This Week in Payments: Developers, Banks, Businesses Pursue Embedded Payments Innovations

It was a big week for embedded payments innovations, with a developer in the space achieving unicorn status, banks identifying them as urgent priority in new research and businesses increasingly adopting them as part of their digitization efforts.

Airbase Founder and CEO Thejo Kote joined PYMNTS to discuss this and other news in This Week in Payments.

Explosion of Innovation and Activity in the BaaS Space

The first item on the agenda was banking-as-a-service (BaaS) in general and the fundraise by Unit, which reached unicorn status with a $1.2 billion valuation.

Read more: BaaS Firm Unit Valued at $1.2B After Series C

The BaaS trend has taken off in just the past few years, Kote said. Before that, it was nearly impossible for companies like Airbase to embed payments and money movement into larger software products: That was the sole domain of big financial institutions with big in-house development shots.

But recently, opening a bank account, issuing a card, setting controls on the card, debiting and crediting through the Automated Clearing House (ACH) network and other capabilities have become available through much higher quality developer application programming interfaces (APIs).

Today, there are a number of players in that market, including Unit.

“There has been this explosion of innovation and activity in that space, which ultimately I think is incredible because making it easier for developers to access the underlying financial infrastructure, to hold money, to move money, to issue cards — that unlocks innovation at the next level,” Kote said.

These high-quality API platforms have democratized access for even the smallest of companies and have allowed startups to innovate in different categories.

“That’s happening across the board — it’s happening in a bunch of consumer applications and it’s happening in a lot of different B2B applications,” Kote said. “All that innovation would not be possible if the improvement in financial infrastructure didn’t allow businesses like us to easily embed payments and money movement into other upstream applications.”

Urgency for Banks to Innovate

Also in the news this week was PYMNTS’ release of a report that found that modernizing payments is a critical initiative for financial institutions and corporations of all sizes.

See also: Half of Banks Report New Urgency to Offer Embedded Biz Payments Innovation

Banks have always had moats around why they can move money and move it around — for a variety of good reasons, including regulations, Kote said.

That’s been changing, though, with the more cutting-edge banks opening their infrastructure and allowing some of the BaaS providers to plug in to the banking infrastructure and enable innovation.

Now, banks are seeing the success of cutting-edge competitors and hearing demand from their own for modern products that will connect their banking with the rest of their workflows.

“So a lot more of these banks are thinking about that process because if they don’t, they’re going to get left behind in a lot of ways,” Kote said. “So, I’m not surprised that your report suggests that there’s a lot of urgency on that front.”

Booming Growth in B2B Payments

Third on the agenda was a PYMNTS interview in which BigCommerce CEO and Chairman Brent Bellm predicted that eCommerce spending by business-to-consumer (B2C) sellers is growing at 8% for the next five years. But it’s growing at 16% for business-to-business (B2B), across the platforms that help modernize and speed transactions, in collaborative fashion between buyers and suppliers.

Read more: Booming Business Payments Now Outpace B2C Advances by 2-to-1 Margin

Kote said that as someone who lives this every day, this is not surprising. Forty percent of B2B payments are still being made with paper checks, so there is a big opportunity for increasing digitization.

Businesses are seeing the efficiencies to be gained by not having to make payments via checks and not having to deal with paper, Kote said. And bringing it all into cloud-based tools makes it even more efficient.

“Every business spends money and every business has to make payments, and historically that has been many different systems and payment rails to deal with,” Kote said. “But all of those tools are rapidly improving, so as that’s happening, customers are adopting it, so it is not at all surprising to me that the B2B payments volume is growing pretty rapidly.”