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Embedded payments: The next phase of CX management

illustration of a hand reaching into a computer screen and holding a credit card.

It’s a Friday night, and you don’t feel like cooking after a long week. So, what do you do? You pull out your phone, open Uber Eats, select your favorite food joint, and wait for it to arrive at your doorstep. 

It’s not hard to see why food delivery apps have gained such a devoted user base. Whether you need a weekly supply of groceries or a single meal, the process is easy, seamless, and takes just a few clicks. 

But there’s one feature in particular that makes using these services so appealing; embedded payment systems.  

The payment process when using these apps is so seamless as to be almost invisible. This means consumers are barely aware that a transaction is taking place at all – and that’s the whole point. 

As consumers come to expect increasingly streamlined shopping journeys, embedded payment solutions are emerging as an important investment not just for food delivery apps. but any business that regularly conducts sales online. 

But how do embedded payments work, and how do you know whether they’re a good fit for their business?

What are embedded payments?

Embedded payments are a CX strategy where financing and digital payment processing are integrated seamlessly into the ecommerce shopping journey, instead of being added on afterward in the form of a third-party payment provider or banking service.

In sum, payments no longer stand out as a specific step that customers need to navigate to place their order. Embedding payments deeply into the architecture of an app or website means that the customer is more aware of the product or service they’re purchasing – and not what it’s costing them to get it.

The most common example of embedded payments is when companies keep their customers’ chosen payment option on file via an account or loyalty profile. This is the method used by the likes of Uber and Amazon to create the super convenient experiences they’ve become famous for.

Moreover, the growing popularity of crypto and NFTs, currently not accepted by most mainstream payment providers, has provided a bigger push for brands to configure their payment systems able to handle these transactions. 

Once set up, customers get to bypass the traditional checkout process. There are no fields to enter credit card or debit card details, or the need to log into a separate portal to retrieve a digital wallet. Instead, they simply tap ‘place order’ or ‘hail ride’ right inside the app.

Embedded payment systems are also evolving to help brands develop more personalized and intuitive customer experiences, with use cases like deferred payment systems, embedded insurance options, and even monetary lending starting to gain traction. 

How do embedded payments work?

Put simply, embedded payment systems operate via open APIs that ’embed’ an upstream payment processing tool within a different app or website. This allows merchants who are not banks or financial institutions to oversee the entire payment process from beginning to end. Some tools such as Stripe and Paypal have taken this a step further into the realm of embedded banking, where interactions with a formal bank account can be made without needing to log into an account from the bank’s website or app.

Both embedded payments and embedded banking fall under a broader fintech umbrella known as ’embedded finance’, which refers to a range of financial services that can be offered by non-financial businesses.

The growth of embedded payment solutions

According to Juniper research, embedded finance will have an estimated market value of over $138 billion in 2026 – up from just $43 billion in 2021.

Europe in particular is proving to be a particular hotspot for the growth of embedded payments, with 96% of companies surveyed by OpenPayd saying that they were planning to offer embedded payments to customers in the next five years, higher than embedded banking (94%) short-term lending (69%) or embedded insurance (69%).

But why exactly would non-financial businesses want to take on the burden of managing this less sexy part of running an ecommerce operation?

In an era where digital experiences are increasingly omnichannel and interconnected, consumers don’t differentiate between what is controlled by one entity versus another. 

In the same way that customers will blame the brand and not the parcel carrier if their order is delivered late, merchants cannot simply pass off a failed transaction on a third-party payment platform as ‘not their fault’. As far as the customer is concerned, it’s your job to make things right.

Of course, this is often far easier said than done. Any ecommerce merchant that’s tried to liaise with an external provider to solve an issue with a customer order, from a parcel carrier to a returns management provider, knows how time-consuming this can be. By the time a resolution is found, that’s one fewer customer your business is going to retain.

With this in mind, it’s not surprising that a growing number of businesses are interested in becoming facilitators of the payment process.

The benefits of embedded payment systems

A better user experience

By creating seamless user experiences that integrate multiple touchpoints, merchants can increase engagement with their unique services, which in turn boosts average order value and customer loyalty.

an ad for starbucks rewards visa card

The Starbucks rewards app offers a great example of how embedding payment processing, loyalty rewards, and even consumer lending within one interface leads to enhanced consumer participation. 

Using the app, Starbucks customers can transfer funds to their account to spend on drinks and food, earn loyalty stars which can be redeemed on purchases, and apply for a Starbucks credit card which – you guessed it – can be used to earn loyalty stars from purchases made at other retailers.

In sum, Starbucks has created an entire closed-loop ecosystem of embedded services that draw the customer deeper into the brand experience. Effectively creating its own currency (funds transferred to the rewards app cannot be used or transferred elsewhere) is possible because Starbucks customers are habitual purchasers of their products and exhibit high levels of brand loyalty. 

The result of this vertical payment system? Starbucks has more liquid cash at its disposal than most mainstream banks do. That’s the true power of embedded finance.

Means lower cart abandonment

Because embedded payments decentralize the often-stressful checkout experience within ecommerce, it removes much of the friction involved with making digital purchases. In the era of mobile shopping and on-the-go transactions, this is an invaluable tool to get conversions over the line that you could lose otherwise.

Let’s say that you’re on your lunch break and browsing for a new pair of sneakers. After comparing several brands, models, and sizing charts, you finally come upon the perfect pair. You head to the checkout – only to be confronted with a bunch of fields to fill out for your chosen payment method

And just like that, your break is over and you’re forced to abandon your purchase. 

Shoppers who are in this situation might well come back and complete the transaction later – or they may not. According to Baymard Institute, 18% of consumers cite ‘a long and complicated checkout process’ as the main reason for cart abandonment.

With an embedded payment solution in place, this is no longer a problem. In the same way that Uber users order and pay for their ride simultaneously, customers can place and pay for their merchandise simply by tapping ‘place order’ and saving potentially hundreds of carts from being abandoned.

….And more impulse purchases

Just as near-instantaneous payment experiences reduce cart abandonment, they also increase the likelihood of impulse purchases by removing one of the biggest barriers from the shopping journey.

When customers reach the checkout, they’re much more conscious of the money being spent if they’re required to input their card information or ACH details. This increases the likelihood of customers choosing to delay their purchase – or abandoning it altogether.

With embedded payments, consumers don’t even need to be aware of the transaction if they don’t want to be. This makes shoppers much less inhibited when making low-cost purchases that don’t put a major dent in their account balance.

But what about the case of high-value purchases?

This is where the fusion of embedded payments and deferred payment plans such as Buy Now, Pay Later is a powerful value proposition for customers. Popular BNPL programs such as Klarna and Affirm enable merchants to embed their tools directly into the checkout so that customers can pay for their purchase in installments. 

Not surprisingly, Buy Now, Pay Later helps to stimulate impulse purchasing behavior because shoppers only have to pay for a fraction of their purchase up front, making it far easier to justify discretionary spending. When combined with the invisibility of embedded payments, the overall shopping experience becomes even more enticing for consumers to engage in. 

Embedded Buy Now Pay later programs are forecast to account for just over 50% of the embedded finance market by 2026, driven by the rapid adoption of BNPL and the expectation that online retailers accept deferred payments. In sum, it’s going to be increasingly difficult to separate embedded payments from the growing democratization of the payment experience. 

Do embedded payments make sense for your business?

First off, you need to consider whether your business has the bandwidth to manage the embedded payment process. 

Although embedded payments might seem straightforward, there’s a very high burden of responsibility for merchants. When you aren’t using a third-party provider, everything from PCI compliance to storing customer data securely is on your shoulders.

In the same way that merchants end up investing in a 3PL partnership because the responsibilities of in-house fulfillment take time away from branding and growth opportunities, it’s important to make sure that your business is in a position to take on these new workflows.

If recruiting the talent needed to implement and manage embedded payments isn’t on your priority list in the short to medium term, it’s better to wait to implement an embedded system until you are ready to give it the support it requires.

By embracing embedded payment solutions, brands can retain much more control over the user experience and eliminate key points of friction.

The growth of embedded payment systems isn’t just a testament to the rapid developments taking place in fintech, but a seismic shift in how both consumers and merchants conceptualize the limits of the brand experience. 

Where it was once the job of an ecommerce merchant to simply provide goods for sale, the emphasis on proving consistent, end-to-end shopping experiences has led to an expansion of the ecommerce value proposition. 

From on-site order tracking hubs to in-app purchases via social media feeds, this growing interconnectivity across platforms and tools has made it possible for ecommerce brands to bring a greater range of functionalities ‘in-house’. This ecosystem minimizes disruptions to the customer experience and builds greater levels of brand trust.

In sum, the merchants who see themselves as enablers of a wide spectrum of digital services are going to be the winners of this new era of embedded experiences.

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