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.