‘Inevitable’ Advance of Embedded Payments Will Spark Bank-FinTech Partnerships

Embedded payments are an inevitability 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 payments systems and offer embedded transactions — will be inevitable too.

Dadiomov weighed in on why there’ll be a lockstep, logical and natural progression toward embedded payments emerging as the “new frontier” of commerce.

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

“There’s been a lot of infrastructure built for that,” Dadiomov said, “but there are many other sectors of the economy that banks have been serving for centuries that have not been affected by the internet as much.” That roster includes verticals as diverse as real estate, health care, construction and education, where ACH and check payments dominate.

Moving Beyond the Check and Away From the Bank Branch

But the emergence 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 offered up the example of the plumber, with the aid of a payment facilitator, can do everything from schedule appointments to find working capital to buy equipment. The software helps sidestep a key pain point in workaday life, now made possible by technology, and especially mobile devices:

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

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

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

The technical challenges are daunting, Dadiomov said. Finance teams are under pressure to run their businesses as efficiently — and securely — as possible. Revenue recognition becomes complex because companies offering embedded transactions are now in actual flow of funds as they manage third-party payments. Risk increases as more transactions go online, fraudsters are getting wilier by the day. Real-time payments lie just over the horizon, Dadiomov said, and all of it means that whatever was done manually in the back office simply cannot be done that way. Not anymore.

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

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

“As you can imagine, a fertility software provider is not an expert in payments 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 efforts, said Pierce-Gilmore and Dadiomov, should help dispel any notion that there needs to be a rivalry between banks and FinTechs.

“We’re banking our so-called competitors,” she said, “and in fact more than 50% of the 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’s a lot of overlap between our customer types and customer needs. And we have no ambition to become a bank, we’re a software company.”