The software publishing industry is starting to use digital wallets as a standard for processing transactions and lending products to facilitate payments.
Thus, both digital wallets and embedded finance solutions are shaping the current landscape of the software publishing business. The need for tailored solutions and interest in innovations in both areas is increasing among competitors.
PYMNTS Intelligence found that of the different players that serve this sector, payment facilitators and independent software vendors primarily focus on digital wallets while marketplaces embrace embedded finance for short-term credit offerings.
The PYMNTS Intelligence study “The Embedded Finance Ecosystem: Software Publishing Edition” examined the evolving role of embedded finance in the software producers and publishers segment. The research drew insights from the innovation strategies of PayFacs, ISVs and marketplaces in the software industry.
Luke Latham, general manager of Australia and New Zealand at Airwallex, told PYMNTS in an interview posted in December that marketplaces are well-suited to integrating financial services and products into their regular user experience due to their close relationships with their customers.
“If you think about an eCommerce marketplace interested in providing credit or loans to their customers, they already have visibility of all the payment flows, … which positions them to play a leading role in the next phase of the evolution of embedded finance,” Latham said at the time.
Per the report, 50% of marketplaces operating in the software publishing segment have already introduced short-term credit options for merchants and are keen to further enhance these offerings. This share is above PayFacs (33%) and ISVs (16%).
In addition, 20% of these software industry marketplaces currently do not provide such credit products but demonstrate a strong interest in innovating in this area within the next 12 months. This makes 70% of software marketplaces actively seeking to enhance embedded finance products for merchants and expanding their capabilities in this area to gain a competitive edge.
Rolling out embedded finance product innovations in the software publishing sector, however, comes with its own set of challenges. Complex internal decision-making processes are the main barrier for marketplaces, the study found. Specifically, 1 in 4 marketplaces serving this segment view this as the biggest challenge to further innovate. This is nearly twice the average recorded across all industries and higher than the 8% seen among their PayFac counterparts, for instance.
Marketplaces are emerging as frontrunners in the embedded short-term credit space, highlighting a strategic shift toward providing more flexible financial solutions. By prioritizing these solutions in their innovation agenda and solving internal decision-making processes, marketplaces can unlock the full potential of embedded finance, offering users an improved financial experience.