Johannes Kolbeinsson, CEO at PAYSTRAX
Embedded payments have been swiftly integrated into the e-commerce ecosystem, showcasing their transformative potential in reshaping how we make transactions. There is a bright future for embedded payments, but we must emphasise the significant untapped potential within the space as it currently stands, as the user experience still isn’t quite seamless, and third-party payment processors still present a fraud risk to companies.
A Rapidly Expanding Market
The growth of embedded payments is undeniable. Driven by the rise of digital wallets and one-click checkout systems, the global market for embedded finance as a whole is projected to grow from $92 billion to $228 billion between 2024 and 2028. Recent shifts in consumer behaviour, especially toward frictionless digital experiences, have been accelerating the adoption of these solutions across sectors. Embedded payments offer that seamless one system approach, not only quickly processing payments on app, but building a one app relationship with consumers that develops brand loyalty.
This trend directly mirrors the business strategies of the major players in the tech world. Companies such as Apple, with its mobile wallet and credit card ventures, and Shopify, combining e-commerce with embedded payments, have demonstrated that blending payments directly into platforms can drive user engagement and boost conversions. The logic is plain and simple: by keeping consumers within the app, businesses streamline the purchasing process, increasing the likelihood of finalising transactions, and building brand and customer loyalty.
The Embedded Payments Boom
Embedded payments have become the latest hot topic in fintech. In fact, just a few years ago, in 2020, embedded finance payments were generating around $16 billion in revenue. Looking ahead to next year, forecasts suggest that number will skyrocket to over $140 billion. The success of platforms like Uber with one-click payments and the buy-now-pay-later (BNPL) models from companies like Klarna are clear indicators of this shift. Consumers increasingly seek ease and convenience, and embedded payments are meeting those demands head-on.
However, for all the excitement, embedded payments still face challenges in adoption. Fraud prevention, authentication, and user experience remain key barriers that need to be addressed on an industry wide level to truly deliver the seamless, instant payments these systems promise consumers.
Addressing the Friction
While the promise of embedded payments is enticing, friction remains. One of the most critical challenges for businesses adopting embedded payments is ensuring robust risk management. Creating an online experience that feels as secure as an in-store transaction should be a top priority, especially as financial fraud becomes more prevalent.
Currently, many companies are jumping into embedded payments without fully understanding the complexities involved. The lack of in-house expertise in building the necessary infrastructure across digital services, transaction processing, and enablement layers can lead to implementation issues and security vulnerabilities. Businesses need to conduct proper due diligence to avoid potential pitfalls, as hasty implementations can compromise both functionality and security.
User experience is another key factor in determining the success of embedded payments. Historically, we’ve seen how PayPal revolutionised online payments with its email-and-password system, setting a new standard. Embedded payments, while advanced, are still evolving to achieve a truly frictionless experience. Authentication processes frequently occur outside of the platform or app, and the range of payment options can be limited. To fully realise the potential of embedded payments, businesses must balance security, usability, and convenience.
Trust and Security Concerns
Security and trust are paramount when it comes to anything finance related, and these are areas where embedded payments must improve to gain widespread consumer adoption. With growing concerns about data privacy and the rise in online fraud (40% of all reported crime in the UK last year were fraud), it’s clear that consumers need reassurance before embracing embedded payments.
While embedded payment systems offer unparalleled convenience, their inherent vulnerabilities could make them a prime target for cybercriminals. The lack of standardisation and regulation in the sector, coupled with a general shortage of expertise that comes with a new industry, poses significant risks for users. Nevertheless, history suggests that consumers are willing to trust new technologies over time. Just a decade ago, saving card details online was met with hesitation; today, it’s commonplace. Similarly, as security concerns are addressed, embedded payments will likely gain traction as consumer trust grows.
The Path Ahead for Embedded Payments
Despite the array of payment methods available today, the potential for embedded payments to dominate the future of finance is undeniable. Their speed, ease, and ability to facilitate in-app purchases with a simple click make them an attractive option for both consumers and businesses.
Yet, for embedded payments to live up to their promise, key challenges remain. User experience and authentication are the primary obstacles. Truly embedded payments should enable users to complete transactions within the app, without being redirected elsewhere for authentication. As instant payments become the norm, any requirement to leave an app to verify a purchase could deter adoption. Addressing these issues will be critical to the future success of embedded payments as they continue to evolve and reshape the digital landscape.
In the coming years, as innovations like AI-driven fraud detection and biometric authentication become more integrated, the potential for embedded payments to achieve a truly seamless experience will grow. This could be the defining shift that cements embedded payments as the default mode of financial transactions in our increasingly digital world.
