As consumers, we’ve become accustomed to the convenience and ease of embedded payments: the ability to pay for goods and services without leaving the app or Web site on which we’re transacting. Need to pay for your rideshare or subscribe to a new streaming service? Just use the app on your phone. In fact, EY estimates that in the United States alone, the volume of consumer and business payments through embedded channels will reach $6.5 trillion in 2025, doubling 2021’s $2.5 trillion.

This convenient payment method is increasingly attractive to companies of all types and sizes wanting to make it more convenient for customers to pay for the goods and services they sell. Applications used by small businesses, such as OpenTable in the restaurant industry, now offer embedded payments. And accounting and business management software systems, from Intuit for small businesses to ERP systems at larger companies, are including embedded payment as a feature.

Even Fortune 500 corporate treasuries express interest in moving in this direction for business payments and transactions. Despite the complexities of corporate finance, “it is being influenced more and more by the state of consumer payments,” says Albert J. Bodine, director of commercial and enterprise payments at Javelin Strategy and Research. “Treasury and finance people would love to have simpler payment systems. It would be great to buy steel from a Chinese factory literally from my iPhone.”

But enabling these payments is neither simple nor straightforward. We’ve gathered input from experts to explain how an ecosystem of partnerships is needed to enable embedded payments for businesses in multiple sectors, from the large to the small.

What exactly is an embedded payment?

Because this is an emerging ecosystem, the term “embedded payments” means different things to different market players. People in large enterprises, corporate treasuries, and the banking world tend to define it differently from those in the software and fintech spheres, for instance.

In some contexts, the service that technically enables an embedded payment is called “middleware,” while in other contexts, the same type of service is described as “payment processing” or “facilitating.”

Further muddying the issue, some experts consider “banking as a service”—when a bank allows third parties to distribute the bank’s services to other companies—as a part of the embedded payment ecosystem, while others do not.

For large companies, embedded payments mean incorporating accounts payables and receivables into their existing ERP or other systems, Bodine explains, enabling business-to-business payments. This practice is relatively new in the large-business world, where corporate treasury systems are often still tied down by legacy payment practices. “Believe it or not, paper checks still make up 33% of the payments being made between large commercial enterprises,” notes Bodine.

Meanwhile, new software platforms specifically designed to automate accounts payables and receivables provide embedded payments to businesses. These include Billtrust, Bill.com, and Taulia (now owned by SAP).

Abhimanyu Julaniya, partner at business consultancy Simon-Kucher & Partners, describes embedded payments a bit differently. Rather than being about digitizing a company’s internal accounts payable and receivable processes, it’s about a non-financial business embedding a payment method that the business can offer its customers.

“Until recently, an embedded payment was not something that a company had to offer in order to function as a business,” he explains. But today, ”if a company doesn't offer it, it will have a tough time competing.” The highest adoption area is usually software that a business or consumer already uses. For example, Mindbody, a software system for health and wellness businesses, has integrated with a variety of payment processors to offer embedded payment options.

How embedded payments work

The lack of a clear definition reflects an evolving cast of organizations that—as Bain & Co. describes—are essentially unbundling traditional banking mechanisms, to the point that banks will no longer play the leading role as sole providers and distributors of financial products.

The resulting ecosystem typically comprises at least four separate entities, and sometimes more:

• The customer:  This ranges from the consumer who dines at a restaurant and is paying through an embedded payments mechanism, to the restaurant itself, which is the customer of the software that includes the embedded payment service.
• The embedded payments technology:  This is often cloud-based software geared toward helping particular industries manage their business. Mindbody’s main product, for instance, is software for managing health and wellness businesses.
• The middleware provider/data enabler:  This is a company that technically supports the payment services embedded in the software system. It typically manages the integration with the bank, including providing the application programming interfaces (APIs) that connect the bank to the software system or other entity embedding the service. There are many different types of companies that fall into this category, including fintechs and well-known payment facilitators like Stripe.
• The regulated entity/bank:  In the background, there needs to be a financial institution that holds the regulatory license, provides the balance sheet, and supports the treasury and risk management functions. Sometimes, the bank’s presence is not at all obvious, says Javelin’s Bodine. “If you ever look at the fine print of any fintech that's in embedded payments, there's always a bank that is backing them up,” he notes. Stripe, for example, ramped up its business using the heft of Wells Fargo.

Who benefits from embedded payments?

Each of these players benefits from the ecosystem. End customers, such as restaurant patrons, get an easy, convenient way to pay their bill. Business customers such as restaurants get a speedier payment process, as they no longer have to present the bill and handle cash or credit cards, resulting in the opportunity to earn more revenue or free staff to take on higher-value roles.

Middleware/data enablers make money by charging transaction fees and sometimes providing related services such as currency conversion. Banks and other payment providers benefit from providing the service through a software system like OpenTable because it is an efficient and effective distribution channel for reaching smaller businesses.

“The bank or payment company will make less margin because of the wholesale rate it gives the software provider. But it’s getting more volume and it doesn’t have to use its own sales force to target all these small or medium businesses, which are often very expensive to reach,” Julaniya explains.

Perhaps the biggest benefit goes to the software provider, which gets a lucrative new revenue stream. Because these platforms get the embedded payment capability at a wholesale rate, they have an opportunity to mark up the service significantly. According to Julaniya, a software provider can make much more money with embedded payments than it does with the core business proposition of its software.

“If a business is making 100% of revenues from software, then by embedding payments that business can increase its revenues by 300% or even 400%,” he says. “It can be quite massive.”

It’s little wonder, then, that many of these software platforms are adding more financial services. Mindbody now offers financing through Mindbody Capital and, most recently, specialized insurance through Mindbody Insurance. “With Mindbody Insurance, we can collectively bargain on behalf of our tens of thousands of customers to get the best possible rate without all the unnecessary fees of traditional insurance,” Mindbody CEO Fritz Lanman said in the company’s July 2024 announcement. “Our plans save our customers money, while providing comprehensive coverage and personalized policies unique to their business so they can focus on running their business, worry-free.”

How to navigate the ecosystem

Businesses are still figuring out whether, when, and how to use embedded payments. There is no one-size-fits-all, and not all forms of embedded payment are available to all companies. Large corporate treasuries are usually well served through their traditional, direct relationships with banks, which can handle large and complex payments worldwide while checking that transactions adhere to global financial regulations.

Midsize and small businesses—which are more likely to take advantage of embedded payments—will need to consider the following types of factors when choosing who to work with:

• Geography:  Different regions of the world favor different payment methods. iDEAL, for example, is a leading online payment method in the Netherlands, but is not available outside of the country. And MangoPay is a common processor in Europe but not outside the continent.
• Industry:  Embedded payment services are more common in software systems that serve certain industries. There are several choices for restaurants and wellness spas, for instance, but not travel and real estate. “Real estate lags partly due to payment type (reliance on checks and ACH) and partly because the transaction value is so significant it would likely be subjected to platform caps and regulatory and legal requirements,” says the Bain report.
• Embedded service requirements: Some software platforms provide only payments, while others have expanded into other services such as loans and insurance.

Watch this space

With a wide variety of players and the continued evolution of embedded payments, Javelin’s Bodine urges businesses to vet providers carefully. “There are as many payment facilitators, receivables companies, and fintechs as there are leaves on a tree,” he says. “Really do your homework on whomever you consider partnering with.”

Don’t overlook your banker, either. “Large banks are focusing on the small and medium-sized business space, so don't be shy about approaching the larger banks,” notes Bodine. “They definitely want your business.”