Accounts Payable Payments as a Service Tracker® Series Report

Embedding Transformation: Solving Critical AP Challenges With Embedded Payments

November 2023

Accounts payable (AP) continues to be a key pain point for businesses of all sizes, especially those that rely on legacy methods like checks. Implementing embedded payments could significantly streamline the AP process.

PYMNTS
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Business-to-business (B2B) payments form the backbone of the modern economy. Compared to their peer-to-peer (P2P) or consumer-to-business (C2B) counterparts, however, they consistently come up short in terms of ease of use and security. This is due primarily to a reliance on paper payment methods.

02

One of the most promising solutions to AP challenges is embedded finance, which integrates financial tools into existing AP software and workflows, eliminating the need for an outside bank or financial service provider to facilitate the transaction. Moreover, embedded finance solutions offer unparalleled seamlessness and security to AP teams.

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The benefits of implementing embedded payments are not just hypothetical. They have been thoroughly field-tested and have generated numerous success stories. Here, PYMNTS Intelligence highlights two notable examples of successful embedded payments partnerships.

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    Accounts payable is a crucial function of any business, but it can be more susceptible to complications, delays and other issues than CFOs would deem acceptable. Studies show that 64% of businesses encounter delayed payments, with suppliers waiting an average of 43 days to get paid, leading to 80% of their offered discounts going unclaimed due to these delays. Another 70% of firms experience attempted payment fraud, with bad actors exploiting vulnerabilities in their AP systems.

    Many of these complications are the product of inefficient and error-prone manual AP systems, which often rely on paper payments such as checks. While various alternatives exist to help businesses address these challenges, few hold as much promise as embedding B2B payment technology within existing accounts payable and procurement systems.

    B2B Payments Found Lacking Compared to Their Peers

    Business-to-business (B2B) payments form the backbone of the modern economy. Compared to their peer-to-peer (P2P) or consumer-to-business (C2B) counterparts, however, they consistently come up short in terms of ease of use and security. This is due primarily to a reliance on paper payment methods.

    B2B payments are vulnerable to fraud and cybersecurity threats.

    Last year, six in 10 companies reported being affected by B2B payment fraud, with 12% of firms indicating that they were targeted by more than 10 attempts. Losses from this type of fraud cost 24% of businesses more than $100,000, and 5% more than $1 million. Funds lost to B2B payment fraud are seldom recovered, especially when they involve cross-border transactions. Most of these fraud attempts target legacy payment methods like checks or wire transfers, which are vulnerable to being intercepted or manipulated, leading senders to transmit payments to false recipients.

    60%

    of companies are affected by B2B payments fraud.

    Legacy payment methods cost firms considerable sums — even when transactions proceed smoothly.

    Sixty-one percent of firms reported spending between $10 and $50 in cross-border fees for each transaction, and a similar proportion indicated spending up to 3% in foreign exchange fees. High costs were not the only problem reported, however, with 72% of firms saying their payments were delayed by up to 10 days when transacting internationally. Legacy methods continued to make up a large share of these payments: More than half of respondents used wire transfers, while 28% used electronic checks and 17% used paper checks and cash.

    Embedded Finance Adds Value to B2B Payments

    One of the most promising solutions to AP challenges is embedded finance, which integrates financial tools into existing AP software and workflows, eliminating the need for an outside bank or financial service provider to facilitate the transaction. Moreover, embedded finance solutions offer unparalleled seamlessness and security to AP teams.

    $7T

    Projected volume of embedded finance solutions by 2026, up from $2.6 trillion in 2021

    Embedded finance accelerates vendor payments and improves supplier relations.

    Recent PYMNTS Intelligence research revealed that suppliers prefer payment methods — such as virtual cards — that streamline and expedite fund transfers to their accounts. This preference has made embedded finance implementation a key priority for AP departments.

    The research also shows that integrated solutions offer several advantages to AP departments themselves, including the acceleration of order-to-cash processes, the leveraging of automation to improve invoice reconciliation accuracy, the centralization of management processes to resolve payments more quickly, and the promotion of enterprise resource planning (ERP) to turn data into actionable insights.

    Embedded finance is advancing popular solutions to AP complications.

    Experts predict that embedded finance solutions could account for $7 trillion in transactions by 2026, up from $2.6 trillion in 2021. This growth is driven largely by the seamless convenience these services offer to businesses and consumers alike — and represents a brand-new revenue stream for software businesses that previously relied on their own products for 100% of their revenue. Payers can simply click a “pay” button, eliminating the cumbersome task of executing wire transfers or writing and mailing physical checks. The embedded finance market is projected to reach $51 billion by 2026, with a remarkable 19% compound annual growth rate (CAGR) since 2021.

    Embedded Payments in Action: Real-World Use Cases

    The benefits of implementing embedded payments are not just hypothetical. They have been thoroughly field-tested and have generated numerous success stories. Here, PYMNTS Intelligence highlights two notable examples of successful embedded payments partnerships.

    Mastercard and KredX’s B2B payment platform leverages embedded payments to simplify transactions.

    The collaboration integrates Mastercard’s commercial card service with the KredX platform, offering several benefits to users, including dynamic discounting and early payment and price discovery features. All of these features are designed to facilitate more efficient invoice matching and processing, which, in turn, can improve downstream cash flow and enhance supply chain management. The collaboration between KredX and Mastercard also aims to address other challenges AP departments face with B2B payments, such as long accounting and reconciliation processes, low vendor acceptance and frequent chargebacks.

    Fixing frictions

    Frequent chargebacks, lengthy accounting and reconciliation processes and low vendor acceptance are just some of the issues embedded finance aims to solve.

    Proactis and Finexio recently partnered on AP automation and B2B payments.

    The new collaboration adds Finexio’s AP payment capabilities to Proactis’ source-to-pay software solution, with the intention of helping midmarket organizations eliminate manual processes from B2B payments. Payment types included in the new solution consist of automated clearing house (ACH), wire, virtual cards, paper checks and others. In addition, the partnership provides supplier enablement, fraud and risk detection, payment-specific strategic account relationship management, payment operations and settlement support, and payments and banking data security capabilities, according to Finexio’s press release.

    Software Can Unlock AP’s True Potential by Leveraging Embedded Payments

    Embedded finance solutions offer numerous advantages for B2B payments and AP processes, transforming the way businesses handle financial transactions. These solutions seamlessly integrate financial services into existing business systems, creating a more efficient and cost-effective ecosystem. Embedding payments directly into platforms with existing invoicing and procurement capabilities limits manual data entry, errors and time spent on administrative tasks.

    In addition, businesses can save money by reducing the need for paper-based processes and manual reconciliation and avoiding late-payment penalties. Embedded finance solutions also come with robust security measures to protect sensitive financial data, mitigating the risk of fraud, data breaches and financial losses. All of these advantages enable businesses to focus on their core activities while reaping the benefits of a modernized financial ecosystem.

    About

    Finexio is the leading AP Payments as a Service company focused on embedding end-to-end business payment capabilities for mid-market and enterprise organizations into AP software, Procure-to-Pay platforms and financial institutions. Finexio customers benefit from "done-for-you" payments operations services that support 100% of their business payments digitally. CFOs and finance teams seamlessly transition away from manual payment processes to modern, safe and secure electronic payments, realizing significant time savings, reduced payment costs, increased cash flow, fraud prevention and unmatched visibility into their payments data.

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Andrew Rathkopf

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