What are embedded payments? Benefits and future trends

Key Takeaways: 

• Embedded payments allow consumers to complete a transaction without leaving a website or app, helping increase conversions, reduce customer friction, and, in some cases, lower processing costs. 

• Embedded payment use cases span industries from ecommerce and retail to B2B platforms, insurance, healthcare, gaming, payroll, and many others. 

• Challenges such as compliance, security, and infrastructure costs can slow adoption rates, but relying on solutions like Plaid Transfer can simplify the process. 

• The future of embedded payment systems is bank-linked. Pay by bank powered by rails like ACH, RTP, and FedNow are making embedded payments faster, cheaper, and easier to integrate. 

Today’s consumers and businesses crave convenience and speed, particularly when it comes to payments. This, combined with the increasing digitization across many industries, is driving the high adoption of embedded financial services.

The embedded payments market size was valued at $83.32 billion in 2023 and is expected to grow to $588 billion by 2030, making it a crucial piece of the payment landscape for businesses that want to remain competitive. 

In this article, we’ll look at what embedded payments are, where opportunities lie for them to grow, and how they can be integrated into your organization. 

What are embedded payments?

Embedded payments allow a customer to complete their transaction without leaving the company's website or mobile app, facilitating a fast, frictionless checkout experience. While embedded payment features can be built and maintained directly by the platform, they typically are obtained from third-party providers. 

Common use cases for embedded payments include:

• Ecommerce merchants offering seamless checkout flows on their websites and apps.

• Platforms and marketplaces (like Etsy or Shopify) enabling sub-merchants to accept payments directly.

• Retailers and restaurants linking payments to loyalty programs and mobile apps to drive repeat business.

• Gas stations and transit providers embedding payments for faster, card-free transactions.

• Industries like healthcare, insurance, payroll, and lending use embedded payments to streamline billing and disbursements.

• Fintech and financial services companies embed payments into apps for investing, lending, digital wallets, and money transfers.

• Gaming platforms integrate payments directly into apps for in-game purchases, subscriptions, and virtual currencies.

There are two main types of embedded payments. The first, merchant embedded, refers to those on ecommerce merchant websites, where consumers select their preferred payment method and pay directly through an embedded link.

The second refers to embedded payments for platforms, where payments become an integrated part of the sub-merchant experience. A familiar example of this is Etsy, which offers small business users direct access to payment processing services rather than requiring them to build or outsource their own solutions.

What are the benefits of embedded payments? 

The core benefit of embedded payment is reduced customer friction. When users can easily convert without exiting their preferred platform, they’re more likely to complete purchases. But, there are several other benefits that make embedded payments valuable: 

• Higher conversion rates: A smoother checkout process minimizes abandoned carts and can increase repeat purchases. 

• Lower operating costs: In many cases, particularly with pay by bank, embedded payments can reduce payment processing costs compared to traditional payment rails, such as credit cards. 

• Potential for new revenue streams: Platforms that enable embedded payments for sub-merchants can monetize through transaction fees, subscriptions, or premium payment services.

• Improved security and trust: Features like tokenization, encryption, and biometric authentication help protect customer data and build trust.

Considering the benefits–to both businesses and consumers–it is clear why embedded payments are becoming a core part of the online shopping experience. 

What’s the difference between embedded payments and embedded finance?

While the terms are similar, they are not interchangeable. Embedded payments are a subset of embedded finance that focuses specifically on enabling transactions within a non-financial platform. Embedded finance is broader, encompassing lending, insurance, investment products, and banking accounts offered inside apps or platforms. All embedded payments are embedded finance, but not all embedded finance is about payments. 

Embedded finance vs other types of payments

Embedded payments are just one piece of the payments ecosystem, but they’re often confused with other types of payment solutions, such as third-party payments and integrated payments. Understanding how they differ can help organizations select the right payment method for their needs. 

Embedded payments vs. third-party payments

Embedded payments, sometimes called in-app payments, let customers complete transactions without leaving a website or mobile app. In contrast, third-party payments redirect users to an external processor or payment page, such as Amazon Pay or PayPal. While third-party flows work well for many merchants, they can introduce friction, slow checkout, and reduce opportunities to save payment details for repeat purchases. Embedded payments prioritize speed, convenience, and a seamless customer experience.

Embedded payments vs. integrated payments

Integrated payments are primarily about connecting payment processing to other business systems, such as accounting software, invoicing platforms, or POS systems. The goal is operational efficiency, like automatic reconciliation or reporting. Embedded payments, on the other hand, are customer-facing: they make checkout fast and seamless without leaving the app or website. In short, integrated payments streamline business operations, while embedded payments streamline the customer experience.

How do embedded payment solutions work?

Embedded payments can either work natively, with the platform itself acting as a payment facilitator (payfac), or through a third-party provider.

Payfac model

In this model, payments are offered in-house by integrating a payment processor into the platform, making it—in essence—a payment facilitator. This historically more common method involves substantial startup and maintenance costs, not to mention significant considerations around security and compliance.

While the specifics of the integration can vary, the basic idea and overarching goal of streamlined payments remain the same:

1. To begin, a payment form will be integrated into the platform’s website or mobile app. This usually includes fields for the customer's credit or debit card details, along with any further information needed, like billing and shipping addresses.

2. Once this payment information has been entered, the platform will send the information to the payment processor, normally employing secure data transmission methods and encryption.

3. The payment processor will then validate and process the information, potentially checking for fraud and confirming the presence of sufficient funds. The results of the transaction will then be sent back to the platform, which updates and confirms the customer's order status.

4. For greater security, the platform may utilize tokenization. This replaces sensitive data with a unique token that can be used for future purchases and permits the platform to store payment details more securely.

Payfac as a service

In the third-party, or payfac-as-a-service, model of embedded payments, the platform works with a third-party provider who facilitates payment processing and other financial services without requiring the platform to build and maintain the infrastructure behind those services. This model has become increasingly sought-after, as it avoids the substantial costs and risks associated with becoming a payfac. This means it’s also faster to roll out.

Platforms looking to offer embedded payments can choose to either integrate an out-of-the-box solution or create a customized setup. Out-of-the-box is optimal for platforms looking to get up and running in as little time as possible, as they require minimal integration work and developer resources.

Tailored embedded payments, on the other hand, are ideal for platforms aiming to provide a fully customized payment experience. This solution ensures full control over the integration process and end result.

Examples of embedded finance payments company

Embedded payments have been around since before the onset of fintech and ecommerce apps. For example, FasTrak has given California drivers the ability to instantly pay bridge and highway tolls, without needing to stop their vehicles, since 1993. This payment device is scanned from the road and can automatically debit a user’s bank account when funds are low—making it a pioneer in embedding a payment experience into a functional one.

Today, some embedded payments are ubiquitous: essentially digital wallets you can use anywhere. Others are for use with a single company, within their in-app experience, or provided by platforms to their sub-merchants for a streamlined end-customer experience. 

Ubiquitous embedded payments

Ubiquitous embedded payments have become an integral part of many people’s daily lives. These include:

• Apple Pay: One of the most well-known and widely accepted digital wallets, Apple Pay allows users to connect their debit or credit cards to their phone or Apple Watch, then tap to pay either online or at the point of purchase.

• Google Pay (now part of Google Wallet): The Android phone equivalent of Apple Pay, Google Pay allows mobile users to save their credit or debit card information to their phones and tap to pay at a wide range of online and in-store merchants. It also enables users to store other passes and cards such as transit tickets, gift cards, and event tickets. 

• Samsung Pay (now part of Samsung Wallet): Samsung Wallet, has an embedded payment feature which allows users to save their card details and pay at a wide range of online and in-store merchants. The wallet can also store biometric data, cryptocurrencies, and even digital keys for homes and cars that can be used from a Samsung phone. 

Merchant embedded payments

Most merchants that use embedded payments within their apps offer exclusive discounts and loyalty points. This allows them to save money on payment processing when keeping payments in-house. It also helps create stronger brand loyalty and repeat business. 

Examples of merchant-embedded payments include:

• Target Circle: Considered a leader in the embedded payments space, Target Circle offers three payment options: Credit, Debit, and Reloadable. The credit option is Target’s own branded credit card, the debit option links to a customer's existing bank account, and the Circle Reloadable is a depository account that can receive paycheck direct deposits and be used anywhere Visa is accepted. All options offer 5% savings on any Target purchase, showing that a major retailer can use embedded payments to create brand loyalty–and become fintech companies in their own right.  

• SmartPay Rewards: While many gas station apps offer exclusive discounts and rewards, SmartPay Rewards was one of the first to emerge. Rather than use card payments, it encourages customers to link their bank accounts and pay via the app at the pump. In exchange, users save $0.10 on every gallon and earn fuel rewards that can be redeemed at connected convenience stores. 

• Starbucks Card: Another famous example of embedded payments, the Starbucks Card issues double the points when members upload funds to their Starbucks accounts instead of paying with credit or cash at the point of sale. This money users end up leaving on their cards has created $1B in interest-free capital that Starbucks borrows from.

Platform embedded payments

Finally, many platforms and marketplaces also provide embedded payment solutions to the sub-merchants who use them, streamlining the experience for both the sub-merchant and the end customer. 

Some examples of platform embedded payments include:

• Etsy: Etsy removed the limitations on the payment types and currencies accepted by the platform’s sub-merchants, helping drive their growth as well as that of the platform. Etsy generates revenue primarily from its transaction fees, charging 6.5% in payment processing and 2.5% in currency conversion.

• Shopify: Similarly, Shopify’s total revenue is in large part made up of its Merchant Solutions revenue, which is underpinned by payment transaction fees. In 2023, Merchant Solutions revenue grew to $5.2 billion, or 73% of total revenue.

• Amazon: Amazon’s third-party seller services cover things like payment processing and customer service support. These services accounted for nearly 25% of the company’s total revenue.  

How to monetize embedded payments

A study of EY Parthenon found that 70% of non-financial services companies view embedded payments as a utility–meaning nothing more than a tool for their business–when in fact, it can be a revenue stream. While every business is different with its own set of specificities, embedded payments drive revenue in several ways. Platforms, in particular, have several options when it comes to monetizing embedded payments. These include:

• Transaction fees: A common way to monetize embedded payments is to charge a small fee for every purchase made through the system. This can take the form of either a percentage of the transaction total or a flat fee. Either way, it requires no upfront costs for sub-merchants and their end customers.

• Subscription fees: Platforms can choose to charge monthly or annual subscription fees for access to their embedded payment system. In exchange, they may offer additional features like analytics, fraud detection, and customer support. This approach is often applied to businesses in need of a more robust payment system.

• Premium offering: For an additional fee, platforms can provide more advanced functions, such as recurring payments, invoicing, faster processing, and multiple payment options.

To make the most of embedded payments, non-fianical companies will need to change their perception–and it starts with overcoming the core challenges of embedded payments. Let’s explore how Plaid can help.  

Embedded payment challenges–and how Plaid solves them

While embedded payments unlock clear benefits, building and scaling them isn’t without hurdles. Platforms and merchants often run into a few common challenges. 

Compliance and security requirements

Payments involve sensitive financial data, which means businesses must navigate strict regulatory frameworks and maintain high levels of security. For many platforms, this can be costly and complex. Plaid helps by providing tokenization and identity verification, ensuring customer data is protected while simplifying compliance for businesses.

High costs and development effort

Becoming a payment facilitator or building payment infrastructure in-house can demand significant upfront investment, ongoing maintenance, and specialized expertise. With Plaid’s APIs and pay-by-bank solutions, organizations can launch embedded payments faster without needing to manage the heavy technical or operational lift themselves.

Customer adoption and trust

Even the smoothest payment flow won’t succeed if customers don’t trust the process. Businesses need a reliable way to connect financial accounts and complete payments with minimal friction. Plaid’s trusted brand and seamless authentication flow give customers confidence, helping businesses drive adoption and repeat usage.

By addressing these challenges head-on, Plaid makes embedded payments easier, safer, and faster to deploy–positioning platforms to capture the full benefits of this growing market.

Where is the biggest opportunity in the embedded payments space?

One of the fastest-growing innovations in embedded payments is pay by bank. Instead of routing transactions through cards, pay by bank enables customers to authorize payments directly from their accounts. This reduces processing fees for companies, enhances security, and creates a smooth checkout flow that customers are beginning to expect.

Brick-and-mortar merchants could seize this opportunity by offering embedded bank payments as part of their app. Linked barcodes could be scanned when a customer walks in and then automatically charged when the customer walks out—much like Amazon Go stores but on a wider scale. For small businesses, this type of payment could benefit them greatly by reducing their payment processing fees and giving their customers a friction-free experience. 

Ecommerce apps also offer a huge opportunity for saving money and building brand loyalty through embedded payments. Target, for example, offers the same 5% discount to app users that it offers to in-store shoppers who use its embedded payment feature, the Target RedCard. This approach could be replicated as embedded payments become easier to build.

→ Learn how Plaid can help your organization scale pay by bank payments. 

What does the future hold for embedded payments?

At Plaid, we believe in a bank-linked future, which includes bank payments on a larger scale. Bank payments use lower-cost rails such as ACH, whose speed is increasing with recent innovations like Same Day ACH and the Real-Time Payments (RTP) network.

A major piece of this future is pay by bank—where consumers can pay directly from their accounts instead of using cards. These payments run on lower-cost rails like ACH, RTP, or FedNow, making them faster and less expensive for merchants while offering a seamless experience for customers.

This vision goes hand in hand with the growth of embedded payments, which continue to deliver more bank payment options and, in turn, increase customers’ comfort with the concept. As the adoption of embedded payments grows, so too will faster, easier, and cheaper bank payments—until the lower costs and convenience they provide become the norm. 

The launch of FedNow in 2023 served as an additional step in this direction. As the Federal Reserve’s first new payment rail in 50 years, it delivers instant bank payments similar to RTP and is set to expand the access and availability of instant payments over time.

→ Learn how you can leverage Plaid Transfer to create a seamless embedded payment experience within your company’s app.