BaaS vs Embedded Payments – what’s the difference?

BaaS (Banking-as-a-Service) is a well understood acronym in the fintech world, enabling new bank competitors to come to market by using off-the-shelf services to build their offering quickly, compliantly, and capital efficiently. Embedded Payments is, to date, a less well-defined term and while the BaaS and Embedded Payments Venn diagrams overlap to some extent, they are not the same. Embedded Payments has the potential to be a much larger market because it can be used by all businesses, not just banks. 

But what's the difference? And why should businesses take note? Embedded payments can be used by any business that runs on a software platform. It drives new revenue opportunities, operational efficiencies, and smoother customer experience. The problem embedded payments solves is so entrenched in B2B business processes most people don’t even realise there is an alternative.  

BaaS vs embedded payments 

While both represent a modern approach to accessing financial services, BaaS and embedded payments are not the same thing. BaaS is the provision of banking products, accounts, payments, savings and lending to companies.  

Embedded payments is much broader from an end market point of view, applying not just to new bank players but any business that runs on a software platform. In another sense it is narrower, excluding saving and credit services and focusing on account provision, payments, account information, and associated open banking services.   

Traditionally these services have been offered by banks, and most don’t realise that there is an alternative. But account creation can be as simple as an API call away. Payments too, and rather than continually polling an account to see if anything has changed, webhooks can trigger an action, all within the business’s technology stack. Gone are “business hours only”, “batch processes”, and “manual reconciliation”. Instead, this is a world of real-time account provision, as many as you like, real time payments, and instant action on incoming or outgoing payment triggers. And it exists today. 

Embedding payments into a business’s tech platform means that the end customer is kept within the business’s ecosystem for the entire payment journey – no being redirected to external payment screens or inputting information into clunky pop-ups. 

Many people today would think of embedded payments the same way people thought of cloud computing in the 1990’s. Back then it was unheard of that you would want to run software on anything other than a server sitting in your data centre. In much the same way today, it’s hard for many CFOs or CPOs to imagine you would use anything other than a bank to manage your payments. But now, payments can be provided and managed in-house, and that presents businesses with the opportunity to tackle longstanding challenges. 

The crazy paving of business payments 

Relying on a bank to handle payments has always presented businesses with friction, particularly if that business has more complex payment flows than a standard B2C offering where there are a wealth of acquirors and payment processors available to merchants to accept online payments.  

But what about B2B payments – business receivables and payables, loan dispersment, payroll, insurance premium receipts and reconciliation. Over two-thirds (65% of businesses) report spending 14 hours a week on average completing administrative tasks related to collecting payments. Operations and finance teams are having to spend a lot of their time on a painstaking task, as the legacy technology of banking providers is not designed to work with modern tech-first businesses. Similarly outgoing payments are often batched and uploaded to banks via file upload. This delays payments.  

Because of this largely manual approach, errors are common, which creates further work for teams. There are costs involved with fixing these errors, and businesses’ reputations become damaged due to an approach to payments they have very little control over.  

B2B payment experiences rarely match up to digital expectations, whether they be customer refunds which take an age to be processed or employee salary payments that require days to go through. Tech has become increasingly impressive at providing user-driven solutions to common pain points in real-time, but payments have been letting the side down with a disconnected crazy paving of processes.  

Payments can be a bankless task 

Embedded payments are the driving force to bring about new ways of doing things; from making and receiving payments, controlling and using payments data, reducing error, and maximising security.  

By embedding payments infrastructure into a business’s tech stack, large volumes of payments can be processed and reconciled automatically. This not only saves businesses a huge amount of time and resource, but more or less eliminates the possibility of human error. Your teams are therefore freed up to concentrate on more value-add areas of the business. 

As for meeting customer expectations, by taking control of the payment journey businesses are able provide the solutions their customers need. Those solutions may be quicker transactions through access to real-time payment schemes, services actioned by payments, or other payment services such as account creation, within a branded service that they know and trust.  

Payments unleashed 

Embedded payments allow businesses to focus on innovation, efficiency and customer satisfaction. Embedded Payments are already being used across many end markets including banks and neobanks. But also lending businesses, wealth and crypto, marketplace payment providers, accounting and payroll software providers, and broader non-financial businesses such as travel and car dealership networks. These case studies will continue to drive awareness and adoption. We call it “Payments Unleashed” – removing the treacle of traditional bank payment processes but still within compliant, scalable guide-rails.