NMI’s executive team discusses the increasing dominance of embedded finance and other predictions for the year in Payments 2024: NMI Executive Predictions and Insights for the Year Ahead.

Embedded software payments and finance tools will become more widely adopted in 2024.

“In the year ahead, I think we’ll see embedded finance integrate financial services seamlessly into non-financial businesses,” said NMI Chief Executive Officer Vijay Sondhi. “Software-led payments are growing exponentially faster than traditional ones that are done with a card or phone at the POS [point of sale]. And as invisible embedded payments grow, we’re also going to see a decline in the growth rate of more traditional options.”

Embedded payments are financial offerings integrated into software solutions or applications. The ability to purchase an item on Instagram and pay through the app is one example of this technology. Similarly, a business management program that allows users to process transactions through the platform is another example.

Integrated payment solutions are becoming more popular among independent software vendors (ISVs) and tech-savvy payment providers. This is because their design centralizes and streamlines many of a merchant’s key processes—allowing them to perform business functions like scheduling and inventory management in addition to taking payments. It’s a major value proposition, and it is already resulting in an accelerated adoption of both embedded payments and broader ISV platforms.

Businesses Increasingly Run on ISV Platforms

Today, nearly every industry is software-driven. According to research from The Strawhecker Group, 84% of all merchants that accept credit cards use a service from an ISV. Some key sectors, like non-profits, already report upwards of 90% penetration.

In the past, most merchants settled for generic systems targeted to a mass audience—like Excel and Salesforce. Today, more providers are targeting business software to narrower niches to solve problems for specific users.

For instance, a veterinary clinic will have different business management needs than a contractor. The vet needs a solution that helps them schedule appointments, meet compliance standards and track controlled medical substances. On the other hand, the contractor needs visibility into multiple on-site projects and fleet schedules. While these businesses are starkly different, they share a key similarity—they both need to accept payments from their customers.

Traditional financial institutions no longer monopolize commerce. Today, smaller, more focused developers are making payments more accessible and targeted for users. As commerce continues to digitize and software expands into more business niches, ISV adoption will continue to grow.

ISV Embedded Payments Are Already Gaining Traction

Before, ISVs could provide merchants with everything they needed to run their business, except payments. The software might have integrated front-end card payments through application program interfaces (APIs), but the merchant still needed to get processing services from a traditional provider. That’s no longer the case.

Today, software providers and developers are eliminating the middleman (and maximizing their profits) by offering payment processing to their users directly. That is a huge revenue opportunity for providers and significantly boosts convenience for merchants. Today, 50% of merchants already get their payment services directly from an ISV, and that number will only grow.

2024 Will See Embedded Payments and Finance Grow

Merchants are flocking to ISVs and software-driven payments, and software companies and payments specialists are noticing. Embedded solutions are on track to dominate the payments space within the next decade. As 2024 unfolds, expect more ISVs to roll out payment services and more payments companies competing to become backend providers for this important emerging market.

For more 2024 predictions from the NMI executive team, download Payments 2024: NMI Executive Predictions and Insights for the Year Ahead.

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