The Future of B2B Embedded Payments

While  embedded payments technology has been around for years, its adoption by  businesses and consumers was accelerated by the COVID-19 pandemic. That growth is expected to continue, with Juniper Research estimating that embedded payment transaction value will surpass $2.5 trillion globally by 2028, up from $1.1 trillion in 2024.¹

But, the uptake of embedded payments for B2B transactions lags that of B2C transactions. The reason: B2B transactions are significantly more complex, involving invoicing, coordination among multiple suppliers, reconciliation, and other complications.

At the recent KeyBanc Capital Markets (KBCM) Technology Leadership Forum, Jon Briggs, Head of Commercial Product & Innovation at KeyBank, and Greg Cohen, CEO of Fortis, discussed what’s expected to drive and impede the growth of B2B embedded payments over the next couple of years. Timothy Monnin, Global Head of FinTech Investment Banking at KBCM, moderated the discussion.

The panel kicked off by describing how the B2B payment ecosystem evolved from B2C payments.

The dawn of B2B payments

“The B2B side has always trailed the consumer side when it comes to online bill pay, banking, and payments,” Monnin said. “[B2C merchants] have just tried to replicate their normal experience the way they accept cards and make it easy for consumers and to try and minimize friction.”

Smaller B2B businesses started to adapt embedded payments serviced by verticalized software companies that added embedded payments to their checkout or electronic billing. More recently, these companies have moved further upstream into the B2B enterprise space.

“Commercial clients who run their businesses on enterprise resource planning (ERP) software want to get out of banking within the bank’s four walls — and do it more natively — in their ERP where they conduct their business every day,” Briggs said.

For B2B companies, embracing embedded payments is mostly about accounts payable, accounts receivable management — and how to drive efficiency, reduce paper and human processing errors, and speed up cash flow.

“If you take a big manufacturer or warehouse, they are not using Toast, they are using plain software that should have been sunset five years ago,” Cohen said. “It is a highly fragmented ecosystem, and so all of this implementation just takes time.”

To make the transition, middle market companies need to embed their financial services in their back end, not just payments, to ensure accounts payable and accounts receivable see the rewards. 

What’s under the ‘embedded’ umbrella?

The panel then addressed the difference between “embedded payments” and other concepts such as “embedded finance” and “banking as a service (BaaS).”

“Embedded payments” are a subset of a broader trend known as “embedded finance,” which involves business solution providers offering other financial services, like insurance, investments, and loans. For example, a contractor paying for wood in a lumber yard’s app is an example of embedded payments, while taking out an installment payment loan (buy-now-pay-later/ BNPL) to pay for wood in a lumber yard’s app is embedded finance.

“When the client says, ‘embedded finance,’ what they really mean is lending,” added KBCM’s Monnin, “And it’s a big difference, because it’s risk taking versus more simply accepting payments.”

BaaS, on the other hand, is a component of embedded finance that describes the integration of digital banking services from a licensed bank directly into the products of a non-bank business. Through functions like buy-now-pay-later, or receivables financing, BaaS enables fintechs and other businesses to provide niche financial services without having to go through the same regulatory and licensing hurdles as those of traditional banks.

How will artificial intelligence (AI) impact embedded payments?

Like the internet, mobile devices, and cloud computing before it, artificial intelligence is expected to transform how businesses — including payments companies — operate. The promise of AI, Monnin said, is to “hopefully make things better, faster, cheaper for the industry,” especially in servicing customers.

Fortis’ Cohen agreed that AI will help streamline and enhance servicing. However, he expects to apply those improved capabilities not just to customers but to B2B channel partners and distribution customers, as well.

“The more we’re able to allow them to help themselves, the more efficient we become as an organization and the easier it will be to scale your business,” Cohen explained. “It doesn’t sound sexy, but nothing moves your business faster than that, and that’s a use case you can put into action within the next 12 to 18 months.”

In terms of AI’s impact on the B2B payments process, Briggs described a project that one of KBCM’s fintech partners is working on that automates the workflow around matching invoices, purchase orders, and payments. He added, however, that while AI carries a lot of promise, it could also potentially expose financial institutions to more fraud and risk.

“And one limitation to how fast we can respond is the regulatory environment. Which doesn’t help us get to ‘better, faster, cheaper.’”

Embedded payments in the regulatory crosshairs

Much of  regulators’ heightened interest in the payments space stems from recent events in the financial services industry. Specifically, the panelists discussed the abrupt shutdown and bankruptcy of fintech middleware firm Synapse in May, and that company’s relationship with Evolve Bank & Trust.² The Federal Reserve issued an enforcement action against Evolve the following month, citing deficiencies in the bank’s anti-money laundering, risk management, and consumer compliance programs.

“In the Synapse/Evolve example, millions of dollars went missing, and because they didn’t understand who was contractually accountable for what, nobody knows who’s at fault for that,” Briggs explained. “Payments is complex, and delivering it is complex. Some companies are making it even more complicated by dealing with eight to 12 different fintech or software providers enabling payments for them.”

In response, regulators have released guidance including examples of things they’re going to be looking for as they try to get their arms around the payments and fintech ecosystem.

“The lesson here,” Briggs said, “is whether you’re an investor or a partner, understand your supply chain and have clarity over who’s responsible for what. Because it only takes one of these companies to trip up and, all of a sudden, the music can stop suddenly for your business.”

There’s no stopping the growth of embedded payments, but risk factors remain

Both businesses and consumers will continue to embrace embedded payments over the next few years, but the highest rates of growth will be in the B2B segment, as companies get more comfortable with ditching paper checks and look for easier and lower-cost alternatives to payments. Companies’ ability to capitalize on that growth and the continuing evolution of the technology will depend on how effectively they can manage the risks and navigate the ever-changing regulatory landscape.

“We're excited about having the capability in the market to be able to meet this growing trend,” Briggs said.

To learn more about embedded payments and how your business can benefit, connect with an Embedded Banking Advisor.

For more information on this panel discussion, reach out to Tim Monnin or Jon Briggs.

To learn more about our industry expertise, visit Key.com/embeddedbanking and Key.com/technology.