Embedded payments have firmly entrenched themselves in the fabric of the global e-commerce scene, showcasing their profound impact. Johannes Kolbeinsson, CEO of PAYSTRAX, foresees a promising trajectory for embedded payments, yet underscores the vast reservoir of untapped opportunities they harbour.
Embedded payments are exploding. Driven by in-app one-click checkout buttons and digital wallets, the global revenue from embedded payments will reach US$59 billion in 2027, almost doubling from US$32 billion in 2023.
But while the payment system is quickly becoming the go-to method when shopping online and for in-app purchases, it will need to shake off current doubts about its ability to create truly seamless payments – particularly around the current user experience, the authentication process and whether or not we can really call them embedded payments.
The growing dominance of embedded payments
There is a growing consensus that every company is becoming a FinTech company. Apple’s recent foray into mobile wallets and credit cards has shown how it can become a lucrative market for general tech companies, while Shopify has also moved quickly to combine its e-commerce offering with seamless payment options.
There is a lot of logic behind businesses like this shifting into FinTech – they like streamlining operations, they like systems, and they like control. They also love any opportunity to keep consumers within their apps and therefore more likely to make final purchases.
This consensus extends into the current hot trend in financial systems – embedded payments. Back in 2020, revenues from embedded finance payments stood at around US$16 billion – by 2025, they’re forecast to top US$140 billion. The ease and convenience driven by one-click checkout buttons in apps such as Uber and buy-now-pay-later platforms like Klarna is seeing the method quickly become the next dominant force in payments.
However, the excitement around the new payment innovation needs to be tempered with its current limitations. For embedded payments, issues of fraud protection, authentication and the core user experience are all barriers that need to be overcome if we’re to experience truly seamless and instant payments.
Still plenty of friction
Arguably the most crucial consideration for companies taking on embedded payments has to be risk management. Making the online experience as safe as the in-store experience for many companies should be the driving issue when onboarding new financial tech.
The problem right now is that many companies are jumping on the bandwagon without doing the proper due diligence. Businesses are relying on themselves to relay and curate embedded payment architecture across their platforms without the requisite technological knowledge. This requires a fine creation of three foundational layers of service, digital infrastructure, transaction processing and service enablement.
This is important, as the user experience sits alongside risk management as one of the core reasons why people would use such a method. We saw this with PayPal’s innovative and helpful email and password payment system in 1998. But whereas embedded payments have certainly moved on a couple of steps, it’s still not an entirely frictionless system.
Authentication for many purchases still takes place outside of the platform or app, while a lack of payment options – from mobile wallets to BNPL services – means it’s still not the most seamless of experiences. Finding the right balance between safety, functionality and convenience will be the key to offering truly instant payments.
Trust issues
There’s a psychological, too, as safety within finance is a top priority for consumers. The data privacy concerns that many brands currently experience will only be heightened if their consumer’s money flows straight through their app with no internal checks.
Especially today, with financial fraud seemingly only growing in size and importance. A recent report showed that older generations in England and Wales become victims of fraud every 40 seconds, with online fraud accounting for 40% of all crimes reported.
The attractiveness of embedded payments here is also their main liability, as any exploitation of the system’s vulnerabilities puts all of its customer’s data at risk. In its current state, with a lack of regulation and widespread expertise, could make embedded finance the next biggest target for cybercriminals.
Although trust is hard to build, history has shown that consumers are open to trying out the latest tech. It was only a decade ago when customers were hesitant to save any of their card information online. In time, this same level of trust will follow in embedded payments as security concerns are allayed and the benefits become too irresistible to ignore. But authentication processes need to be built directly into the app, as only then can we really call it embedded payments.
The future of embedded payments
Although there is a plethora of different payment methods on offer today, there is certainly huge potential for embedded payments to cement its place as the future of finance. The ease and speed of the technology make it impossible to ignore, helping make in-app purchases as easy as clicking a button.
But before we can call them fully embedded payments, the user experience and authentication are two key barriers that need to be addressed. In-app purchases need to be exactly that – made in the app – as having to ask people to leave, authenticate, and come back could be seen as a considerable challenge in the future as instant payments become the new norm.
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