
The Growing Opportunities in Embedded Payments
New payment technologies deliver streamlined digital experiences for businesses.
An embedded payment revolution is gaining substantial traction as payment processing capabilities are integrated into websites and apps, providing businesses with new ways of improving customer experiences and reducing friction at checkout.
The U.S. embedded finance market is surging rapidly. Juniper Research estimates that by 2028, embedded finance revenue will grow from $92 billion in 2024 to $228 billion in 2028, a 148% increase.
A growing number of software companies serving industries as diverse as insurance, automotive, healthcare, and human resources are being drawn to the efficiencies and revenues that can be gained from tapping into the embedded payment ecosystem.
Currently, many businesses process payments in large batches, a manual process prone to errors and delays that involves uploading a file to their bank’s applications. Embedded payments, on the other hand, are enabled by application program interfaces (APIs) or protocols that allow software systems to communicate and share data, making it possible for software companies to connect directly to a bank’s payment infrastructure.
"Most companies that are processing a large volume of payments are not yet doing so digitally or through an API," says Tom Bianco, General Manager at Newline™ by Fifth Third. "Transitioning some of that payment volume to API presents enormous opportunity to automate and optimize current systems, as well as kick-start innovation in the payment space.
We’ve seen first movers take the leap and recognize significant gains."
The Rise of Pay-by-Bank
While companies deploying vertical software as a service (SaaS) companies might represent the next generation of embedded payments users, the trend is already rapidly gaining popularity among retailers, where solutions such as pay-by-bank are creating opportunities to bypass credit card networks and encouraging customers to make a direct account-to-account transfer through an embedded payments application at the point of sale.
With pay-by-bank, a customer chooses to pay with a bank account when purchasing an item and then chooses their bank from a list of payment options when checking out. This can remove the risk of credit card chargebacks, which merchants are often liable for, especially in card-not-present transactions, but can also create significant cost savings on the card network fees that currently take a sizable chunk of their profits.
Pay-by-bank is not new. Many consumers already use their bank account to pay their utility bills, for example. The user experience, however, is clunky, requiring the customer to enter their bank account and routing numbers. With embedded finance, payment companies can build user-friendly methods of enabling pay-by-bank that don’t require entering one’s account information. Removing this friction can lead to higher adoption of pay-by-bank as a payment method.
"For payments in-store, you can have a mobile app with a QR code that can be scanned at the point of sale, allowing the customer to pay directly from their bank account. This is a payment option that was previously unavailable before embedded finance," says Bianco.
In 2023, the Nilson Report found that credit card swipe fees alone cost a total of $72 billion, and because of this, some of the biggest retail giants are turning to pay-by-bank. Walmart, for example, will allow its customers to make online purchases directly from their bank accounts starting in 2025.
Embedded payments can also allow retailers to offer customers branded digital wallets or prepaid cards for in-store payments. Fifth Third’s Newline™, for example, has technology that businesses can use to offer embedded payment and virtual card solutions, which integrate into their own products and platforms via an API.
Building Consumer Loyalty
The benefits of pay-by-bank are not merely about cost savings. Such solutions are already being used to build customer loyalty across industries. Globally, open banking, where financial institutions share data with businesses, could reach $133.5 billion by 2034, according to data from Future Market Insights, a market researcher.
"A lot of times, merchants are taking some of the money they’ve saved on card fees and giving it back to customers as perks," says Bianco. "You have to incentivize customers to choose to use pay-by-bank because you’re competing against the card programs, which also give points."
Bianco explains that this also provides broader potential for businesses to accumulate valuable customer behavior data that would have previously been known only to the card networks, enabling them to gain a greater understanding of their consumer base and use this information to build new products.
Eliminating Costly Paper Checks
Away from retail and e-commerce, embedded payments could help mitigate the inefficiencies end of one dated payment method, which persists within industries such as insurance. Check payments still represent 14% of all transactions made by insurance companies due to a variety of factors ranging from historical precedence to legacy systems and the increased operational costs of paying card network fees.
However, according to Bianco, there is rapidly growing interest from insurers interested in transitioning to an embedded solution because of the many limitations present with paper checks, from fraud risk to the costs of secure storage, and the administrative costs and delays involved with handling, processing, and reconciling checks.
"Our team is speaking with an insurance company that is sending out hundreds of thousands of paper checks on a monthly basis," he says. "What embedded finance will enable them to do is send disbursements via API directly to recipient bank accounts as soon as the funds are available instead of sending out those thousands of checks at the end of the month. This helps customers receive funds when they need them most and saves on the administrative cost associated with paper checks."
Real-Time Payments
The move away from paper checks represents part of a broader demand for greater speed and efficiency across the B2B sector, especially among companies that make regular batch payments, for example, as part of their payroll. These businesses are increasingly turning toward APIs to access some of the benefits of faster payments for improved cash-flow management and a greater ability to maintain accurate accounting records.
"The benefits of embedded payments are pretty substantial for businesses that need to send payments when they want to, without having to change their whole workflow around when those payments need to be in a specific account," says Bianco.
ACH payments made via batch process usually take between one and three days to process, but instant payments such as Real-Time Payments and FedNow can be originated and settled near instantaneously, offering companies significant benefits in terms of cash flow management and revenue stream flexibility.
"Companies that are processing a large amount of payments can make a substantial amount of cash on the float if they can just keep that money in their account for a few days longer," says Bianco. "For example, if you’re an insurer who previously had to pay out commissions in batches every Thursday to get them to your agents, you now get an extra day because you can send them using an API and a Real-Time Payments solution."
Making Reconciliation Easier
Reconciliation is still a major challenge for businesses that are sending and receiving many payments from many different customers. To address this, Newline™ has a product called Virtual Reference Numbers, which can integrate with an accounts receivable and accounts payable software product.
The product provides the ability to generate a dynamic account number for every invoiced party with each of those reference numbers pointing to a single underlying account. When paired with a ledger, the unique nature of the reference number makes it instantly clear where each payment has come from, thereby reducing the resources dedicated to reconciliation.
"A big problem with accounts receivable is that you get a wire payment from someone, and you don’t know who sent this money or whether it was the amount that was requested," says Bianco. "So instead of matching invoices to payments, ensuring the balance has been paid, we have this elegant solution involving dynamic account numbers for each party from whom you want to collect funds. How this works is: You send your invoice, you tell the invoiced party to send funds to this unique Virtual Reference Number, and then when the payment comes in, you can line it up exactly with the line item in your ledger."
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