Embedded payments are one of the most significant developments in modern payments. You’ve probably experienced them without even realizing it.
Whenever you book a rideshare through an app, book a vacation rental online, or pay for a fitness class directly through a scheduling software. If you can pay without being redirected to PayPal or a third-party page, there’s an embedded payment behind it.
Cards are processed seamlessly directly within the platform.
For merchants, embedded payments have become harder to ignore because so many modern platforms are offering payments directly within the software. Customers have come to expect this type of experience, and if you’re offering a clunky workaround that’s not embedded, it’s not really a frictionless checkout.
If you’re still not exactly sure what embedded payments are and how they work, I’ll explain everything you need to know below. We’ll cover pros, cons, use cases, costs, and ultimately help you decide if embedded payments are right for your business.
What Are Embedded Payments?
Embedded payments refer to any payment functionality that’s built natively into a software, app, or platform. Instead of businesses relying on a separate point of sale system or redirecting customers to an external processor, the payments happen directly inside the software itself.
The customer never feels like they’re dealing with a third party (even though a third-party processor is actually handling the payment on the backend).
Users experience a truly seamless checkout, without realizing that a transition even happened. They never have to leave the app, website, software, or page to complete the purchase.
How Embedded Payments Work
Similar to any traditional card payment, there’s a lot going on behind the scenes to process an embedded payment. There’s a combination of backend infrastructure and payment technology used to capture the card data and securely move everything through the payment flow.
It all starts when a customer initiates a transaction through an app, website, or software (buying something online, booking a reservation, starting a subscription, etc.).
Once the payment details have been entered through the platform, the front-end experience never changes for that customer. Nobody can tell that a third-party processor is routing the card data for authorization and approval on the backend.
Customers never leave the platform they’re using to initiate the payment. The entire payment process has been embedded natively into the software.
Benefits of Embedded Payments for Businesses
For merchants, embedded payments can offer several practical advantages that improve day-to-day operations and improve the overall customer experience:
- Streamlined Checkouts: Customers complete transactions without being redirected to a third-party page.
- Increased Conversion Rates: Eliminating extra steps in the checkout flow can help reduce abandoned carts.
- Brand Consistency: You maintain complete control over the customer experience without confusing them with a third-party processor.
- Personalization Opportunities: Optionally store customer card data on file to speed up future payments while targeting customers with offers based on behavior and purchase history.
Offering your customers a convenient way to pay for goods or services through the exact same interface they’re using to interact with your brand is the biggest advantage of embedded payments, which ultimately leads to other indirect benefits associated with customer retention.
Challenges and Potential Risks of Embedded Payments
While embedded payments are undoubtedly attractive for businesses, they’re not always perfect. You need to be aware of the risks associated with embedding payments into your payment ecosystem:
- Compliance: Merchants are still ultimately responsible for any compromised card data and their business reputation associated with breaches, making it crucial to choose a secure partner to handle this stuff on your behalf.
- Complex Onboarding and Deployment: Getting set up with embedded payments isn’t always as straightforward as deploying a new POS system at your counter, and often requires significant technological skills to maintain.
- Hidden Costs: Platforms offering embedded payments typically mark up processing rates significantly compared to interchange-plus deals with traditional processors.
- Limited Flexibility: Once you’re entrenched in an embedded payments ecosystem, it can be tough to change operations or integrate with other third-party solutions.
Many businesses going the embedded payments route understand these risks and realize that the pros outweigh the cons. But that’s not the case for every merchant, and not every business actually needs an embedded payments system.
Common Use Cases for Embedded Payments
To help further explain how embedded payments work, let’s take a closer look at some common real-world examples of how businesses use embedded payments across different industries and use cases.
Ecommerce
Modern ecommerce platforms embed payment processing directly into the shopping experience. This allows customers to complete purchases without being redirected to an external payment gateway.
So instead of leaving a familiar shopping environment to process payments through PayPal or a third-party provider, customers enter their payment information directly through checkout forms that look and feel like native parts of the ecommerce site.
Mobile Apps
Mobile apps across virtually every industry embed payments into the native app interface to create a smooth user experience. You’ve likely experienced this through ride-share apps like Uber, food delivery apps like DoorDash, and travel apps like Airbnb.
Whether it’s a single purchase, subscription, or stored payments for future purchases, having embedded payments in your app allows for a frictionless experience with consistent branding.
Healthcare
We often see healthcare organizations embed payment processing into the same platform they’re using for patient scheduling and insurance billing.
For example, a dentist or orthodontist can use practice management software to communicate with patients, send them appointment reminders, and then collect payments from the same app.
Real Estate and Property Management
It’s common for property management companies to embed payment processing into a platform they’re using for rent collection and security deposits.
These payments can be facilitated through the same tenant portal and property management interface that’s used for lease management and maintenance requests.
Professional Services
Law firms, consultants, and accounting practices can use embedded payments within their CRM platforms. Clients can schedule consultations, pay outstanding invoices, and manage ongoing retainers or fees through a professionally-branded client portal.
This is a great way to maintain trust without sending a generic third-party invoice.
Travel and Hospitality
Hotels, airlines, and online booking platforms rely on embedded payment technology to process reservations directly through the reservation system.
Instead of redirecting customers to a payment gateway, travelers can book a flight or room without ever leaving the website or app.
Embedded Payments Costs
The exact cost of using embedded payments depends on the provider you’re using to facilitate this for your business. In many cases, the pricing structure is a flat rate bundled into the software platform you’re using.
For example, a merchant running an ecommerce store on Shopify that uses Shopify Payments is typically paying 2.9% + $0.30 per transaction (or slightly less depending on the plan).
But that’s significantly higher than what a merchant might pay if they set up their own Stripe account directly and negotiated an interchange-plus deal, where the markup could be closer to 0.20% + $0.10 on top of interchange.
This is the tradeoff that merchants face with embedded payments. You’re paying for simplicity and convenience, but often at the cost of cost transparency.
Platforms bundle processing into their software costs and leave little room for negotiation. That means you may end up paying significantly more on every transaction without realizing it. And for high-volume merchants, those extra basis points can add up to tens of thousands of dollars in unnecessary fees per year.
While embedded payments are definitely worth a premium rate compared to a traditional processing agreement, it doesn’t mean that you should be getting price gouged.
Embedded Payments vs. Integrated Payments
The terms “embedded payments” and “integrated payments” are often confused or used interchangeably, but they’re not the same thing.
Integrated payments occur when a software system connects to a third-party processor through an API or gateway. The merchant still has a direct relationship with the processor, and the software simply integrates payments into the workflow.
Embedded payments are fully native. The processor relationship is often hidden, and the payments appear to come directly from the platform or software (and the platform gets the margin).
With embedded payments, businesses are just dealing with a single system—not multiple vendors and API connections.
Final Thoughts: The Future of Embedded Payments
The embedded payments market is exploding. Between consumer demand for streamline payments and adaptation from technology providers, there’s no sign of these trends slowing down for the foreseeable future.
The global embedded payments market is currently valued at $24.7 billion, and it’s expected to grow at a CAGR of 30% over the next 10 years.
Much of this can also be tied to ecommerce growth and payments embedded into mobile apps.
I expect to see some overflow of embedded payments into niche industries beyond the obvious ones we’ve discussed. But you need to think about the tradeoff between convenience and cost.
While embedded payments are definitely smoother for customers, an integrated payment system could be equally effective and help you better control your costs.
Either way, if you’re concerned about rising payment processing and need help figuring out what makes sense for your business, contact our team here at MCC. We can audit your statements for free and identify cost-saving opportunities directly with your current provider.
No need to switch processors or change what you’re doing operationally to save money.