Online Marketplaces Consider The Embedded Payments Opportunity

With corporate payment requirements growing more complex, the focus is increasingly turning to not just the functionality of a payment solution, but the experience it provides — both to the end user and the company deploying that tool.

At the same time, the evolution of new and more complex business models has made it even more difficult — although even more important — to facilitate a streamlined payment experience. According to David Avgi, co-founder and CEO of UNIPaaS, companies with a digital-first business model have an increased desire to own the payment experience for their own customers. As a result, they’re seeking integrated, embedded payments and finance functionality.

Speaking with PYMNTS in an interview, Avgi said this requirement is particularly high among digital marketplaces operating with a variety of vendors. Yet that multi-vendor model can also create headaches for the way these platforms accept and then pay out funds to their vendor members.

“Payouts can be very complicated because everything is moving towards more entities within the value chain,” he explained.

As the B2B payments landscape develops, Avgi noted, tackling the friction of moving funds between a greater number of payers will be the next frontier of maturity for the space.

The Multi-Vendor Challenge

Digital marketplaces have changed the way both businesses and consumers shop and pay for goods and services. But the owners of those platforms can face a multitude of challenges when managing the flow of funds from one entity to another.

In addition to having to ensure the correct amounts land in vendor accounts, these platforms are juggling a wide array of payment methods that affects the timing and avenue through with money flows in — while also having to manage a variety of preferences in how their vendor partners wish to receive payouts.

Failure to streamline this process can create a lackluster experience for both shoppers and vendors. According to Avgi, it’s important for organizations to be able to handle these workflows within a single user interface that can provide transparency on all sides of capital inflows and outflows.

On the other hand, optimizing this process not only ensures a streamlined experience for platforms, vendors and customers. Avgi noted that embedded payment solutions have the opportunity to open up a new revenue stream for businesses that want to own the payment experience.

“Companies will be the owner of the payment experience,” he said. “They control the flow of funds, and they can monetize payments.”

Similar models that have proven successful for the likes of Shopify and Etsy, which have introduced their own payments offering to the vendors on their platform to facilitate payments from their own customers.

“They can start to make money from payment services,” he said.

Regulatory Pressures

Among the biggest hurdles to enabling embedded Payments-as-a-Service (PaaS) is regulation. It’s why Avgi noted UNIPaaS chose to pursue a regulatory license from the get-go, which is secured from the U.K.’s Financial Conduct Authority. The company will seek to add more licenses as it expands across borders as well, he noted.

For platforms to work with a trusted third-party service provider, they must ensure their partners are compliant. Know Your Customer (KYC) and Know Your Business (KYB) requirements are key, while in Europe, the revised Payment Services Directive (PSD2) has also added to the compliance burden.

“PSD2 is forcing intermediaries like marketplaces and other platforms to own the payment institution license in order to facilitate payments between two sides,” Avgi explained, noting that working with a provider like UNIPaaS means the compliance burden, from onboarding to checkout, is shifted from the marketplace to its partner.

At the same time, regulations have also opened up the opportunity for marketplace platforms and B2B Software-as-a-Service (SaaS) companies to take advantage of payments innovation that can facilitate embedded and white-labeled payment experiences within their own solutions. UNIPaaS itself highlights the U.K.’s open banking regulation as a key opportunity, particularly in the area of third-party payment initiation as enabled under the open banking framework.

As more payment rails and services enter into the space, platforms may find it more difficult to navigate a landscape of choice. They run the risk of implementing disparate payment solutions within their systems that damage the end-user experience and require significant manual work to integrate and manage.

Yet as more marketplaces and B2B SaaS firms become aware of the potential value in embedded payments, their service providers similarly have the opportunity to add to that value by expanding their service offering across the payments — and broader financial services — landscape.