We use to pay for things with cash, then we used plastic cards, and now we use our phones to pay for whatever we want to buy. In the next step, payments will disappear altogether and become completely invisible.
“Embedded payments” are one of the hottest trends in the market with billions being invested, yet most people have not even heard of the term, and those that have don’t even understand what it means.
The embedded payments industry is growing at a rapid pace, with revenues expected to grow from $43 billion in 2021 to $138 billion in 2026. JPMorgan’s proprietary research and analysis, as of October 2021, suggests that embedded payments account for $1.1 trillion in global payment volumes. Big numbers!
Embedded payments, as the name suggests, are about embedding financial capabilities into a non-financial app, so that users can transact without leaving the app. From the user’s perspective, the payments are invisible, as they don’t have to think about it.
Uber is probably the first example of an app using embedded payments. With the push of a button, we could find and pay for a cab right from our phones. This was a huge leap in reimagining the customer experience.
Today, there is an endless number of apps using embedded payments. Open your smartphone and scroll through the various apps you use and count how many have embedded payments or how many have their own card.
Among the most notable embedded payment examples are Apple Pay, Google Pay, PayPal, and other forwarders of financial services.
On an iPhone, Apple Pay lets us make online, in-app, and physical purchases at a POS using our phone’s passcode (or by scanning our fingerprints or our face). We have the same capabilities using Googe Pay on Android phones. Beyond payments, apps are now able to hold deposits, issue cards, add funds to mobile wallets, accept and decide credit applications, facilitate trades, and convert/purchase cryptocurrency using euros and dollars and vice versa.
Another example is Starbucks. Customers can order coffee using the Starbucks app and then get in line to pick up their coffee at that counter. The coffee is paid for by an invisible pre-funded payment method. It’s no surprise that the Starbucks payment method was used by 48% of US customers in May 2020. After loading cash onto the app, payments are invisible and instant, and best of all Starbucks has tied it with its loyalty program to drive even more usage.
Consumers have more financial products at their fingertips than ever before, including thousands of cryptocurrencies. However, using crypto payments is too hard for the average person. The web3 user experience is simply not intuitive enough and introduces more personal risk than most are comfortable with.
One way of embedding crypto into payments is to take advantage of existing rails.
In a post last week, Mastercard or Masterchip, Chris Skinner suggested that the company no longer has the right name, and eventually our wallets will be on a chip inside our cars, homes, watches, and other wearables. I couldn’t agree with him more. This is a topic that has been resonating with me for a while and I wrote about it in another post.
Another way is with services by providers like Nium, Striga, and Modulr which offer “Crypto as a Service” (CaaS). These services plug into existing banking and financial tech infrastructure and make it easy for organizations to offer crypto services to their customers, both B2B and B2C. You can think of it as an additional layer added to the modular banking stack.
The covid pandemic changed our payment habits.
Cards used to be the simplest way to pay for things. There was no need to carry cash around, all you needed to do was to swipe, enter your PIN and you were done. Now smartphones with digital wallets are the norm, and we can make contactless payments by holding our phone near a POS terminal and confirming the payment with our phone’s authentication system.
But the idea that cash or cards could potentially help spread the virus has changed our behavior and pushed us to pay for things in ways that did not involve any contact whatsoever between the payer and the receiver. Since the pandemic started, a quarter (24%) of consumers are using digital wallets more frequently now than a year ago when paying for things and 17% are using mobile wallets more often.
Payments are not just becoming frictionless and embedded, they are becoming invisible.
In a post last week, Mastercard or Masterchip, Chris Skinner suggested that the company no longer has the right name, and eventually our wallets will be on a chip inside our cars, homes, watches, and other wearables. I couldn’t agree with him more. This is a topic that has been resonating with me for a while and I wrote about it in another post about payments.
IoT devices will make it possible for smart appliances and wearables to complete purchases. As technology becomes more sophisticated, and we continue to bring smart devices into our homes and lives, these invisible payments will become mainstream, while physical payment methods become relics of the past.
We are already seeing luxury watch companies working on ways to build smartwatch capabilities. After years of research, Rolex discovered a way to embed smart payment technology inside the sapphire crystal. Last year, Swatch introduced SwatchPay, a way to make contactless payments using your watch. SwatchPay uses a passive NFC chip embedded in the watch head to make contactless payments. It’s like a tiny virtual payment card inside of the watch.
Amazon has been at the forefront of the invisible payments space and has implemented invisible payment technology at its Amazon Go stores.
At these stores, there is no checkout required. Customers simply use an app on their smartphone to check in when entering the store. From that point on, technology (using a combination of sensors, cameras, machine learning, and more) detects when a customer picks up an item from the shelf and keeps track of those items. To purchase the item all the customer has to do is walk right out the door with it.
Amazon is also playing with biometrics in some of its Amazon Go stores. Amazon One allows customers to use the palm of their hand rather than an app to sign into the store.
As we step into a world without cash, invisible payments will be the next big step in the evolution of payments. Invisible payments will take out of the equation the physical element of payments — cash, debit and credit cards, and wearables — to give us a simple payment experience that is effortless, hassle-free, and will not require a payment device.
by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet
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