Embedded Payments Spark Bank-FinTech Partnerships

Embedded payments are inevitable for merchants, for small businesses, for plumbers and gardeners, and pretty much everyone else.

Modern Treasury CEO and co-founder Dimitri Dadiomov and Silicon Valley Bank Head of Global Payments Kathleen Pierce-Gilmore told PYMNTS that partnerships between FinTechs and banks – as they help clients modernize their payment systems and offer embedded transactions – will also be inevitable.

Dadiomov considered why there will be a locked-in, logical and natural progression towards embedded payments emerging as the “new frontier” for commerce.

Throughout the last few decades, back to the dawn of the internet, commerce was centered on small retail purchases. With the early successes of platforms ranging from Amazon to Expedia to Netflix, the challenge was how to accept a credit card transaction online.

“A lot of infrastructure has been built for that,” Dadiomov said, “but there are many other sectors of the economy that banks have served for centuries that haven’t been affected by the Internet as much.” This list includes verticals as diverse as real estate, healthcare, construction and education, where ACH and check payments dominate.

Move past the check and away from the bank branch

But the rise of APIs and software has leveled the playing field a bit, he said, and can help smaller businesses that traditionally relied on paper checks and invoices move more fully online. Pierce-Gilmore gave the example that the plumber, with the help of a payment facilitator, can do everything from scheduling deals to finding working capital to buying equipment. The software helps to bypass a major pain point in working life, now made possible by technology, and especially mobile devices:

“For the plumber who is out in the field all day working with customers,” she said, “going to a bank every day is disruptive. Providing payment solutions that are relevant to their business, built into the software they use to manage their business, just makes a ton of sense.”

Against this backdrop, Modern Treasury and Silicon Valley Bank have worked together to make it easier for client businesses to use tools that allow them to build seamless payment experiences. The greenfield opportunity is significant, Dadiomov said, as the firms that have built new business models around embedded payments number only a few hundred.

“If you as an entrepreneur, founder, product manager or CFO think about what it would mean to have embedded payment streams in your products,” he said, “it can all be very strategic, add to your top line and grow your business.”

The technical challenges are daunting, said Dadiomov. Finance teams are under pressure to run their businesses as efficiently – and securely – as possible. Revenue recognition becomes complex because companies that offer embedded transactions are now in actual cash flow when managing third-party payments. The risk increases as more transactions go online, fraudsters become more greedy every day. Real-time payments are just over the horizon, Dadiomov said, and it all means that what was done manually in the back office simply cannot be done that way. Not any more.

“You need software to enable all these new features,” he said. And the combined efforts of banks and FinTechs will be crucial to solving the challenges of embedded payments.

To illustrate how much of a game changer the combined technology tools can be, Pierce-Gilmore described the experience of a shared Modern Treasury/SVB client. The client provides benefits software to companies that in turn want to provide fertility benefits to workers.

“As you can imagine, a fertility software vendor is not an expert in payment operations,” Pierce-Gilmore said, and the combined efforts of Modern Treasury and SVB help manage the claims, premiums and insurance aspects of the process.

Partners, not rivals

The joint effort, Pierce-Gilmore and Dadiomov said, should help dispel any notion that there must be a rivalry between banks and FinTechs.

“We bank our so-called competitors,” she said, “and actually more than 50% of FinTechs out there bank with SVB … and companies like Modern Treasury help make us better. There’s room for both of us.”

Dadiomov added that “there is a lot of overlap between our customer types and customer needs. And we have no ambitions to become a bank, we are a software company.”