Today’s consumers expect an uninterrupted journey in everything they do. This extends to their payment experiences. If applying for a loan requires customers to “leave” the process for verification or subject them to time-consuming paper-based Know Your Customer (KYC) procedures, the chances are high that they will go somewhere else. As such, loan management software providers must play a part in helping lenders retain customers.
The future of payments is embedded technology. Failure to recognize this puts any business at risk of losing customers to competitors who do. As such, integrated payment solutions have become increasingly popular.
This article explores the concept of embedded payments, why they are gaining traction and how lenders benefit.
Traditionally, payments have been associated primarily with large corporations and payment processors. Companies have relied on the security practices of these external payment processors for decades. While highly secure, they typically redirect users to third-party payment gateways to enable them to accept payments. Over time, this has led to a less than satisfactory customer experience as the process introduces friction between software functionality and payment processing.
Today, many software companies are addressing this issue by taking on the role of payment facilitators and integrating payment capabilities directly into their products.
In other words, companies are now embedding payments into their platforms rather than simply tacking them on. By integrating an API into the checkout process, embedded payments offer a convenient and frictionless experience that customers have come to expect.
This is the sign for loan management software providers to enhance their offerings and provide more value to their customers. Embedded payments have become a relevant and valuable feature, and with it, you can set your solution apart in a market saturated with software competitors.
To expand further on the above, VoPay’s partner, Plaid, offers a comprehensive explanation of embedded finance.
“Embedded finance refers to financial services offered seamlessly in consumers’ everyday experiences through non-financial products and services.”
Effective embedded payment solutions can adapt to the customer’s needs, offering them the financial solution they want, whether it’s a loan, payment plan, insurance coverage or any other service.
Example: When Home Depot provides an insurance or payment plan alongside the sale of a new lawnmower, the insurance/payment plan is a financial product that has been “embedded” into a non-financial shopping experience.
It all started with the rise of digital payments, and it keeps going. According to Yahoo Finance, the global digital payments industry is projected to grow from USD 83.1 billion in 2023 to USD 188.2 billion by 2028 at a compound annual growth rate (CAGR) of 16.1% over the next five years.
At the same time, the mobile payment segment is on track to double by 2025. Recent global events have thrust embedded payment infrastructure into the forefront. Additionally, Business Wire anticipates that the value of the global embedded finance market will surpass USD 588.49 billion by 2030, with a CAGR of 32.2% from 2023 to 2030.
From the Starbucks app to Uber and Netflix, offering consumers the convenience of securely storing their payment details for future use is brilliant. The impact of this payment trend has already made waves in the payments ecosystem and will likely continue to persist in reshaping the payment landscape.
Time is money, which means that lenders must speed up the loan application process. Let’s face it: switching back and forth between online applications and different payment platforms is a huge hassle. Luckily, new technology lets customers integrate payments directly into the loan application. It also ensures borrowers get the seamless shopping experience they want.
Below, we cover the seven benefits for lenders when implementing embedded payments into loan management software.
Lenders can monetize payment processing and diversify their revenue streams. By tapping into the fees charged by merchants, lenders can add a small but significant share of stable revenue to their books. This approach also enables lenders to charge processing fees and enter into revenue-sharing agreements, allowing them to deliver their services cost-effectively and add more to the bottom line.
An embedded payments approach allows lenders to onboard clients quickly, improving performance metrics even further. Embedded payments provide a more adaptable and flexible infrastructure with a broader reach. Payment facilitators have mastered the underwriting and onboarding processes, leading to significantly faster onboarding processes than traditional payment processors.
Providing a positive buyer experience is paramount. Adopting an embedded payments model can reduce your reliance on cumbersome "bolted-on" payment systems, improving the overall experience. In the digital age, products compete based on subtle yet critical distinctions, and enabling users to pay directly on your platform provides a simple, straightforward and streamlined experience.
Embedded payments provide lenders with invaluable data, enhancing the transparency and visibility of transactions across all parties involved in the lending process. This means a clearer view of cash flow—all the way down to the accounting level.
Embedded payments within your loan management software platform not only increase the value of your offering but also give you a leg up against competitors. It enables your company to capitalize on market inefficiencies to gain a competitive advantage, boosting your overall valuation.
In today’s lending industry, embedded payments can be the decisive factor in keeping customers satisfied, preventing them from abandoning the process in favour of a more user-friendly alternative. Because embedded payments contribute to a positive user experience, this technology can convert visitors into loyal, repeat customers.
Payment processing is the most common use case for the embedded services model, but it is not the only one. A payment facilitator can offer a spectrum of value-added services that enable lenders to diversify their offerings and expand into new markets with a click of a button.
These platforms allow value-added services like credit, insurance, and structured payment options. Leading embedded payment platforms have expanded to encompass investments and personalized account services. Leveraging such services can assist businesses in raising their profile and expanding their customer base.
Leading embedded payment solutions are equipped with bank-grade security, various protective measures and more. Lenders need to prioritize consumer safety while safeguarding their interests. The existing payment processes present challenges and security risks from multiple angles, particularly with rising cybersecurity risks. Embedded payments have emerged to counter these issues, addressing concerns related to storing sensitive data, credit card fraud, identity theft and information security breaches.
VoPay is a leading embedded payment platform in Canada and is the top choice for lenders and loan management software companies seeking user- and developer-friendly API payment technology.
Whether you want to add payment solutions to your existing lending software platform or are a lending business looking to enhance your payment offering, VoPay has the perfect solution. VoPay works with top loan management companies and lenders across the country, and we have built our technology around the needs of our customers.
Empowered by VoPay, lenders can provide efficient and cost-effective real-time embedded funding solutions—all while reducing NSFs and returns during payment withdrawals through data-driven EFTs and Interac e-Transfer® transactions.
Schedule a demonstration with a payment expert today!
VoPay is a proud member of the Canadian Lenders Association and Smarter Loans Canada.