Thanks to the digital shift during the pandemic, more non-financial entities are realizing that they need to own and improve their payments experience to enhance the overall customer experience — but there is a myriad of options to consider.

Companies that outsource to card-on-file programs and the like may dodge some headaches, “but they also lose a lot of the benefits of creating their own account and embedding it in their experience,” according to Walt Granville, senior VP of bank and network operations and partnerships at payment services provider Netspend.

Embedded payments are a natural place for companies to start — allowing customers to make payments from a single place and embedding the payments process in the user experience so the customer doesn’t have to think about it.

In a recent conversation with PYMNTS, Granville invoked the magic words of 2021 — “consumer experience” — to illustrate the power of embedded payments. Noting that consumers cite checkout friction as a prime pain point, he said that all experiences — good or bad — become synonymous with brands.

“It’s becoming the norm to have the [payments] experience be deeply embedded – and in some cases, even completely invisible. And we believe it extends a little bit further into the brand itself. These experiences become a part of your brand. If you have a bad website or a bad checkout experience, that becomes part of your brand.” And those bad experiences have an impact on a consumer’s willingness to come back and make repeat purchases.

Conversely, “the better that experience is, the more it becomes associated with your brand and becomes a piece of your brand,” Granville pointed out. More companies are catching on as to how embedded payments accomplishes this.

Embedded Harnesses Payments’ Power

The embedded finance space shows signs of continued growth in almost every vertical, driven by factors including the modernization of legacy businesses, open banking, alternative payments and money movement, to name a few.

Removing friction during the payment process is known to reduce cart abandonment and lead to a greater affinity between consumers and businesses, but it can also yield even more tangible benefits. This includes opening new possibilities via data and analytics and leveraging the payments volume passing through their systems.

As Granville noted, “If you are embedding an account, you’re actually putting yourself in a position to harness the power of all the funds that are moving through your ecosystem. You can use those funds to reduce your transaction and payment costs, fund loyalty programs and incentive programs, and drive transactional volume toward your core service.” Granville also mentioned that many brands out there — like online gaming platforms, for example — are missing out on this opportunity to leverage open banking and money movement by continuing to offer only card-on-file services.

Granville sees this moment as an inflection point for digital payments, with winners and losers.

“If you actually have a payment component to your business, owning some element of that experience, if not all of it, will be very important.”

Getting the Partner Piece Right

Saying that Netspend is “very bullish on banking-as-a-service and embedded finance as a whole,” Granville told PYMNTS, “we do see continued acceleration and usage of these products as companies start to adopt open banking and other toolsets, but consumer comfort with that business model is increasing as well.”

Where companies need to be discerning is in their choice of partners, as embedded finance is a specialty within a rapidly expanding payments universe.

Non-financial entities that want to bring embedded payments into their platform ecosystems have to get real about internal limitations and link up with knowledgeable partners.

“Typically, [non-financial entities] are not going to have a ton of experience in this space,” Granville noted. “They’re going to be looking for a partner who can do a number of different things, probably most importantly [being] a single-source provider that can provide guidance on the design of the product and how it fits in.”

Heavy lifting on compliance, regulatory issues and fraud management should also be done by a partner “who comes with the right technical toolsets to help these entities build out these types of services.”

That last part is especially important, as Granville said he’s now seeing two basic types of non-financial entities looking for advice on using embedded finance and payments.

“The first [type of] entity is deeply involved in this embedded finance space. They’re highly intelligent, they’re motivated to do a deep integration, they want a suite of [application programming interfaces] and they want to build deep. We also see a lot of entities getting into this space knowing that they need to establish an account and being a bit conservative about the level of effort that it takes.”

Either way, it’s a crucial directional change among non-financial firms that were exposed to digital finance by pandemic necessity — and are grasping the value of managing relationships end to end.

See also: APIs Unlock Financing for Underserved SMBs



About: Forty-four percent of U.K. grocery shoppers spend more at grocery stores when they have access to loyalty programs, and an equal share say the presence of loyalty programs alone dictates where they shop. What U.K. Consumers Expect From Their Grocery Shopping Experiences surveyed 2,501 U.K. consumers to examine how retailers can best leverage loyalty programs to drive spend and win new customers.

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