Embedded payments are reshaping the industry. Integrating payment processing and merchant services directly into software platforms is now so common that more than half of all businesses get their payments through a software vendor rather than a traditional provider.
One area with potential for future growth is embedded mobile payments. Paying for dinner through a restaurant’s app, purchasing artwork on Instagram, and buying upgrades for a mobile game are all examples of embedded app payments.
Although there is a lot of potential for this technology, users and software developers can be slow to adopt embedded mobile solutions because of the high fees the Apple and Google app stores charge on in-app transactions. However, new legislation from the European Union is now forcing the big app stores to adjust their fees for EU markets. If countries like the U.S. and U.K. follow suit, a new age of embedded mobile payments may be just on the horizon.
Mobile Apps: The New Frontier in Embedded Payments?
Embedded mobile payments aren’t new. Anyone who has taken an Uber, ordered food through an app or purchased an upgrade in a game has made an embedded in-app payment. In-app transactions were at the forefront of the embedded payments revolution long before payment functionality became more common in SaaS (software as a service) environments.
Embedded payments are emerging in more places. Marketplaces are increasingly building payments directly into the user experience, allowing users to send and receive payments securely and easily.
For instance, Mobile.de, Germany’s biggest vehicle marketplace, recently added embedded payments that provide an escrow-like experience that enables users to make enormous purchases entirely within the comfort of the platform. This is a far better experience than handing cash to a private seller. With apps being a core channel for many online marketplaces, embedded mobile payments are a natural fit.
Consumers and businesses are ready for wider embedded mobile payments, and more companies will be rolling them out in the near future. However, the mass integration of embedded payments still faces one major hurdle – the potentially high cost of doing business in the Apple and Google app stores.
The Challenge: App Store Market Control
The term “Apple Tax” is enough to send shivers down the spine of many app developers. Apple charges a 30% service fee on purchases made through many of the apps available in its App Store. Google charges a similar fee through the Play Store. That means some merchants could lose 30% of their revenue on in-app embedded payments.
Another issue is that both Apple and Google have always forced in-app purchases through their native checkout systems. That makes it nearly impossible for software developers to avoid the service fees without disrupting the payment experience, nullifying the benefits of embedded payments. Apple recently announced U.S. developers can start using third-party payments, but they’ll still pay a 27% fee.
There are some exceptions. Categories like food, physical goods and tangible services (such as field services, rideshares and food delivery) are exempt from Apple and Google’s service fees. Smaller businesses can also take advantage of discounts, with merchants earning $1 million or less in revenue paying only 15% — a break, but still a painfully large portion of every transaction.
Many merchants have no choice but to pay. Unfortunately, Apple and Google’s extreme fees have driven some sellers, including giants like Netflix, to remove in-app payments altogether — an unquestionable step back in customer experience.
Europe to the Rescue?
Europe is leading the way in protecting both businesses and consumers from potentially predatory payment practices. In early 2024, the European Union’s Digital Markets Act (DMA) forced Apple to rework its fee structures for apps in the EU market. Instead of 30%, most developers will now pay just 10%.
The DMA also forced Apple to allow the use of third-party app marketplaces on all new versions of iOS in the EU. That means developers can distribute their apps through new marketplaces, spurring competition and ideally lowering fees even further. It also means developers can offer app downloads directly from their own websites. Breaking the app store duopoly gives developers more freedom to integrate embedded payments how they want, rather than being forced into using Apple or Google’s built-in checkout systems.
The question now is when (or if) the U.S., Canada and other countries still under the 30% commission structure will take similar action.
Taking Advantage of Embedded Mobile Payments Everywhere
There is an app for almost everything today. For instance, embedded payments are common in the SaaS platforms that power medical and dental offices. They enable staff to take in-clinic payments through their operational software. Some SaaS providers also offer mobile apps that allow patients to schedule and manage their appointments and pay for services right from their phones.
For SaaS developers, apps are arguably the next major frontier in embedded payments. Theoretically, developers can gain the same benefits from embedding payments into mobile apps as they do from their desktop-based software. Having a mobile option offers end users the flexibility to choose how they interact with their software while increasing revenue for the provider. That is a big deal, especially for businesses that rely on sales in the field.
Until now, the idea of losing 30% of revenue has made app-based embedded payments unpalatable or impossible for many businesses. Now, with fees dropping and the app store duopoly broken — at least in Europe — merchants have more options, and SaaS developers have new opportunities.
Partnership-Driven Embedded Payments Will Thrive in an Open App Marketplace
As competition increases and the costs of in-app payments plummet, the potential for SaaS developers to roll out embedded payments in mobile versions of their software is almost limitless. Software vendors will need to consider the logistics of adding payment processing into their operational mix in the most efficient, profitable way possible — especially as consumer payment preferences evolve.
Younger consumers are slowly but surely making up a larger portion of the spending population. This means that as Gen Z (and eventually Gen Alpha) becomes a larger player in the global economy, it will become increasingly important for businesses to offer flexible, digital-first solutions like in-app payments.
“Mobile devices are essentially an extension of a Gen Zer’s personality and, in some cases, physical body. These consumers aren’t interested in older forms of payments like swiping, dipping tapping, or (God forbid) cash or check,” NMI CEO Vijay Sondhi says. “‘Friction’ doesn’t enter their vocabulary. They’re also not brand loyal, so they won’t go out of their way to accommodate a complex checkout flow with a payment method they dislike. Mobile and digital options are the only way they want to pay.”
Mobile apps play a crucial role in the broader, embedded payments landscape by providing consumers an additional way to pay. Offering multiple payment channels makes shopping more convenient for consumers, ultimately offering more choice and flexibility and increasing customer satisfaction.
Thankfully, with the right partner, SaaS providers and payments specialists don’t have to worry about building and maintaining the required infrastructure in-house.
NMI’s all-in-one embedded payment platform enables SaaS developers to take advantage of embedded payments and earn revenue on transactions processed through their software — all without any of the traditional headaches of becoming a payment processor. To learn how NMI makes tapping into payments revenue easy, reach out to a member of our team today.
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