Embedded Payments: When Brands Own Payment Acceptance
With embedded payments, brands let their own customers accept payments. But how does that work, why are they doing it, and what should builders know before getting into it? This page sets out to answer those questions and support builders on the way.
What it is
In order to explain Embedded Payments, we can compare it to how most brands take payments today:
Without Embedded Payments
The brand connects to one or more payment service providers that sit outside the brand's product. The brand hands over the transaction, and that's it. Good if the brand wants its customers to keep their various payment service providers, bad for everything else.
With Embedded Payments
Brands make payment part of their own product. This requires the integration of one payment service provider that can support platform businesses.
Why they offer it
There are four major reasons to launch an Embedded Payments offering. Most of the public data is based on embedded finance generally, however, this aligns with what we see in the market for Embedded Payments as well.
Valuation
Public and private markets pay more for software companies that also offer financial products.
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Acquirers pay more for companies with an embedded finance offering. The independent investment banking firm William Blair, looked at around 100 of its own transactions with private North American software companies. They found platforms with embedded finance valued at a 23% premium on revenue multiples and 19% on EBITDA multiples against software-only peers. The gap widens for platforms running more than one financial product: 12.7x EV/revenue against 8.4x for software only, and only around one in ten companies in the sample were there. (William Blair)
Growth
Customers who can finance stock buy more stock, and embedded channels are taking share from direct distribution.
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Customers who can finance stock buy more stock, and customers who can finance a job take on bigger jobs. McKinsey puts the effect on the merchant side as higher conversion, larger baskets and higher lifetime value. In Europe the volume shift is already visible: embedded finance volumes grew three times as fast as directly distributed loans over the last ten years, and embedded channels could account for 20 to 25% of retail and SME lending, up from 5 to 10% today. (McKinsey)
Retention
A business with an outstanding advance running through your platform has a reason to stay that a feature release cannot buy.
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William Blair found gross revenue retention of 89% among customers using the software alone, against 95% among customers who also use the embedded financial products. At platform level the same pattern holds: gross retention of 93% against 95%, net revenue retention of 105% against 111%. (William Blair)
Revenue
The revenue pool is large, growing, and mostly unaddressed.
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Bain forecast revenue for software platforms and the providers powering them to more than double from $21bn in 2021 to $51bn in 2026 in the US. McKinsey has the European market at €20bn to €30bn in 2023, around 3% of total banking revenues, heading past €100bn by the end of the decade. BCG, in research published with Adyen, sizes the addressable opportunity for SaaS platforms at $185bn with less than 20% of it addressed so far. (Bain · McKinsey · BCG and Adyen)
Why their customers use it
Nothing to set up separately
Taking card payments normally means a merchant account, an underwriting process and a terminal or gateway to wire in. Inside the platform it is a setting, because the platform already knows the business, what it sells and how much of it.
Paid against the job, not a statement
Each payment arrives attached to the quote, order or shift that produced it. Nothing has to be matched up afterwards, and the question of who paid for what is answered where the work is already recorded.
Fewer places for it to go wrong
One system means one set of failures. There is no gap between the tool that raised the invoice and the tool that took the money, which is where chasing, duplicate records and awkward conversations usually start.
Their customer never leaves
The person paying stays inside the experience the brand built, on the brand's checkout, in the brand's flow. For the business taking the money, that is one fewer handover where a customer changes their mind.
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How it looks in practice
Three companies can serve as (random) examples of why they have launched payments and how it benefits their business.
Healthcare booking platform
The French healthcare platform added payments with Adyen, so patients can store a card and teleconsultations bill without a separate step.
Read the story
Document software
The quote-to-cash platform grew payments from a side feature into a core part of the product, and is candid about which companies should not follow.
Listen to the episode
Delivery marketplace
The Finnish delivery platform became a regulated financial institution and now runs financial products across more than 20 European markets.
Listen to the episodeLatest payments coverage
Everything we published on embedded payments, with the most recent pieces first.
Latest stories
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