Are Retailers Better Positioned to Scale Embedded Payments Than Banks?

Embedded payments are high on the list of hot topics in 2022, and as part of the broader embedded finance trend now building, expect to see more of it in more places.

Calling embedded payments “the first wave of embedded finance” in a conversation with PYMNTS, Worldnet CEO John Clarke noted that the idea has been around since the ’90s in various forms, “from integrated payments through to frictionless payments. Now, we have embedded payments, which really is a subset of the much larger area of embedded finance.”

Lionizing independent software vendors (ISVs) as the heroes of the embedded payments story, Clarke noted that Worldnet is focused on freeing up ISVs from tasks like coding for embedded payments, as it’s not their forte — creating and fine-tuning compelling customer experiences is.

“[ISVs have] been experiencing a real can’t-keep-up problem,” he said. “Their payment requirements keep changing, they’re having to focus more of their resources on payments, and they’re not payments experts. This directly impacts on their bottom line. They want to be addressing front-end challenges, giving their customers wonderful customer experiences and not worrying about how to accept the latest version of the Google digital wallet, for example.”

In fact, he went as far as to say the goal of embedded payments is to “free up ISVs to do what they’re good at, which is providing great customer experiences by taking away their payment problems.”

He added, “There are up to 70,000 [ISVs] in the U.S. alone, so even if you don’t consider yourself an ISV, if you take payments, you’re the hero of this story. What we’re trying to do is figure out how to make you more profitable by providing embedded financial solutions.”

See also: Demand for Embedded Payments Ignites Fierce Competition Among POS Providers

“What embedded payments do is they turn a problem into a revenue stream,” he continued. “That really summarizes the goal of embedded payments. It’s a great win-win, not just from the ISVs, but for their customers who get the benefit of the enhanced customer experiences being offered to get happier customers, repeat business, additional revenue.”

He called this “the virtuous cycle that we’ve seen in embedded payments, and that really is the goal of the larger field of embedded finance as well. Most embedded finance products are looking to get in front of the end user customer. A lot can be done to improve that experience. It’s how to enable the ISV to provide the consumers with a wonderful buying experience. That’s what the consumer sees and wants.

“Nobody wants a really good paying experience. What they really enjoy is the buying experience.”

Right Product, Right Channel

ISVs got started down the embedded payments path because various clients were clamoring for functionality that places payments in the product flow for one-click simplicity.

Advances in unattended retail offer an apt use case for this, catapulted in about five years from what he jokingly called “a Coke machine at a gas station” to the seamless scan and go (and in some cases, grab and go) features that self-serve is now delivering in thousands of stores.

“It was the unloved part of retail,” he said. “Now paradoxically, it probably is the most advanced part because people are taking the lessons learned in the eCommerce arena and what consumer preferences are there and bringing them into the unattended space and trying to provide consumers with the same type of online shopping experience that they now know and expect from their eCommerce experiences, and bring that into the real world.”

Attended or not, formerly disconnected shopping and payments experiences both online and off must now be harmonized for the omnichannel shopping “trend” that’s just how we shop now.

Related: Payroc Acquires Payments Platform Provider Worldnet

Clarke said, “It isn’t a case of being able to provide separate solutions for these. There really is a requirement to provide a full unified and integrated commerce experience that allows the consumer’s experience to be the same, independent of the channel they come in on.”

This is where ISVs excel, and sticking to their expertise while using partners like Worldnet to manage the payments part is where the rubber meets the road on embedded.

Here, he said the key is offering “the right product to the right target market through an existing channel. For example, Square Cash is not trying to make loans to consumers — it’s aiming at using that channel to make loans to Square merchants.”

Ditto with an acquirer offering a commercial insurance policy to a merchant, he added, as “that sort of makes sense. There’s already a commercial channel in place and acquiring is about pricing risk.”

The Invisible Future of Embedded

Invoking the Uber “invisible payments” concept that kick-started a great deal of payments innovation, Clarke said, “In providing embedded payments to an ISV, the goal is to make the payment as invisible as possible to make it disappear into the background, so it becomes a buying experience, not a paying experience.”

Taking this route, consumers become repeat customers, improving profitability from the revenue stream to the repeat business of happier customers.

“If you bring joy to the customers, they’ll return that in the form of repeat business, driving improved profitability,” he said. “Embedded payments really drive up revenue, loyalty and the stickiness of relationships.”

Since people have learned they now have options for financial services products beyond banks, embedded finance leverages the trend in a win-win for merchants and consumers. Noting that the number of consumers and merchants enjoying deep relationships with banks is on the decline, Clarke said that’s really what embedded finance ideally addresses.

Consumers are often more attached to their favorite brands than their own bank, he added.

“That’s the essence of embedded finance,” Clarke said. “It delivers financial products to customers through brands and services that they’re already using and trust in the context of their everyday lives.”

He said, “It has to be offered through a brand or service the customer’s already using. If it’s direct from the financial institution, it’s not an embedded service, it’s not embedded finance. Financial institutions need to be the black boxes that provide these products through the channels to the touch points that the consumers have chosen to engage with.”