns the whole process, Miles said software companies enhance the user experience, often by using payment facilitation. Integrated payments are no longer up to par for firms that compete on seamlessness and utility in a single platform, he added, and that’s how the journey from integrated to fully embedded has really evolved.

Since the entire experience is now embedded, software companies are beginning to demand more, if not all, of the payments income, Miles noted, with some companies expecting payments to represent 40 to 60% of overall revenue – another big reason for embedding payments into software.

From Adjacent Solutions to All-Inclusive Experiences

Miles observed that payments software and hardware followed similar paths from standalone to semi-integrated to integrated solutions. Countertop terminals, peripherals and enterprise POS systems evolved as merchants and service providers looked for ways to keep customer payment data out of merchants’ scope. In a similar way, ecommerce solutions progressed from directing customers to adjacent checkout pages to using iFrame technology and embedded, tokenized solutions that enable customers to check out without ever leaving a website or app.

For example, enterprises are leveraging the payout feature in unique ways, he explained, by creating customized payout programming to remove friction from payables and receivables.

“Each vertical will have a different set of vendors that need to be paid through a transaction. For a $10 ticket sold, you may have a $2 service fee for the payment provider, then you need to spit the $10 between the software, the parking foundation, the box office, then Visa and MasterCard,” he said. “For a $200 veterinary bill, there could be payment to the doctor, to a pet insurer and to a medication provider. Splitting the payouts often happens manually and can take significant time.”

Payment facilitators can fully automate vendor payouts, Miles said, which enables all players to get their money the next day. Instead of accounting departments trading invoices, it can all happen through the click of a button, he added, and I think this evolution is very powerful.

From Generic Commerce to a Tailored and Embedded Payment Approach

In his July 25, 2024 blog post in diginomica, “Why every business needs an embedded commerce strategy,” Michael Affronti, SVP and General Manager, Commerce Cloud at Salesforce, cited examples of how B2C and B2B companies are leveraging embedded payments:

  • Manufacturing: Embedding payments into a sales transaction is smoother than sending an email, issuing a purchase order or prompting for payment details at point of purchase.
  • Internet Service Providers: Responding in online chat to customer inquiries about broken routers and modems creates an uninterrupted customer experience. Agents can share a link to a pop-up website where customers can reorder and pay securely.
  • Healthcare companies: Selling glucose monitors through subscription services enables medical device users to always have essential supplies on hand. These services make it as easy for customers to buy needed equipment, medicine and insurance.

Affronti mentioned that today’s businesses are using embedded models to innovate and bring in revenue without inflating budgets.

“When companies adopt an embedded commerce model, it’s important to look for a commerce platform that easily integrates data from different sources as well as with other sales and service technology,” Affronti wrote. “A single source of truth across all channels is key in order to drive personalization and a consistent experience. And of course, all interactions should take place on a foundation of trust and consent.”

Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn, and Twitter.

5 Ways to Capitalize on Ecommerce

By Dale Laszig

 

The “e” in ecommerce, which stands for electronic transactions conducted over the internet, could also mean “Everywhere Commerce” – fluid and nuanced transactions that flow across channels, bearing little resemblance to early models. The letter “e” is sometimes italicized, hyphenated, capitalized or in lowercase, reflecting the iterative journey from archetypal ecommerce to modern embedded payment solutions.

Ecommerce has come a long way since the 1990s, when websites first offered payment options. Ensuing decades brought technology, APIs, and innovative service providers as ecommerce became more frictionless, enjoyable and secure, using these five keys to success.

1. Design a Composable Framework

Remarkably, ecommerce methodologies have stood the test of time. Experts attribute this resilience to robust supporting infrastructures that allow brands to make changes on the fly and stay in sync with customers, with Gartner comparing these frameworks to Lego logs.

In essence, modularity gives businesses the freedom to experiment with interchangeable parts and vendors without being stuck in monolithic technology. The freedom of what Gartner calls “composable commerce,” is based on three core principles:

  • Composable thinking, which keeps you from losing your creativity. Anything is composable. When you combine the principles of modularity, autonomy, orchestration and discovery with composable thinking, it should guide your approach to conceptualizing what to compose, and when.
  • Composable business architecture ensures that your organization is built to be flexible and resilient. It’s about structure and purpose. These are structural capabilities — giving you mechanisms to use in architecting your business.
  • Composable technologies are the tools for today and tomorrow. They are the pieces and parts, and what connects them all together. The four principles are product design goals driving the features of technology that support the notions of composability.”

2. Build and Test

The Lego-brick approach provides a common architecture where developers can make changes, fix bugs and add features at a component level, according to MIT researchers, who have seen composable infrastructures replace traditional systems.

“Gartner likens composable infrastructures to a structure made of simple building blocks,” they wrote. “This modular structure permits fast changes and responds quickly to new demand, traffic spikes, material production issues, or supply chain challenges.”

Commercetools researchers agreed that composable environments are more developer friendly than traditional architectures, where “touching one functionality means another may easily collapse in the process. This risk within a tightly-coupled system translates into employees being more reticent to run updates, try out new features and innovate.”

Any reticence about addressing customer inquiries, disputes, checkouts and anomalous behaviors in real time would be detrimental to modern B2C and B2B commerce, the U.S. Faster Payments Council (FPC) noted in its January 2024 bulletin. The FPC stressed the need for real-time fraud monitoring, detection, and mitigation to protect against emerging threats.

3. Adapt and Integrate

FPC’s Fraud Information Sharing Work Group (FISWG) and Financial Inclusion Work Group (FIWG) have tracked faster payments fraud since 2020, gathering industry data on a range of threats, such as identity theft, account takeover, synthetic identity, and social engineering.

“Fraudsters have evolved their techniques by leveraging the latest technology to perpetrate increasingly sophisticated ATO attacks, including phishing, credential stuffing, fraudsters posing as bank staff, and SIM swapping, all at a much greater scale,” FPC researchers wrote, adding that fraudsters took advantage of mass adoption of digital banking and ecommerce during the pandemic and continue to launch large-scale Account Takeover Attacks (ATO) using bots and automation.

In addition to reacting to threats, brands must pivot quickly to engage with customers across channels, which technology partners can help to facilitate. Commercetools recommends taking a “build where you differentiate, buy where you don’t” approach.

Companies that identify strengths and weaknesses across customer touchpoints such as search, content, online chat or checkout, can choose vendors with expertise in specific areas to customize technology stacks, using best-of-breed strategies to differentiate from competitors.

4. Innovate and Iterate

Faster payments have created an environment of instant credit decisioning, risk management and agile fulfilment where customers and brands track orders in real time, communicating by email, phone and chat. By necessity, modern infrastructure must be as dynamic as the commerce it supports. Brands are rising to the challenge by implementing fail-fast strategies, which Commercetools researchers have described as “constantly experimenting, plugging what works and unplugging what doesn’t.”

Customers expect a consistent experience across channels, Commercetools noted, including in stores and online. Researchers acknowledged that achieving this is not easy, but with the right framework and partners, companies can integrate new touchpoints to satisfy requirements. Innovation-focused teams in composable environments can add, remove or switch functionalities without being siloed, they added, which can improve time-to-market.

Trusted partners can fill capability gaps to enhance brand image and customer experience. Payment gateways, for example, can protect a merchant’s customers and reduce exposure by keeping payment card data out of scope. Payment facilitators can embed commerce into native software to help create a consistent, uninterrupted brand experience across channels.

5. Achieve Monumental Scale

Robust ecommerce infrastructures remove friction from cross-border payments, helping companies expand globally. Companies at all stages of digitization are tapping partners to augment core applications with composable commerce. Startups are improving time-to-market by partnering with ecommerce providers, payment gateways and payment facilitators. Mature enterprises are expanding reach by partnering with firms that address specific requirements.

In a digital-first world, ecommerce is valuable real estate. In many cases, an ecommerce site is the first thing that prospective customers, employees, suppliers and channel partners see. Companies are transitioning from monolithic systems to smart applications to make a positive first impression In virtual storefronts and mobile apps.

Fortunately, firms can migrate to modern ecommerce without popping tiles or laying cable. Tech layers can be added without ripping out or replacing existing infrastructure. Building and buying options, which knowledgeable technology partners can help navigate, have become more affordable than ever.

Best of all, outsourcing any aspect of ecommerce does not mean giving up control. Companies can progressively build ecommerce architecture, Commercetools wrote, “controlling every step of the way and minimizing disruptions and mitigating risks.”

Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn and Twitter.