What Are Embedded Payments and How Do They Work?
The more tech advances, the more convenience consumers expect from the vendors they buy from. It wasn’t that long ago that making a purchase online meant leaving the website and going through a tedious checkout process on an external payment gateway.
Thanks to a growing number of fintech companies offering embedded payments, businesses can now embed that payment experience directly into their website or mobile app. This seamless integration reduces friction in the checkout process, streamlines the user experience, and helps small businesses increase conversion rates.
Since bounce rates on eCommerce sites in the US are 47%, an increase from the same time last year, every effort to improve the checkout process can significantly impact the bottom line. Post-pandemic, the public want their online experiences to be seamless.
What Are Embedded Payments?
An embedded payment solution is an API that integrates a secure payment gateway directly into an eCommerce website or mobile app. This allows customers to enter their payment information without leaving the merchant’s website or app, making for a quicker and more convenient checkout experience.
Rather than having to use a separate payment gateway, small businesses can manage the entire checkout process from start to finish on their website or app in real time. They can set up simple one-click payment options or even offer subscription models where customers enter their payment information once and pay automatically every month.
How Do Embedded Payments Work?
Embedded payments connect a merchant’s website or app directly to their chosen payment gateway. When customers select their desired products and proceed to checkout, they are presented with a secure form that allows them to enter their payment information.
This form is then securely submitted directly to the payment gateway over an encrypted connection, and no sensitive data is ever stored on the merchant’s server. The payment gateway then verifies the customer’s information and processes the payment. Once complete, customers receive confirmation of their purchase without leaving the website or app.
Here is the process in just a few simple steps:
- First, the customer begins the checkout process on the merchant’s website or app.
- Next, the payment processing provider communicates with third-party applications to verify and validate that customers are entering the right payment information.
- When authorization is received, the customer’s data is encrypted and stored securely in the merchant’s system.
- Finally, the customer’s bank account or credit card is charged with funds passed through a secure server within the payment gateway.
Examples of Embedded Payments
eCommerce businesses, subscription services, and SaaS and software companies regularly use embedded payments. Apple, Amazon, LinkedIn, and Spotify are all use cases with integrated embedded payment forms into their websites or apps to make it easier for customers to purchase products or directly subscribe to services.
Other great examples include:
The Starbucks app enables customers to directly link their credit or debit cards, making it quick and easy to pay for their coffee.
Netflix customers can link their payment details directly to their account, so they don’t have to re-enter their information every month when it’s time to renew.
The Uber app simplifies the transaction process by allowing customers to enter their credit or debit card information directly into the app. This makes it faster and easier to pay for rides without manually entering payment details every time.
Tesla’s website allows customers to complete their entire purchase, including financing and insurance, on one page. This is significant as it eliminates brokers from the process entirely.
Benefits of Embedded Payments
The main benefit of an embedded payments solution is its convenience for customers. By enabling a secure checkout process without needing external pages, merchants can make it easier and faster for customers to make purchases. This then has flow-on impacts that improve the customer experience and, as a result, the merchant’s business.
1. Increased conversion rates
Streamlining the checkout process makes customers more likely to complete their purchases. Every barrier removed helps customers move forward without the opportunity to abandon the sale.
2. Increased customer loyalty
Customers appreciate the convenience of embedded payments, making it a great onboarding strategy that has them more likely to return for future purchases. This is especially true when customers can simply enter their payment information once and then pay automatically for subscriptions or future transactions.
3. Reduced costs
By eliminating the need for a separate payment gateway, merchants can save money on fees and commissions associated with external services. Furthermore, the automation of payments will help improve cash flow by reducing the time and resources needed to manage those payments.
4. Improved security
Embedded payment solutions are designed to protect customer data with the latest encryption technology, helping merchants maintain their customers’ trust and comply with industry regulations. This can be a great way for merchants in certain industries, such as healthcare or finance, to ensure the proper handling of sensitive data.
5. Data control
Not only is data security improved by keeping it internal, but it can also be used by merchants to better understand customer behavior and preferences. With these insights, business owners can make more informed decisions about how they market and operate their businesses.
6. Reduced fraud
Embedded payment solutions provide an extra layer of security, allowing merchants to detect and prevent fraudulent activity. This is especially important for businesses in high-risk industries, such as online gaming and gambling.
With embedded payments, merchants have more options for customizing their checkout process and offering customers various payment methods. This helps create a more personalized customer experience that allows merchants to stand out from the competition.
What Is Embedded Finance?
Embedded finance is a term that describes the integration of financial services with digital products and platforms. This can include payments, lending, insurance, deposits, or other traditionally standalone financial services.
Embedded finance aims to make it easier for consumers to access the financial services they need to make informed decisions when purchasing goods or services.
By embedding these financial services into their products and platforms, businesses can provide a better customer experience by reducing the need to search for external providers and streamlining the purchase process. This helps businesses increase conversion rates, build customer loyalty, and grow revenues.
Types of Embedded Finance
A few different types of embedded solutions are now available to offer merchants a breadth of digital payment functionalities, an entire ecosystem, into their business model. In most cases, these are enabled through partnerships with B2B payments providers offering financial products, including:
The topic of our article, embedded payments, helps businesses streamline the checkout process and increase conversion rates. In practice, this is seen in digital wallets, where customers can securely store their payment information and complete purchases with a single click. It also includes buy now, pay later solutions available at the checkout, and in some cases, it includes crypto wallets and payments.
Businesses can embed lending solutions into their products or platforms, allowing customers to spread out the cost of purchases over time with payment plans, installment loans, and more.
Similar to embedded lending, businesses can embed insurance solutions into their products or platforms, allowing customers to purchase insurance on the spot at the point of sale.
Financial institutions and non-financial services companies, such as retailers and marketplaces, can now embed banking solutions into their platforms. This allows customers to access various banking services, such as deposits and withdrawals, from their apps and digital wallets.
Branded payment cards
With a complete embedded finance solution, businesses can add branded payment cards to gain more control over customers’ spending, helping to increase customer loyalty.
Leading Embedded Payment Platforms
There are a few key players in the embedded payment market, including:
Stripe is a popular provider of payment processing services and embedded payment services. They offer APIs that allow businesses to integrate their payments into their products or platforms.
PayPal was one of the first payment processors on the internet and has remained relevant throughout the years. As such, it’s a reputable provider of embedded payment solutions, offering APIs and SDKs to help businesses integrate payments into their eCommerce platform.
Amazon Pay has more than 300 million active customers, making it one of the most popular embedded payment providers. Through their Amazon accounts, customers can complete purchases at non-Amazon retailers. Amazon’s APIs and SDKs allow merchants to integrate Amazon Pay into their platform to take full advantage of all its features.
Adyen is a cloud-based payments platform focusing on end-to-end solutions for merchants. They offer the APIs and SDKs needed to integrate payments and offer dynamic currency conversion that helps international customers buy in their local currencies.
Shopify is an eCommerce platform that provides businesses with the tools to create and manage their digital store. They also have built-in payment services, allowing merchants to accept payments from customers without the need for additional integration.
The Bottom Line
Embedded finance solutions help businesses streamline the purchase process and provide customers with a better experience. Integrating payments into your products or platforms can increase conversion rates, build customer loyalty, and grow revenue. With embedded payments and the right payment processor, you can reduce checkout complexity and save on credit card processing fees. To learn more about how you can reduce your processing costs with membership pricing and improve the checkout experience, contact Payment Depot today.