Payments as a Strategic Growth Lever: The Shift to Embedded Finance
Traditionally seen as a cumbersome necessity, payments have now transformed into a pivotal strategic tool. With the advent of embedded finance, payment solutions are no longer isolated but integrated across various business lines, fostering innovative use cases that generate substantial revenue.
In a PaymentsJournal webinar, John MacIlwaine, CEO of Highnote, and Hugh Thomas, Lead Analyst of Commercial and Enterprise at Javelin Strategy & Research, discussed how embedded payments are revolutionizing businesses and what to consider when selecting the right partner for this transformation.
The Origins of Embedded Finance
The concept of embedded finance began with large banks issuing credit cards, which necessitated the processing of these cards and their transactions. As banks outsourced this task to third-party providers, it paved the way for what we now recognize as embedded finance. Early platforms essentially acted as wrappers around core transactional infrastructure.
While these early systems facilitated better interaction with legacy technology, they lacked the innovation needed to fully unlock new capabilities. As MacIlwaine stated, “What’s different now is about unlocking a capability that goes beyond simple credit card processing—capabilities such as AP invoice automation, embedded finance, and virtual card issuance.” This required significant advancements in infrastructure.
A Platform for Innovation
Legacy platforms were well-suited to process transactions efficiently but fell short of delivering the full potential of embedded finance. Modern platforms, like Highnote, offer end-to-end innovation through a unified architecture that integrates issuing, acquiring, and credit natively.
MacIlwaine highlighted, “We’ve seen cases where businesses run into reconciliation issues if they don’t have a robust general ledger at the core. Highnote helped them maintain transparency by providing a solid framework for reporting.” This platform allows customers to handle multiple payment methods and settlement windows efficiently.
Flexible Payments for Modern Fleets
Fleet businesses that issue fuel cards are increasingly seeking features only modern platforms can offer. These companies need access to detailed Level 2 and Level 3 data, which enables targeted discounts and incentives across their networks.
MacIlwaine explained, “Modern authorization capabilities help in verifying the right truck driver or correct amount of fuel. Fraud controls are also critical; ensuring that only authorized vehicles use these cards is essential for efficient operations.”
Enabling Innovation
Embedded payments offer benefits that were previously non-existent or overly complex through banks. These platforms provide horizontal capabilities enabling businesses to leverage multiple payment methods without separate onboarding and operational processes.
Thomas noted, “The ability to look at a solution and determine if it increases working capital significantly is a major advantage.” Highnote’s platform allows for real-time settlement, reducing acquiring fees and providing immediate access to funds.
Future-Proofing Innovations
Modern platforms are essential in future-proofing innovations like stablecoins or digital currencies. With a general ledger that is agnostic to the type of currency used, Highnote’s approach ensures seamless integration with new technologies.
MacIlwaine said, “Our platform allows us to embrace these capabilities without significant pivots. The abstraction around our general ledger enables customers to leverage both current and future technological advancements.”
Opening Up the Possibilities
Any company engaged in commerce is connected to financial transactions, providing a natural entry point for embedded finance. Financial service providers can play a key role in integrating these capabilities into payment processes through rebates or upfront assistance.
MacIlwaine concluded, “It’s essential to have partners that open up possibilities rather than dictate strategies based on limited capabilities. The opportunity now lies in extending embedded finance opportunities to generate better customer engagement and value.”