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 widescale 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 percent 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 orders, 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.

The Growth of Embedded ISV Payments: 4 Key Trends​

2023 was the year of embedded finance – a relatively new Fintech term that encompasses financial tools baked into a non-finance platform, making services like lending, insurance and payment processing accessible to software platforms and applications across industries.

Embedded payments – or integrated payments, depending on one’s definition – have been around for several decades. Where it once was novel to pay for goods or services without leaving the software system or app, it is now expected by consumers who demand a fast, frictionless payment experience regardless of where they are transacting. In fact, revenues for embedded payments are expected to grow from $43 billion in 2021 to $138 billion in 2026. With an estimated CAGR of 23.1%, embedded payment revenues will reach $380 billion by 2029.

Integrated payments have come a long way, from basic point-of-sale (POS) credit card acceptance to a plethora of digital POS, online and mobile choices offered by payment gateways, payment processors and payment facilitators. As Payfactory’s CEO, Ruston Miles, told The Green Sheet in their November 2023 article, The extraordinary life of a payment transaction – a multilevel game:

“Payments have evolved significantly from being stand-alone solutions to being embedded in various verticals through a process driven by technological advancements, changing consumer preferences, and the need for seamless and convenient transactions,” he said.

As payment options continue to grow, there are four key trends that will influence embedded payment processing for ISVs and SaaS platforms – regardless of industry or customer base.

Trend 1: Omni-Channel Payment Offerings

Once considered a necessity only for retailers, omni-channel payments are gaining a foothold across markets thanks to how consumers want to pay. Hype has been given to Ecommerce, with good reason – the pandemic shut down in-person purchasing for most of 2020, pushing everyday spend online. This trend has stuck, with insights from Mastercard SpendingPulseTM finding that online retail sales increased +6.3% YOY in 2023, while in-store sales were up +2.2%.

Consumer preference for omni-channel has led to an increase in ISV embedded payment adoption, where verticals like healthcare, fitness, restaurants and even higher education must provide a way for customers to pay for goods and services either online or in an app.

However, this growth does not eliminate the need for storefronts and POS payment options, whether that is a payment terminal on a counter, a card reader attached to a kiosk or an in-store mobile checkout option. An omni-channel payment strategy will consider each point where the consumer touches a good or service and provide a means to pay wherever the consumer interacts with the vendor.

Trend 2: Fast and Simple Payment Integration

When the option to add payment processing into a software platform was introduced many years ago, it was accepted that go-live could take up to a year thanks to complicated payment rails, additional coding and a limited number of vendors offering integrated payments.

Today, there are dozens of embedded payment providers offering traditional embedded payment processing services or, like Payfactory, an embedded payment facilitation platform. More companies have emerged with an API-first mindset to provide a fast, frictionless integrated payment setup for ISVs. This is bringing ISVs more choice in their provider and flexibility with their systems.

The trend toward faster, simpler payment integration will continue as more software providers embed payments into their platform. Time to market is a major consideration when choosing a payment partner to not only to satisfy consumer demand and ensure differentiation among competitors, but also to begin generating an additional source of revenue, which brings us to Trend 3.

Trend 3: ISV Payment Monetization

Integrated and embedded payments should provide ISVs and SaaS providers with a new revenue stream, with the ISV sharing in the transactional revenue with their payment provider. However, there are still instances today where an integrated provider may not offer a revenue share to the ISV.

Payments is an intricate dance. Processing the payment is only one part. There is the merchant sale, the merchant application, merchant approval, merchant underwriting, merchant onboarding, merchant support and then support of the customer’s merchants.

An ISV’s revenue from payment transactions can depend on how much of this process they take on or simply may depend on the nature of the relationship with their provider. But one thing is for certain – more ISVs than ever are watching their valuation rise because of their payment revenue stream. ISVs must still keep in mind, though, that when it comes to valuation – having ownership of their merchant data will be key.

Trend 4: Payment Security Features

We live in a world where data breaches happen every day. IBM’s 2023 Data Breach Report revealed that 83% of organizations experienced more than one data breach in 2022. With threat vectors like ransomware on the rise – with the 2022 Verizon Data Breach Investigations Report finding that the total number of ransomware attacks surged by 13%, a rise equal to the last five years combined – the payment provider that an ISV partners with will only be as good as the security features they offer.

Once payment touchpoints expand, as in the case of omni-channel commerce, these security features become more paramount.

  • There is the protection of payment data with technologies such as tokenization and encryption as discussed in our blog, Securing Embedded Payments: The Role of Encryption and Tokenization.
  • There is the authentication of a consumer online with tools such as reCAPTCHA and 3D Secure.
  • Finally, there is PCI compliance, which is required for every merchant who accepts credit cards and includes – depending on the merchant level – security tools such as firewalls, scanning and specialized software.

Payment providers not only should have tool in place to protect payment data, authenticate consumers and ensure merchant PCI compliance, but they should also have a team well-versed in the latest threat vectors to protect ISVs.

Payfactory – The Right Partner for ISV Payments

The right partner for integrated payments should check the box in each of these areas – while also keeping an eye on future trends for additional value-add products, such as embedded finance products and real-time payments.

With Payfactory’s payment facilitation platform, we get ISVs implemented for payments in a matter of days and provide their merchants a completely frictionless payment process with self-serve merchant and partner options – all backed by security solutions to protect payment data and our ISV partners.

Our management team averages more than 18 years of payment and security experience each, with CEO Ruston Miles also serving on the PCI SSC board of advisors. Learn more about our platform or contact us for a free embedded payment consultation.

What’s In Store for 2024 Payments

By Dale Laszig

Retail analysts have much to celebrate at the close of 2023, as holiday sales return to pre-pandemic levels and next-gen supply chain and logistics solutions ensure healthy inventory levels and on-time deliveries.

According to the National Retail Federation (NRF), this year’s holiday spend is commensurate with the 3.6% year-over-year increase seen between 2010 and 2019. Online shopping is reaching new heights as it spreads to new categories, with estimates that online and non-store sales will reach between $273.7 and $278.8 billion, an increase of between 7 and 9% from last year’s $255.8 billion.

“For all that the consumer has kept the economy afloat, the composition of spending from goods to services will also define holiday sales trends,” said NRF Chief Economist Jack Kleinhenz. “Service spending growth is strong and is growing faster than goods spending. The amount of spending on services is back in line with pre-pandemic trends.”

With consumer spending increasing, we take a look at what’s in store for payments in 2024.

Service Purchases on the Rise

Kleinhenz’s astute observation, that shopping for services is outpacing shopping for goods, reflects a fundamental shift in traditional values such as home ownership. The physical-to-digital trend also manifests in the B2B sector, where subscription services are replacing infrastructure investment and physical asset ownership. Technology moves fast; business owners are gravitating from hardware investments to Hardware-as-a-Service and subscription service models that replace sunk costs and obsolescence with continuous software, firmware and equipment updates.

Aside from its well-known benefits, SaaS has lessened human dependency on things for consumers and business owners alike, especially in the commercial world, where it has never been easier to launch and scale a global business, using an API and a few white-label applications. Technologies have unleashed a renaissance in application design, as entrepreneurs use available platforms to transform rudimentary solutions into novel and agile methodologies.

Payment Innovation is Key to Differentiation

Juniper Research identified three primary forces shaping the future of payments in their white paper, Ten Top Payments and Fintech Trends.

  • The need to differentiate
  • Current economic pressures and uncertainties
  • The continuing migration away from traditional payment methods, such as credit cards, to fresh digital alternatives.

“Payments services have largely been [commoditized], making it difficult for vendors to stand out and offer truly distinctive services that offer businesses an edge,” researchers wrote. “As such, different trends are emerging that seek to create the ability to differentiate user experiences, and this will lead to more creative and innovative solutions being offered to market.”

These three drivers are prevalent in the software world, as vendors, distributors, partners and customers seek secure, intelligent, agile and transparent solutions. B2B commerce is rising to the challenge by delivering payment portals, text-to-pay solutions and other digital invoicing alternatives that are more efficient and cost-effective to manage and offer optionality and flexibility in a world that was formerly dominated by 30-day invoicing cycles.

Increased Demand for Fast, Intelligent and Frictionless Payments

“As we look at the top fintech and payment trends for 2024, it is important to examine the wider context before we get into the specifics,” Juniper research reports. “It is clear that this is a market undergoing seismic changes – payment preferences and technologies are changing quickly in different markets, all across the world.”

Juniper’s predictions for the top ten payment trends are well in-line with consumer demand for real-time, digital payments – whether in a store, online or through software.

  1. Account-to-Account Payments: A2A will challenge incumbent payment cards and digital wallets.
  2. CBDC Use Cases: CBDC spend will reach $213 billion by 2030, improving B2B commerce efficiencies and cost savings.
  3. Generative AI in Banking: Generative AI can be used effectively as banks shift operations to the cloud.
  4. Digital Identity, Digital Wallets: Despite competing standards for digital identity verification, there are positive signs that the industry is heading to global interoperability.
  5. AML Tools Leverage AI, Alternative Payments: These technologies can simplify CDD and KYC processes, allowing organizations to automate complex, time-consuming compliance processes.
  6. Sustainability, ESG Compliance: Growth of open banking will support a range of sustainability initiatives in 2024 among fintechs and financial institutions.
  7. FedNow’s value-added services will flourish: Exploration of value-added services that can be built on top of FedNow rails will help financial institutions brand and personalize instant payments.
  8. Mobile Financial Services, Bank Tech: MFS providers will shift focus to advanced services, leveraging MNO (Mobile Network Operator) data to offer tailored services.
  9. Biometrics, Innovative Checkouts: Biometric payments will gain mainstream adoption, fueled by Amazon and JPMorgan’s support.
  10. BNPL for SMEs: B2B BNPL offerings will scale as SMEs look to better manage cashflow.

Keeping an Eye on Software

In the flurry of predictions that typically circulate at the end of a calendar year, perhaps the biggest of all trends is software’s expanding role in shaping the future. As enterprises seek to differentiate, surpass economic uncertainties and move beyond traditional payment methods, service providers with payments deeply embedded in vertical solutions can confidently offer all of these capabilities and more.

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.

2023: Fintech’s Kaleidoscopic Year

By Dale Laszig

Like kaleidoscopes that reconfigure shards of glass, fintechs transform and unify commercial transactions in ways that delight buyers and sellers and reshape the future of commerce.

2023 can be seen through multiple lenses, creating a colorful diorama of cross-border commerce, cybersecurity, embedded finance, faster payments, and regulatory oversight. Here’s our year-end review of the biggest fintech and payment developments in 2023.

RTP is Introduced – and is Scaling

The Deloitte Center for Financial Services, which has tracked real-time payment (RTP) methods for decades, suggests RTP is finally poised to scale. A July 2023 article by Zachary Aron, Val Srinivas, and Richa Wadhwani observed that RTP benefits extend beyond payments.

“In addition to driving business growth across borders and giving access to new markets, real-time payments would also add more transparency to the otherwise fragmented and unpredictable B2B payments landscape,” the authors wrote. “Many RTP systems use International Organization for Standardization (ISO) 2022 messaging standards that enable two-way communication, such as ‘request for payment,’ ‘request for information,’ and ‘confirmation of payment.’

Banks, armed with RTP, can enrich B2B transactions with deeper insights and value-added B2B services, the authors noted. In a world of fast-flowing information and money transfers, they suggested that services such as automated matching of purchase orders to invoices, virtual accounts and electronic would become table stakes.

But security analysts view faster payments through a risk management lens, emphasizing its potential for misuse and abuse by opportunistic fraudsters – suggesting there is more work to do in this area.

“Unfortunately, fraudsters have wasted no time in [capitalizing] on these systems,” said Nathan Close, head of solution consulting at Outseer. “They employ various techniques, including social engineering, to deceive unsuspecting consumers into voluntarily sending funds to them. This rise in fraud attacks, particularly mule activity and consumer-authorised push payment (APP) fraud, has compelled financial institutions and regulators to be on high alert.”

Additional data from UK’s Payment Systems Regulator found rising APP fraud revenues and transaction volumes at the region’s top 14 banks and 9 smaller firms. Fraudsters trick people into sending a payment to an outside account, policymakers explained, stating the PSR will introduce stricter reimbursement and security measures to stem these attacks, which accounted for 40% of fraud losses in 2022.

The Journey to a Passwordless Future

In the face of faster, more sophisticated forms of fraud, security experts advocate replacing passwords with strong authentication methods that are resistant to phishing, pharming, whaling and other prevalent attack vectors. FIDO Alliance unveiled passkeys in March 2022, a simple, secure alternative to passwords, currently available at Google, Apple, PayPal and other leading tech companies.

FIDO’s annual “Online Authentication Barometer,” released in October at the alliance’s annual Authenticate conference, shows passkeys gaining worldwide adoption, paving the way to simpler, stronger authentication backed by open, scalable, interoperable frameworks.

Andrew Shikiar, executive director and CMO of the FIDO Alliance, believes a passwordless future is within reach. “This year’s Barometer data showed promising signs of shifting consumer attitudes and desire to use stronger authentication methods, with biometrics especially proving popular,” he stated. “That said, high password usage without 2FA worryingly reflects how little consumers are still being offered alternatives like biometrics, resulting in lingering [password] usage.”

Customizing Security and Fraud Prevention

Recent updates at FIDO, PCI SSC, nexo, ISO, and other global standard bodies reflect new levels of maturity and self-regulation in payments and tech sectors. For example, PCI DSS v4.0 introduced the Customized Approach Objective, opening new pathways to validation.

Lauren Holloway, Director, Data Security Standards, PCI Security Standards Council, discussed how risk-mature organizations can design, implement and maintain controls to achieve PCI DSS 4.0 compliance. And Verizon prescribed an integrated approach to achieving PCI DSS compliance, using predictable outcomes and measurable performance models to assess control environments.

“The overall organizational goal of a PCI security compliance program is to develop, maintain and continually improve a mature control environment that offers reasonable assurance for the effective, ongoing protection of payment card data in a consistent, predictable and sustainable manner,” Verizon reported in their 2023 Payment Security Report insights.

The Borders of Commerce Crumble

Businesses face delays, complexities, fragmented customs and fluctuating exchange rates in cross-border ecommerce, according to Avalara. Despite these challenges, researchers projected $1 trillion in cross-border ecommerce revenues in 2023, led by Asia-Pacific, Latin America, Middle East and North Africa.

Avalara and Reuter’s survey of 732 supply chain professionals cited costs and compliance as top concerns, followed by documentation issues that compromise prompt, affordable service expectations. Technology solves these issues, researchers added, noting that most respondents agreed cross-border ecommerce is getting easier. Evan Wright, senior director of growth, cross-border, at Avalara, has also seen improvements, fueled by digitized international trade.

“Now, companies can draw on databases and automation to instantly understand the terms of trade, present these to the buyer and maintain a consistent pathway from seller to customer that [minimizes] the costs of crossing borders,” he said. “With this in mind, we are highly optimistic about the future, and you should be too.”

The Future of Payments is Embedded

In the B2B arena, next-generation payment facilitators and independent software vendors (ISVs) are delivering frictionless customer experiences that are similar to B2C commerce. These partnerships leverage APIs to meet growing demand for embedded payments and finance.

Juniper Research predicts embedded commerce will surpass $59 billion by 2027, with over a third of that revenue stemming from B2B ecommerce and software integrations.

“The research also forecasts that by 2027, 35% of embedded payments’ revenue will be from the B2B segment,” researchers wrote. “B2B payments have seen less implementation of new payment types to date, with complex accounts payable and receivable processes creating a difficult ecosystem to manage. Embedded finance vendors must focus on bolstering payment integration with key B2B access channels, such as B2B eCommerce marketplaces and accounting software, to [maximize] their appeal in this high-potential market.”

Closing out 2023

At the close of Q4, fintech, payments and financial services leaders may try to spin 2023 into an emblematic catchphrase. Was 2023 the year of small business, real-time borderless payments, regulatory clarity, mature security standards, or embedded finance and commerce? Perhaps the rearview mirror will display all of these and more, in a colorful collage of moving parts that play well together as they spiral forward to an ever-brighter future.
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.

4 Key Steps for Retaining Merchants in an Embedded Payment Model

The digitization of commerce has made it simpler than ever for consumers to choose from multiple vendors for goods and services – whether online with next-day delivery or in-store pickup.

Digitization has also ushered in a new era of choice when it comes to embedded payment processing partners, whether a traditional merchant acquirer or a payment facilitator. And with embedded payments on the rise, projected to reach $59 billion by 2027, and many Independent Software Vendors (ISVs) and SaaS platforms coming to rely on payment processing revenue for growth and valuation, choosing the right embedded payment solution is paramount.

Ease of use, performance and pricing are important. But transparency, customer value and service could be the difference between customer growth or customer attrition.

Attrition and churn are a multi-billion dollar problem across industries, but SaaS is particularly affected as new software entrants skyrocket and there is a shrinking pool of untapped customers.

How you enable embedded payments is as important as your software’s performance. Choosing the right partner is key, and there are four steps that ISVs, along with their payment partners, must consistently take to not only retain merchants but grow revenue.

What is Attrition and Churn?

Attracting new software customers takes time and effort – marketing awareness campaigns, sales team prospecting and contract / pricing negotiations are just a few aspects of generating new business.

These efforts are bundled into customer acquisition costs (CAC), which Deloitte predicts will rise with the growth of Ecommerce and disruptions like climate change, inflation and economic uncertainty.

A customer leaving a business for a competitive product – called churn or merchant attrition – not only costs companies the upfront marketing and sales effort to gain that customer in the first place, but it hits bottom-line revenue targets. According to the CallMiner Churn Index, U.S. companies lose an estimated $168 billion annually from churn.

Compounding that loss, there’s the cost of attracting new customers to replace those who left on top of growing the business. Depending on your industry, studies suggest that acquiring a first-time customer can cost between 5 and 25 times as much as retaining an existing one.

Step 1 - Be Transparent

Transparency in payment processing is integral to the overall ISV / payment processor relationship, but it’s crucial in retaining merchants.

ISVs, along with their payments partner, must walk merchants through each step of the process of working together. This starts with the merchant application, extending to approval, activation and onboarding. Simplicity is a big reason why payment facilitation, with a roughly 24-hour merchant approval and go-live turnaround, is gaining popularity.

Ensuring that merchants understand their processing costs is imperative. One of the biggest merchant complaints – and a major source of attrition – is lack of transparency around pricing and fees. This can be a trickly balance for ISVs and processors, since transactional fee increases are often imposed by the card brands and parties have no choice but to pass the additional cost onto the merchant.

However, concise and frequent communication with merchants about pricing changes can go a long way toward a merchant feeling informed and even empowered about what they are paying for and why.

Step 2 - Communicate Value

Merchant account pricing can be tied to value – which encompasses everything from the payment types offered, to fraud prevention and security solutions, to customer service.

When assessing which embedded payment solution will bring the most value for your customers and strengthen your brand, consider the following:

  • How do your customers like to pay and does the provider offer these solutions? Examples include point-of-sale devices, Ecommerce and mobile payments.

  • Will your customer want all payment types? These can range from standard credit and debit card processing to Automated Clearing House (ACH) for direct bank account debit, to mobile wallets like Google Pay and Apple Pay.

  • Do your customers require additional products to facilitate transactions that your payments provider should offer? Examples include the ability to split payments, add a tip or tie data from their payments dashboard to other software systems.

  • How will your processor secure and authenticate payment transactions? Authentication includes solutions such as 3D Secure (3DS) for Ecommerce payments and encryption and tokenization to secure payment data in transit and in storage.

  • What level of customer support will your payments partner provide? This includes the basics of a general email or phone number, to more white-glove solutions including a dedicated chatbot or phone line with a live representative and an assigned relationship manager for your partnership. 

It will be important for ISVs and SaaS providers to understand the value your provider brings in these key areas and consistently relay this to your customers.

Step 3 - Provide Superior Customer Service

There are two levels of service an ISV must consider in an embedded payments partner.

The first level is service to the partner themselves. There are many providers offering embedded payments, but not all are created equal when it comes to support. Having a dedicated relationship manager devoted to your company ensures that you can grow the partnership together, but they can also act as an escalation point for customer payment issues or questions.

The second level is direct support for your customers. In addition to availability, this means having customer service representatives with payments knowledge but who also understand the partnership. Sales training and staffing are key, but the best customer service teams are not reactive. Representatives make calls to merchants to check in and offer support – even when it’s not an emergency.

Having both of these service levels in place goes a long way in reducing merchant attrition.

Step 4 - Be Proactive

Too many times, customers attrit and companies have no idea why. Retention plans are then launched to get a business back after they have left, which wastes the time and energy of a service team.

If ISVs and SaaS providers have a payments partner that is transparent, provides value and offers superior customer service – all on a frequent communication schedule – then the chances of attrition are lowered. But that doesn’t mean payment providers should rely on that alone.

The best partners conduct proactive reviews and data analysis using standard models or now, artificial intelligence and machine learning. They understand the underlying factors that influence churn. They do deep dives to understand the root of the problem. And they take these learnings to launch proactive strategies to reduce attrition.

An embedded payments partner that is skilled at using all of their data to reduce customer churn will help drive ISV payment revenue growth and profitability.

Choose a Partner with Retention in Mind

The trend toward digital, one-touch commerce and an invisible, convenient payment experience is underway across industries. Payfactory’s no to low-code payment facilitation platform gets ISVs and SaaS platforms up and running with embedded payments in days, not weeks.

But our white-glove approach to partners and their customers is at the heart of our company. Founded by payment industry veterans, we believe that embedded payment processing should be simple, frictionless and fast – while also maintaining the highest level of security, customer service and human support. Contact us to learn more

The Rise of B2B Commerce Part II: Achieving Parity with B2C Commerce

By Dale Laszig

Digitization has improved the customer experience across mobile, omnichannel, B2B and B2C commerce channels.

But digitization is about more than customer service. Today’s B2C customer routinely shops online and now expects the same experience for B2B transactions, according to Forrester Research’s “The Future of Commerce Technology” report. Beyond improving customer and vendor relationships, researchers note that advanced digital technologies can drive efficiency, cash flow and profits.

“As this landscape shifts, [new, dual core technology stacks] center around experience and operations,” Forrester writes. “Digital businesses will gravitate toward either a complex but dually focused new stack or a new breed of all-in-one solutions that are more flexible, affordable, easy to use, and quick to deploy or update.”

Experts believe that these myriad form factors, technologies and use cases may soon be known simply as commerce. And as enterprises begin to transact across multiple channels securely, interactively and in real-time, they are expecting more choice, deeper engagement and service from their third-party providers and partner organizations.

In part two of our series on the rise of B2B commerce, we explore how the B2B tech stacks of operations and experiences benefit from digitization, the importance of embracing B2C commerce types that balance digital touchpoints with human assistance, and choosing partners with deep experience in building secure, compliant, flexible and modular payment solutions.

"Dual-Core" Commerce in Operations and Experiences

Forrester observed that legacy enterprises with monolithic tech stacks are ill-equipped to compete in the current commerce market, where personalized experiences, real-time stock checks and order tracking are baseline requirements.

Unless they innovate and iterate quickly, traditional players will lose share to digital-first companies with modular offerings that are easy to configure, upgrade and deploy, researchers warned. These capabilities enable businesses to selectively curate their own best-in-class solutions, and deeply embed commerce into adjacent, vertically focused ecosystems.

The notion of commerce as capability rather than product may at first be difficult to grasp, especially for a traditional enterprise, but is key to unlocking a scalable, interoperable and inclusive ecosystem that researchers positioned as the future of commerce.

“There will always be orchestration and personalization at the digital point of purchase,” Forrester notes. “However, when commerce is just that, it will be frequently folded into one of the new dual cores. Then vendors will assemble experience suites and operations suites around the data that each shares: inventory and orders for operations, and customer and content for experience.”

As core commerce functionality migrates to other areas of the ecosystem, Forrester predicts that vendors will expand front-end or back-end capabilities with low-code and no-code setups.

Balancing the Touchpoints

The same automated, self-attended technologies that create interactive consumer experiences can enhance B2B commerce, according to the 2023 State of B2B eCommerce Report, coauthored by Andy Hoar and Brian Beck of MasterB2B. Their survey of 100 B2B buyers and 100 B2B sellers found growing demand for streamlined, hybrid commerce that balances digital touchpoints with human assistance.

Using Amazon as a performance benchmark, 61% of executives surveyed said they could meet or beat Amazon’s customer experience, MasterB2B reported, and 81% claimed to provide a better experience than direct competitors.

“B2B sellers recognize that their online success rests in large part on how well they’re able to provide a personalized experience for their customers and, even more importantly, whether their site search provides relevant, actionable results,” the authors wrote, adding that 61% of sellers plan to implement AI-driven tech in 2023 to futureproof and streamline platforms and processes.

The authors acknowledge that B2B companies are not known for immediately embracing new technologies but emphasize AI’s potential to enrich the customer experience and data hygiene and help enterprises stay competitive. Ultimately, ecommerce success depends on choosing the right partners, they added, stating 84% of respondents believe good partners can help companies reduce time to market and overall cost of ownership and improve flexibility.

Overcoming B2B Technology Challenges

While B2B digital commerce methods could reach nearly $200 trillion by 2028, commercetools researchers would like to see faster growth in the sector, especially considering the current economic climate, which they noted brings opportunities and challenges. Ideally, they stated, the B2B customer experience will borrow from the consumer shopping playbook by blending easy-to-navigate product catalogs with abundant payment options.

“However, a pure B2C-like approach doesn’t work if B2B-specific features aren’t part of the deal,” commercetools researchers wrote. “B2Bs operate differently than business-to-consumer companies, and certain functions like reordering and order scheduling are crucial to managing inventory, for example.”

Chief among challenges facing traditional B2B service providers are manual, paper-based approaches to Accounts Payable, Accounts Receivable, invoicing and payouts, which experts have noted are costly, time-consuming, inefficient and error-prone. Paper checks, for example, were a B2B staple in 1915, when Deluxe Corp. unveiled its signature flat-pocket checkbook. 108 years later, paper checks represent less than 38% of the company’s revenue, according to an April 2020 interview with the company’s CEO, Barry McCarthy. After rebranding from DeLuxe Check Printers in 1988 and acquiring an electronic check services provider in 2015, the company is committed to digital transformation, McCarthy stated, in “Deluxe Isn’t Just Paper Checks Any Longer,” by Forbes contributing journalist Tom Groenfeldt.

“I think we are moving to a time when the consumer has a choice in how they get paid,” said McCarthy. “We’re into our second year of the e-check product and have been relatively quiet about it, but when you think of the billions of non-recurring checks written each year by financial institutions, health care and insurance, it is a huge problem solver. We take out all the handling cost and can get the customer paid much more quickly.”

Choosing the Right B2B Payments Partner is Key

As digitization continues to drive convergence of all types of commerce, partners with deep experience in building secure, compliant, flexible and modular solutions can help enterprises tap into advanced, automated, AI-powered technologies to improve time to market, increase profit, lower costs and harden security.

Payfactory’s low to no-code payment facilitation platform maximizes value for enterprises by delivering embedded commerce benefits without the cost of building a payfac platform. This gateway-agnostic model is modular, configurable and continuously updated in response to ever-evolving payments industry trends, regulatory compliance and technical innovation. Contact us to learn more.

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.

The Rise of B2B Commerce Part I: Agile, Digital and Embedded

By Dale Laszig

Lego logs are the perfect analogy for today’s software solutions. Individually, Legos and binary digits are small, uniform and dormant. Together, they’re a miracle of modular energy that can be molded and shaped at will. Not surprisingly, coding can be a lot like building with Legos, so it makes sense for developers to envision the features they would want in a technology stack, then find the right partners to help deeply integrate those capabilities. 

Designing payment software can be like building with Lego logs, according to Andre Machicao, global head of product at Visa. You can follow an outline to get a serviceable product, he stated, or create from scratch. At the Electronic Transactions Association’s April 2023 conference, TRANSACT, he walked the big stage, describing how children who build without blueprints outperform others who follow clearly defined patterns. The payments industry is building without a blueprint, he told the audience, and free builders are outpacing legacy architects.

In today’s blog, we will explore modularity as a principle of modern software design, and how it is helping developers embed payments into highly flexible, configurable software applications.

Principled design at the core

In a digital-first world where consumers transact in real-time with wearables, smartphones and connected devices, surprisingly few business-to-business (B2B) transactions are conducted digitally, according to a recent study by Goldman Sachs, which identified B2B commerce as the next payments frontier.

“We believe B2B payments currently account for $127tn in payment flows – and we expect this figure to reach nearly $200tn by 2028, over 5X the volume of the retail payments market,” researchers wrote, noting that the vast majority of B2B invoices are still being processed manually and by paper check.

Modern B2B commerce has the potential to improve efficiencies and create new revenue pools for all types of enterprises, researchers stated, especially for small and midsize businesses that pay and process 80% of invoices by check. It seems self-evident, they noted, that faster, lower-cost payment and remittance options will continue to replace outdated systems.

In part one of our two-part series on the rise of B2B commerce, we explore the inflection point of B2B payments, including key drivers and consumer payment preferences, the explosion of subscription services and digital payment processing, and the role that embedded finance and SaaS is playing in the trillion-dollar B2B commerce market.

Fresh $1 Trillion Inflection Point

For decades, paper checks and Automated Clearing House (ACH) transactions have been the hallmark of B2B payments. Lately, however, new trends in ecommerce, digital payments and consumer payment preferences are changing the cadence of commerce. Gen Z consumers and executives, for example, use buy now, pay later (BNPL) mobile wallets, and alternative payment methods, underscoring the need for businesses to meet customers across all digital channels.

While digitization in business-to-consumer (B2C) payments has historically outrun the B2B sector, researchers suggest that B2B payments are approaching an inflection point, as systems and processes enter a new phase of sophisticated and seamless commerce. Technology and market pressures are key drivers of B2B payment digitization, Goldman Sachs researchers noted, as individuals and enterprises increasingly rely on real-time, omnichannel commerce. These trends create a fresh $1 trillion dollar opportunity in payments and software, they stated, and sizeable cost savings for payment providers, software companies and financial institutions.

“In total, we see a $950bn global revenue opportunity (with an estimated $186B in North America) across invoice processing, AP payment processing, working capital management and factoring, and cross-border payment optimization,” researchers wrote. “Our analysis assumes that B2B payment solutions can drive up to 75% savings in total costs (both direct and indirect) for business, with more savings accruing to small businesses than enterprises.”

Massive, Untapped Opportunity

With experts estimating that B2B payment volume will reach $200 trillion by 2028, subscription service offerings and digital payments options are poised to streamline processing and further propel growth. This equates to a massive, untapped opportunity, Manhattan Venture Partners proposed, for B2B payments, cross-border commerce and embedded finance applications.

“In addition to verticals including checkouts, processing solutions, and corporate spend management, investors are betting big on the startups in the cross-border payments, banking- as-a-service, and embedded finance space,” MVP researchers wrote. “The next phase of the disruption is plug-and-play solutions helping integrate financial products seamlessly with non-financial digital platforms.”

As Manhattan Venture Partners have noted, legacy systems, a lack of data standards, limited interoperability and fragmented approaches to accounts receivable and accounts payable have hindered market growth. Fortunately, advanced technologies are solving for these issues and driving market growth by creating new opportunities in the digital and virtual worlds.

Better Together

As businesses struggle to cope with the challenges of integrating with multiple banks and legacy systems, embedded finance could spark the next wave of innovation in financial services,” MVP researchers wrote, citing a study by Bain & Company, that predicts embedded financial services, led by payments and lending, will continue to scale.

Bain & Company observed that embedded finance, enriched by value-added insurance, tax, and accounting services, accounted for nearly 5% of U.S. financial transactions in 2021, and predicted continual growth from $2.6 trillion currently to more than $7 trillion by 2026. 

“Demand will grow because the ‘better together’ proposition promises to improve customer experiences and financial access, along with providing cost reductions and risk benefits to companies,” Bain & Company researchers wrote.

 Additional survey data from the Boston Consulting Group found SaaS B2B revenue rose by 179% in 2022, due to strong demand among enterprise customers. Competition can be fierce, BCG researchers noted, and results have shown that not all SaaS B2B providers are created equal; digital-first companies that leverage technologies are outperforming others.

“As our analysis shows, a subset of fast-growing companies has grown faster than the pack,” they wrote. “Their actions offer a playbook for other B2B SaaS players to follow.”

Propelling B2B Payment Forward

In “The Future of Sales: Transformational Strategies for B2B Sales Organizations,” Gartner predicted that 80% of B2B transactions between suppliers and buyers will occur through digital channels by 2025. Researchers credited the global pandemic for helping to accelerate the business community’s migration to real-time, omnichannel, personalized digital commerce.

“B2B buyers increasingly want to engage with suppliers through digital and self-service channels,” Gartner researchers wrote. “To support this shift to multi-experience buying, and the associated growth in the number of touchpoints and interactions between buyers and suppliers, sellers will need additional skills and technology capabilities.”

Thanks to changing demographics, faster payment infrastructure and new software, the future of B2B payments will be agile, digital and embedded, conducted anytime from anywhere. And Payfactory is on the cusp of embedded, B2B payment processing with our low to no-code payment facilitation platform. Contact us to learn more.

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.