How NOT to develop an embedded payments offer

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embedded payments

In part two of this series, we discussed the many benefits of embedded payments. However, choosing the right model is complicated. In part three, we share some of the pitfalls to look out for when embarking on this journey.

By embedding payments in their existing proposition, businesses can gain a competitive advantage through improved conversion, customer satisfaction, retention, and customer lifetime value, in addition to unlocking additional revenue streams. However, this relies on a clear understanding of what embedded payments can and can’t do as well as careful consideration of what firms and customers want from them.

What can go wrong with embedded payments:

There are several challenges and risks associated with embedding payments in a business’s offer. We’ve identified some of the most common pitfalls:

  1. Limited payment options: If customers prefer local or alternative payment methods that are not supported by the offer, businesses may end up limiting their customer base
  2. Poor user experience: If the payment process is complex, confusing, or time-consuming, it can frustrate customers and lead to cart abandonment. Poor user experience in the payment flow impacts conversion rates and customer satisfaction
  3. Technical incompatibility: Implementing a payment system requires integration with various platforms, gateways, and APIs (e.g. APIs monitoring for functionality). Technical glitches, software bugs, or incompatibility issues can disrupt the payment process, leading to delays, failed transactions, or even loss of customers
  4. Pricing and packaging misaligned with customer values: A one-size-fits-all approach ultimately suits very few customers and therefore doesn’t suit your business either. A single option and price point for everyone risks leaving money on the table and/or fails to maximize the customer base

Case study: Not understanding customer needs backfires

Sometimes, good intentions can have negative consequences. A compelling example comes in the form of a leading e-commerce marketplace. While trying to make the seller experience simple, it instead created discontent and suspicion.

The marketplace had been using a payments processor that billed sellers (both individuals and businesses) directly, resulting in sellers getting one invoice from the marketplace and another from the payments processor. The billing was also complex with multiple fee items.

In developing an embedded payments offer, the marketplace created a single charge that merged all payment line items and marketplace charges. Furthermore, the marketplace changed the payments processor to reduce processing costs for its sellers.

Unfortunately for the marketplace, its sellers strongly disliked this new approach for multiple reasons:

  1. Sellers thought they were paying a lot more than before, when in reality, the costs were lower
  2. What sellers were paying for specifically was not transparent
  3. The previous payments processor deposited funds instantly while the new processor took a few days

The new proposition affected two core value drivers for sellers – uncertainty about receipt of funds and lower liquidity. Fundamentally, despite its good intentions, the marketplace misunderstood its sellers’ needs when embedding payments and choosing the processor. The result for the marketplace was a surge in complaints to process, high churn among sellers, and a lower NPS.

Case study: Successfully embedding payments by focusing on value

One of our clients, a B2B platform with a payment offering, provides a better example of how to develop an embedded payments offer. They reached out to us for support with growing their customer base and combating margin pressure.

We identified their main issue as their single price point, which combined multiple fees. As a result, customers viewed the platform as expensive even though it was delivering greater value than any of its competitors on the market and at a lower total cost.

We remedied the situation by breaking down the value they were delivering into respective value components and then optimizing the pricing (metrics, model, levels) of each component. This enabled our client to convey the link between their prices and their value clearly, making each component competitive and giving customers transparency as well as flexibility to manage their own costs. Following the application of our recommendations, the platform increased its margin on its largest customers and expanded quickly among the highly lucrative target customers to achieve high-double-digit revenue growth.

The evidence is clear: both the promises and the pitfalls of embedded payments are substantial. Through our experience with clients, we have determined the most effective strategy to making embedded payments a successful component of any business.

You can find further details in the previous article in our series: Six best practices for introducing embedded payments

How we can help: Unlocking better growth

With over three decades of experience working across financial services, Simon-Kucher supports payment providers across the financial services sector. We work with fintech disruptors, disintermediators, B2B service and technology providers, established banks, and financial institutions, helping them to innovate and adapt across the entire commercial value chain. Together with our digital consulting team, Simon-Kucher Elevate, we bring together the right strategy, creativity, and digital competence to accompany you with technology strategy, vendor selection and implementation.

Let’s talk more about embedded payments. Reach out to Abhimanyu Julaniya today.

Read more

Embedded payments: What are they and what are the benefits?

Six best practices for introducing embedded payments


Embedded payments: monetization framework

Before establishing an embedded payments framework, it is crucial to thoroughly consider the following topics in your go-to-market strategy.

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