Defragmenting payment systems: Using embedded finance to build a lucrative marketplace

Defragmenting payment systems: Using embedded finance to build a lucrative marketplace
Francesc Altisent

By Francesc Altisent, VP of Product, Payments & Banking at Mangopay

Ever since the inception of online shopping, payments and ecommerce have been intertwined. Payment providers allow for ecommerce platforms to securely process payments without worrying about the infrastructure and security. For ecommerce, it’s one less thing to worry about, but for fintech companies, it’s a life-long partnership on which their growth relies.

Through decades, innovation and introduction of new products have always been fintech’s way of growth, however, in recent years, they’ve seen an untapped market by tightening the knot with their ecommerce partners through embedded finance.

The new era of value creation for ecommerce and fintech

The growth of ecommerce in 2023, though slower when compared to previous years, marks its resilience against economic headwinds and geopolitical instability.

This growth presents a myriad of opportunities for fintech and ecommerce as they create more integration payment experiences for end-users.

Ecommerce platforms leverage partnerships with fintech companies to offer built-in financial solutions to end-users, such as BNPL (Buy Now, Pay Later), one-click payments, co-branded credit cards, embedded wallets and more.

Through this partnership, fintech is able to tap into a massive user base while ecommerce platforms offer seamless payment experience to its customers while unlocking new revenue streams from added monetisation and revenue share opportunities. For end-users, this means a more convenient and unified shopping experience.

Fintech companies are able to reduce their Cost per Acquisition (CPA), ecommerce grows their revenue while end-users enjoy a more secure and seamless experience, all paving the way to a more sustainable growth.

The rapidly expanding market for embedded finance

The market value of embedded finance is expected to grow to $7.2 Trillion by 2030, with insurance, financing and payments sectors taking the lead.

B2B BNPL and trade financing solutions are driving this growth, providing merchants with faster access to working capital and accelerating adoption by businesses and consumers.

Meanwhile, fintech-enabled marketplaces and platforms are commanding higher valuations than their counterparts, demonstrating the power of embedded finance to enhance customer experience and drive business growth.

Through 2024, we can expect to see a continued convergence of financial services and non-financial experiences. This trend will lead to a significant portion of fintech revenue being generated through embedded channels, further solidifying the transformative impact of this emerging technology.

The role of a wallet-based payment infrastructure in this transition

Wallet infrastructure empowers businesses to create digital wallets for their customers, enabling them to store, send, and receive funds effortlessly. The same infrastructure also provides a solid foundation for marketplaces and platforms to capture additional revenue streams through wallet-facilitated transactions within their apps and websites.

Payment flows that operate outside of wallet infrastructure might be limiting customisation and hindering revenue potential.

Furthermore, e-wallets’ ability to hold funds indefinitely due to their EMI license grants platforms greater flexibility to retain funds within their ecosystem when necessary.

On the operational front, wallet infrastructure facilitates streamlined money movements within the platform, enabling marketplaces to establish multiple wallet accounts for each transaction type, including commission, platform fees, sellers’ wallets, and even buyer wallets.

This segmentation enhances financial transparency and provides sellers and buyers with greater control over their funds.

Furthermore, the same wallet infrastructure can serve as the foundation for building an integrated seller earnings management experience directly within the platform. This empowers sellers to track their earnings, manage payouts, and access comprehensive financial insights, streamlining their operations and fostering customer satisfaction.

Defragmenting payment systems

Although it brings a raft of benefits, wallet infrastructure alone is not enough to create a scalable payment flow. A payment orchestration layer brings together various payment systems into a single, interoperable ecosystem, providing greater control and flexibility in scaling payment operations. In a vendor-locked payment set up, payments data is often captured and secured in a non-interoperable token vault within a payment provider. This means that merchants can’t reuse data for other payment providers, thereby limiting payment optimisation strategies like local routing, which increases authorisation rates. 

With the web of payment technologies in an embedded finance setup, building automations without an interoperable token vault can be challenging. Furthermore, managing refunds and chargebacks from multiple payment providers and payment methods could mean that platforms need to build their own unified PaymentOps ledger or juggling multiple dashboards of different payment providers. Both approaches are highly time and resource consuming.

A Payment Orchestration Layer not only unifies the entire operations but also offers a network of third-party providers such as payment methods, fraud prevention solutions, CMS and more, allowing faster integrations. 

What does the future hold?

With unified experiences becoming the new standard, we’ll see a shift in the ecommerce payment stack into a more acquirer-agnostic and interconnected ecosystem.

Leveraging both a wallet-based payment infrastructure and Payment Orchestration, a modern marketplace can achieve agile and scalable operations by unifying their operations in a single ecosystem and unlocking efficiency and revenue growth.

This allows for their whole infrastructure to be future-proof as digital commerce continues to evolve.


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