Embedded Finance’s Next Stop Is B2B Commerce

Wind the clock back just a few years, and online transactions were a disjointed experience.

After filling a cart at a merchant’s site, upon checking out a user would be directed to another website to enter the same payment details. Cart abandonment inevitably followed.

Enter embedded payments.

As Jim Colassano, senior vice president, RTP, product development and strategy at The Clearing House, told PYMNTS, embedded options have been transforming the very nature of consumer-facing and B2B commerce. Although embedded payments and embedded finance are related concepts in the world of FinTech, they address different aspects of the consumer experience.

Embedded payments, he told PYMNTS during the “What’s Next in Payments” series — which is now taking stock of the halfway point of 2024 — is about the integration of payment processing capabilities directly into non-financial applications or platforms, so that transactions can be done without having to leave an application.

“This creates a seamless experience,” Colassano said, giving the example of Uber as an illustration of how a payment can be integrated deeply within an app and everyday life.

Without that embedded functionality, friction would be a hallmark of ride-hailing. But with that seamless interaction, “it’s very customer-centric,” he said.

Broadening the Capabilities

Embedded finance takes that concept to a broader set of capabilities — and moves beyond payments into a wider range of financial services, spanning lending, savings, bank accounts and insurance. Embedded finance is flexible, taking into account that although sometimes a transaction may be direct payment, “sometimes you may need to finance that payment,” he said.

For the merchants and the platforms that offer embedded finance options, there are additional advantages that move beyond simply closing a sale, Colassano said. They get hold of data and information that offers insight into what customers are buying — as well as their preferred payment modalities.

“This improves trust, speed and confidence in a holistic environment as you provide more services to the customers that you are supporting,” he said.

The growth in real-time payments is giving some tailwinds to embedded finance (and to TCH’s real-time network). Legacy payment rails operate on batch systems, which means that it’s tough to treat payments on a one-by-one basis, and to get confirmation that transactions have actually been made, he said.

“That’s really important, especially if you’re in a digital environment and you want those payments to be made with fidelity,” he said.

Although, traditionally, larger businesses have had access to those “faster” capabilities, Colassano said smaller vendors, enterprise resource planning (ERP) providers and FinTechs are now starting to incorporate real-time payments into their platforms, allowing their small businesses to use them online.

That’s helping smaller companies shift away from paper-based payments and paper checks. B2B use cases will be among the fastest growing segments across the RTP® network as 2024 gives way to 2025, he said.

Elsewhere, traditional payroll cycles are being disrupted, he said. Workers want faster and on-demand access to money, especially in the gig economy.

Real-time payments will be widely embraced in an inflationary environment, and having precise insight into when payments will be finalized will be valuable as B2B interactions incorporate early payment discounts and other incentives to pay in a timely manner, he said.

Merchant settlements are moving more toward real-time applications because the delay in waiting to get one’s money means that money is worth less over time, he said. Because the real-time rails operate as a 24/7 system, users are not limited to when the banks are open and available.

Real-time payments and embedded finance, Colassano said, “eliminate barriers and support individuals and businesses in the ways they need to be supported and not within the strict confines of a five-day work week … the immediacy, the settlement, the timing, the speed, all of these are meaningful today to businesses of every size, but particularly small businesses and to consumers, in terms of managing their expenses.”