The COVID-19 pandemic has shone a light on the need for digital payments, and the industry is preparing for an oncoming wave of immense growth in the next decade. The last decade ignited the fintech industry following the 2008 recession, and several heavy hitters came onto the scene right at the start of the 2010s, such as Stripe, Square, Venmo and others. In fact, digital payments have raced ahead in the last decade, thanks to strides in radio-frequency identification (RFID), chips on cards and mobile apps. Slow-to-adopt verticals such as construction, manufacturing, wholesaler, and education are poised for payment transformation.
The global digital payments industry is expected to jump 40% from the last two years (reaching $6.6 trillion in 2021), and the mobile payment segment is expected to almost double by 2025 according to Finaria.it. This next decade will bring the embedded payment infrastructure to the forefront of the industry, spurred by recent world events like the COVID-19 pandemic. While the SaaS powerhouses currently hold most of the market share, they can’t compete with the industry knowledge of smaller verticalized experts, and these “underdog” competitors will prevail through the challenges to embrace the benefits of the embedded payments boom.
Digital transformation ushering in the fintech evolution
While digital B2C payment friction has drastically diminished over the past couple decades, B2B payments remain stubbornly high-friction not only due to legacy financial system process and check-writing habits, but also because there have not been options to pay however a receiver prefers until recently. The pandemic accelerated digital transformation, growing the market opportunity for modern payment providers like Plastiq that are enabling new forms of payment optionality that bridge gaps in the legacy payments ecosystem. These new systems enable platforms to expand the B2B payment options they offer to small and mid-sized customers through a set of bank-grade, secure Application Programming Interfaces (APIs). Businesses can now pay their suppliers by any payment method they choose, while enabling the supplier to get paid the way they want.
Small and mid-sized businesses need all the help they can get from smarter solutions that reduce friction, remove guesswork, and automate tasks for business owners. Rather than requiring users to access services directly through their bank’s website, these smarter, automated capabilities are best delivered through a small business owner’s preferred commerce or finance platform, such as Shopify, QuickBooks, ADP or others. The enablement of smart payment solutions delivered through simple and efficient APIs allows every provider (ecommerce, accounting, payroll, etc.) to offer these payment capabilities to their SMB customers, seamlessly.
Unlocking value and overcoming adoption challenges
While facilitating processes for customers, the challenges of embedded payments, like other new technologies, take time for businesses to understand and overcome. For example, 60% of businesses still use checks because of legacy processes, despite the high cost of check payments ($22 per check according to Goldman Sachs). In addition to the challenges of moving beyond these traditional processes, other challenges could include lack of infrastructure and the need for partnerships.
Goldman Sachs predicts $1T in global value will be unlocked over the next decade through modernizing B2B payments and financial systems. Factors contributing to this growth include payment services that efficiently accelerate cash flow while effectively bridging long outstanding gaps within legacy financial institution systems.
The embedded finance market is slated to exceed $138 billion in 2026, up from $43 billion in 2021 per Juniper Research. As this market grows, so will innovations in the space. In fact, for the first time in the history of the industry, fintech companies have finally enabled any business with a credit card to be able to make payments to any supplier in the world – even when those suppliers, like the majority of suppliers, do not accept cards. Providing these options through embedded payments will unlock trillions of dollars of credit card payments for SMBs.
Other key benefits for platforms and marketplaces embracing the technology include seamless embedding of new payment options, less hassle of compliance and operations, the capability for SMBs to use existing cards on hand to extend working capital, and easy onboarding with the ability to set up the services in mere weeks. In addition to avoiding merchant fees, SMBs can easily pay their vendors, suppliers, and manufacturers by automatically syncing payment transactions with accounting systems. They can also free up their cash by paying suppliers with a credit card and extending a bill’s due date.
As a result of these strides, companies like Plastiq make it easy for platforms and marketplaces to offer new digital B2B payment experiences that replace archaic ones. Smaller businesses can implement minimal or no-code payment solutions that enable non-tech savvy industries to finally make the leap to digital.
Payment solutions focused on small and mid-sized businesses are critical for the future of commerce as well as for enabling the global economy to function smoothly. These solutions point to a strong outlook for embedded finance, ushering in the next decade of unprecedented payment growth.
