U.S. Bank, Key discuss embedded payments with American Banker | PaymentsSource

If Uber has not revolutionized payments, it has at least had a major impact on payments-technology strategy, serving as an aspiration for developers.

“Invisible payments are the goal, the coolest trend in payments is the transactions are becoming invisible,” said Anu Somani, head of global payables and embedded payments for U.S. Bancorp at the American Banker Future of Payments Summit this week.

Somani was speaking in a virtual panel on embedded payments, or payment products that are integrated into software or a platform. Consumers or businesses use embedded payments to complete a transaction without leaving an app or website.

Embedded payments enables an experience that is similar to Uber, where riders book on an app and then leave the car without taking out a wallet to pay. Uber has recently launched a financial services strategy that includes payment cards and business services for drivers.

For years, Uber’s ability to simplify payments has been called “Uberization.” Even for payment initiatives that do not directly involve Uber, the ride-sharing app serves as a symbolic strategic branding for an effortless payment, which is also the goal of embedded payments. “Like Uber or Amazon Go, it’s about embedding money movement, paying and sending money so deep into the process flow that it is in the background … so the brand that you experience is undiluted,” Somani said, referencing the Amazon “just walk out” store model in which cameras identify consumers’ purchases, which are automatically charged to their Amazon e-commerce accounts.

Uber has attracted hundreds of payment partners, including Klarna, which recently co-launched an incentive marketing program offering 50% off rides if paying with Klarna. Riders can pay in full up front or access a plan in which all Uber rides are pooled in monthly payments.

“A lot of consumers find this easier to manage and like being able to track their Uber payments into the Klarna app,” Klarna said in an email. “For Uber, they get a simplified payment process and a new channel to grow their business.”

Uber did not respond to a request for comment.

Getting embedded

Banks are using embedded payments and embedded finance, a related technology concept, to bring that Uber- or Amazon Go-style experience to thousands of nonfinancial tasks. KPMG listed embedded payments as one of the top 10 payment trends for 2024, along with customer personalization, B2B payments and bank/fintech partnerships — all trends that are closely aligned with or rely on embedded payments to be successful.

The global market for embedded payments is projected to pass $138 billion by 2026, a 200% increase since 2023, according to Nasdaq.

“We want to eliminate steps in payments or reduce a bunch of steps to just one jump,” said Bennie Peddington, senior vice president of embedded banking at Key corp’s payments business, speaking at the American Banker embedded banking panel.

In a recent project, Key used embedded payments to enable a dental software company to sell multichannel payments to dental practices. That includes online and mobile payments, combined with digital onboarding.

Health care payments are often complicated, including patients, providers and third-party payers like insurers. There are a lot of forms, and changes in payment amounts as the medical practice engages with insurers and patients on the final bill.

“The software company wanted an omnichannel experience for everything from the copay to the bill that it could offer to dentists that are opening a new practice,” Peddington said. “In the end, that software company got very good growth by selling that payment product, so we’re proud of how that went.”

U.S. Bank’s embedded-payments strategy includes a recent partnership with Driveway.com, a used car reseller. The Driveway.com partnership enables a seller to enter their license and vehicle identification number into an app and receive a sales quote. If the seller accepts that quote, a representative from the site’s network is dispatched to inspect the car, which can then be loaded into a tow truck if the e-commerce site’s offer is accepted.

The seller receives payment nearly instantly via a combination of embedded payments and The Clearing House’s RTP network.

“For most people, a car is the second-largest transaction in their life, after a house,” Somani said. “This is a way to remove the friction from that.”

Tips for bankers

The opportunity in embedded banking has made it competitive, with numerous banks, fintechs and large payment companies deploying services.

Writing for American Banker, Alex Reddish, chief commercial officer for Tribe Payments, said, “In a few short years, the transaction will be dramatically different once again — this time thanks to embedded payments. The direct relationship between the customer and the transaction will cease to exist, as payments will be embedded and invisible to the point that customers won’t think about it at all. The payment will simply happen.”

The expansion of application programming interfaces has made it easier for users to access bank’s embedded banking programs, though there’s still the option to install more traditional interfaces, Peddington said.

“Companies are at different stages of their journey,” he said. “They may be a fintech-style company or a manufacturer that has been in business for more than 100 years.”

U.S. Bank has a virtual studio where users can test or customize embedded payments. The bank has also developed an online marketplace of third party and treasury management products that are integrated with the bank’s technology. This is designed to help businesses adopt new payments, working capital loans and other treasury services available through embedded payments.

“This helps answer the question: Fintech and bank partnership, friend or foe?” Somani said. The marketplace enables businesses to access services that the bank has vetted. “The bank provides the assurances while the fintech provides the cool front end,” Somani said.

Somani and Peddington both suggested a tight link between embedded payments and real-time processing, which enables transactions tied to third-party partners to execute quickly and at all times.

“RTP provides data in real time and accelerates how you get paid,” Peddington said, adding real-time payments can also provide payment acknowledgements instantly, which can be useful to promote partnerships with real estate companies or other organizations that rely on time-sensitive transactions.

“With payments for real estate, there are big transactions where you can settle funds instantly. We need to settle and get acknowledgements on the spot.”