Embedded payments, done well, can provide control and options for merchants, smooth the checkout experience for consumers (who don’t have to leave apps to pay) and offer up new revenue streams for independent software vendors (ISVs) and independent sales organizations (ISOs).
Embracing and building a comprehensive digital experience that integrates payments into a seamless commerce flow is a goal that’s on everyone’s lips, but there’s also a lot of confusion in just how to get there.
The recent spate of megamergers in in the payments services arena has clouded the picture of just how newly fashioned behemoths can serve merchants, and whether they are even ideally equipped to do so.
Daniela Mielke, CEO of RS2 Software, told Karen Webster in a recent PYMNTS interview that offering embedded payments to end customers involves a mindset shift – and, importantly, a shift in control – between merchants and the entities that provide services to them.
Start at the beginning, she says – which means delving deeper than buzzwords and defining just what an embedded payment means.
Embedded payments, according to Mielke, are deeply entrenched in the total value proposition of a product or experience – and the payments can take several different forms.
The most obvious and widely experienced example lies with Uber, where the payment is embedded so deeply in the app and the process of ride-hailing that the payment itself … goes away.
“Other players like Starbucks and Amazon also have really deeply embedded payments in their value proposition,” she told Webster, adding that “the best payment experience for the consumer is the one they don’t have.”
The prospect extends to the emerging Internet of Things, where restocking, reordering and maintaining everyday life (the fridge, the groceries, bill pay) happens behind the scenes.
That “invisibility factor” can be stood on its head in the case of B2B payments, where embedded payments carry value as they are transparent and visible, and stakeholders know exactly where the funds are – and are headed – at any point in time.
At present, those streamlined payment experiences are offered primarily by larger companies that have dedicated payment teams in place, and perhaps operate their own online platforms. The expectation of embedded payments is moving downstream, and will be demanded by consumers and will apply to smaller companies across all manner of verticals.
“And the biggest change and challenge there,” said Mielke, “is that if you embed [the] payments experience into your product in a way that it becomes strategic, you have to have control of it.”
Taking control means avoiding reliance on third parties such as payment processors, she said, and merchants and providers who seek to offer such robust payments experiences will have to bring payments into their own internal environments.
The Provider Side of Embedded Payments
Smaller merchants need to find channel partners who can help them – and the traditional partners have been ISVs and ISOs.
Thus far, the ISVs and ISOs are unprepared to offer such functionality bundled with other services. Merchants tend to have separate relationships with payment providers and software providers.
“That has to change,” said Mielke. “There is no real technical reason why the software developers can’t go straight to the merchants themselves and own the customer or merchant relationship. Why pay referral fees to a processor when you can become a payment facilitator and control your own destiny and take a larger piece of the payments revenue?”
Finding the right processing partner that doesn’t require cumbersome, multiple platform integrations is key, Mielke said. Those partners, in turn, must be equipped to help payment facilitators choose the experiences that best fit their merchants, allowing them to create a unique value proposition by offering customized market solutions.
She noted that there is the opportunity for third parties to offer broad solution sets to merchants that include embedded payments.
It’s not just about handling the payment, but also about providing better tools and insights to help the merchant understand all payment data, such as complex organizational structures, multiple locations and payment types. Embedding payments and offering these types of value-add services improves the overall merchant software experience, impacts retention and gives the ability to better control pricing.
“This is a new way of thinking if you are a technical ISO or payment facilitator,” Mielke said. “There are more revenue opportunities through payments. The role of the software vendor actually becomes broader and, frankly, more strategic. So that's a big opportunity for anyone providing software services to merchants.”
The legacy payment service providers (such as the marquee, global names involved in this year’s multi-billion dollar megamergers) are not set up to offer such payments.
In addition, the mergers mean that ISOs and others suddenly have new providers, which in turn may trigger some examination of their dependency on those providers (especially when payments can be a sizable percentage of an ISO/ISV/PayFac’s top line).
“Whatever they go for has to be future-proof,” Mielke said. The payments platforms cannot be stitched together from M&A, because such fragmented systems prove nearly impossible to update efficiently as payment preferences and processes evolve.
With opportunity comes risk, as the shift requires that the ISV or ISO helps to shape different types of platforms, according to Mielke. When the ISO/ISV offers a payment product to a merchant that in turn depends heavily on a processor, that puts the merchant in a position of having less control than they desire.
The technology on offer to the technology partners (and as offered by RS2) has to be modular, configurable and flexible via API, so that ISOs/ISVs can shape their own roadmap and, ultimately, the merchant will remain in control of the payment experience.
“It’s not just about cost or technology anymore,” Mielke told Webster, “but about how to provide better service to customers and drive growth.”