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.