Improving customer experience and profits with embedded payments

Stuart Tarmy
Global Director, Financial Services Industry Solutions
September 15, 2022|8 min read

When you order a loaded veggie pizza from your favorite Italian restaurant through Uber Eats, you are likely thinking about whether you need extra garlic bread or maybe a couple of cannolis and not about embedded payments.It’s doubtful you’re focused on the mechanics of how Uber Eats – and its parent company Uber – processes your payment.But how payments move through the system is top-of-mind for companies like Uber and its operations.

Uber Eats, an online food ordering and delivery platform launched by Uber in 2014, experienced a growth explosion during the pandemic when lockdowns forced more people to stay home and use food delivery apps. According to Statistica, Uber Eats generated $8.3 billion in 2021, a 72% surge from the previous year.That’s big money – but so is the $182 million that Uber Eats would pay in credit card interchange fees of, let’s say, 2.2% during the year. Interchange fees are the transaction fees that the merchant’s bank account must pay to the card issuing bank whenever a customer uses a credit or debit card to make a purchase from their store.

In the USA, interchange fees are market-driven and are among the highest in the world, and typically range from 1.4% to 3.5% as compared to other regions like Europe where credit cards are regulated so fees are capped at 0.30% per transaction. Each merchant can pay a very different rate to their credit card processor, which depends on how well they negotiate their rate, their industry (due to some industries like travel having higher fraud than others), the amount of dollar volume they transact, their company-specific fraud and chargeback levels, percentage of transactions done in person (card present) versus over the internet or phone (card not present), and other factors.It’s no wonder, then, that mega companies like Uber are moving to embedded payments as a way to minimize interchange fees. Instead of paying millions to payment processing services like Stripe or Square, Uber can have digital payment options embedded within its app.

Familiar companies using embedded payments

There are several companies realizing the advantages of embedded payments besides Uber. Among them:

  • The Starbucks app allows customers to transfer funds to their account for food or drink purchases. By using the app, consumers can earn loyalty stars that can be used for their daily jolt of coffee or other sustenance. When customers use the Starbucks credit card for other purchases outside of Starbucks, they also earn loyalty points.

  • Document signatures and payments are collected in one step by DocuSign Payments. Since many documents that are signed online through DocuSign (a lease, security deposits, lawyer retainers) require a payment, the company ensures that customers get paid quickly and accurately. Customers can use Apple Pay or Android Pay when making payments via a mobile device.

  • The company offers through its mobile app stored payment credentials to be used at a kiosk, counter or drive-thru. McDonalds is also standardizing payments operations in the back office across its different channels.

IDC reports that by 2030, 74% of digital consumer payments worldwide will be done via platforms owned by non-financial institutions.

Advantages of embedded payments

At a time when consumers are increasingly using various connected devices, it’s important to give them a seamless experience. If something goes wrong with the payment option, consumers don’t blame the payment company. They blame the retailer or service from which they’re buying. With embedded payments, retailers and brands exert greater quality control over the entire customer experience.For example, customers who experience delays or other friction with the payments process may simply abandon their online carts and choose another product provider or service. By the time the third-party payment company resolves an issue, that customer – and the loyalty – is lost.

But for those who employ embedded payments, a closed-loop experience with the customer is created. The customer never loses touch with that retailer or service throughout an online experience. The business is alerted sooner to issues that can be resolved immediately with the customer, which can also lead to lower cart abandonment. Baymard Institute reports that the average cart abandonment is 68.8%, with 17% of those respondents saying they left because the checkout process was too long or complicated.Then there are the cost savings. Merchants or brands that are able to handle customer payments themselves aren’t paying as much for third-party payment services. Embedded payments also allow companies to incorporate better fraud control as they have more control over the payments process.In addition, embedded payments help businesses take advantage of the growing trend in buy now, pay later plans. Juniper Research reports that revenue from buy now, pay later services that “embed lending seamlessly in the eCommerce checkout process,” will make up just over half of the embedded finance market in 2026.

Worldwide use of embedded payments

In Europe, where markets are more fragmented because of various payment methods in different countries, it can be a challenge to offer the right embedded payments for those customers wanting to use local currencies. For example, there is the local card network Carte Bancaire in France, PayPal in Germany and iDEAL in the Netherlands. Still, companies are trying to get customer and merchant feedback on desired embedded payment options and integrate them into their embedded payments, while others may add digital wallets to the payment options.

OpenPayd, a global payments and banking-as-a-service platform, says its data shows that 96% of European companies surveyed report that they are planning to offer embedded payments to customers in the next five years or are seriously thinking about it.

Regulatory concerns about privacy

Any movement to store more consumer data is met with scrutiny by lawmakers, and that’s true with embedded payments.Already, privacy regulations in the U.S. and the EU have led to more protection of consumer information. Third-party cookies are being phased out by companies like Alphabet and Apple. Still, consumers are moving toward merchants having access to their payment information. A Trade Desk report finds that 81% of consumers now have a registered digital account with a retailer.

On the horizon, however, is bipartisan legislation called the American Data Privacy and Protection Act that could affect how retailers and others collect information on consumers, including financial data. The legislation, which passed a House committee, is aimed at putting more limits on how businesses can collect and use consumers’ data.

As mentioned earlier, more consumers want a seamless online buying experience, whether it’s buying coffee or a sofa from a company like Wayfair.At the same time, that frictionless buying experience isn’t just for the big players like Starbucks. The move toward digital transformation within the financial world has led to a broader range of embedded payments technology. So, now the mom-and-pop coffee shop can also offer embedded payments.In another development, B2B embedded payments also are growing. Companies like Echo Global Logistics are using embedded payments to make payments for clients a more seamless experience. This transportation management company offers an all-in-one platform that helps supply-chain companies get quotes, book and track shipments while also managing invoices and payments. The B2B portal offers simplified checkouts and fast payments to ensure customer loyalty.

How Aerospike can help

For those considering embedded payments, consider how Aerospike can be beneficial.

  • Fraud protection. The ability to analyze millions of events, billions of data points and petabytes of historical information in milliseconds is critical to verifying online identities. Best-in-class fraud prevention strategies require the ability to use machine learning at the edge across very large data sets. Learn how PayPal puts data at the heart of its fraud strategy with Aerospike.

  • Predictable performance. Aerospike’s Hybrid Memory Architecture is designed to scale seamlessly and perform linearly at scale.

  • High throughput. Aerospike is capable of performing reads at sub-millisecond latencies at very high throughput (110k to 1M) in the presence of a heavy write load.

  • The use of flash storage enables enormous vertical scaleup at a 5x lower total cost of ownership than pure RAM.

Businesses need to remember that only those that reduce friction to provide a seamless customer experience from beginning to end foster more sales and greater customer loyalty. Embedded payments are an important way to get closer to the customer while at the same time reducing payment costs.

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