Here’s How Frictionless Payments and Embedded Finance Intersect: What You Need to Know
For fintech startups, speed and simplicity in payment infrastructure is a necessity. Frictionless payments, designed to make financial transactions as quick and effortless as possible, are crucial for enabling a wide range of transactions beyond traditional payment gateways, all without the years of development time and millions of dollars in investment.
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“A frictionless payment system is one that requires as minimal action as possible from customers. This could be using a saved payment method or leveraging advanced technology, like mobile wallets and biometric authentication,” said Lee Cocking, Chief Product Officer at Cybrid. |
“68% of customers have indicated that they’ll leave a line before it becomes their turn. By making sure that transactions are fast and seamless, you can keep your customers moving and happy.”
In this blog post, we’ll explore frictionless payments, how they work, the technologies behind them, and the transformative impact they have on both consumers and businesses.
The Development of Frictionless Payments
Though frictionless payments seem like a recent development, earlier iterations of the technology have been around for decades.
Creation of Online Banking
The payment landscape shifted dramatically in 1994 when the first financial institution offered online banking, and by 1995, online transactions became available to the public. These developments set the stage for a more connected and efficient payment ecosystem.
Tap Payments, Chip, and PIN
The early 2000s saw the next major leap with the advent of chip, PIN, and tap payments, with things kicking off in the UK. This innovation quickly spread to America and other countries in the early 2010s. These technologies significantly reduced transaction times and introduced a new level of security.
Radio Frequency Identification (RFID)
RFID uses electromagnetic fields to identify and track tags attached to objects, which contain electronically stored information. For payments, RFID-enabled cards can be scanned by readers without direct contact. This technology not only speeds up transactions but also improves durability of both your technology and your customers’ cards, as well as improves ease of use.
The Move to Modern
Today, frictionless payments have evolved to include advanced technologies like mobile contactless payments. These platforms offer a seamless payment experience by allowing users to pay with a simple tap of their phone or credit card.
As we look ahead, the adoption of new technologies will likely continue to redefine the way we pay, making transactions faster, safer, and more convenient than ever before.
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Technologies That Power Frictionless Transactions
This seamless payment experience offered by frictionless payments is driven by the evolution of various payment technologies. However, it’s important to realize that while technologies like biometrics and NFC are agents of convenience, their true power lies in the strong foundations of security, compliance, accuracy, and accountability that support them.
Embedded Finance
Embedded finance technology plays a critical role in frictionless transactions, enabling businesses to offer multiple payment options directly from their websites. This integration ensures that customers can complete transactions effortlessly while maintaining the highest standards of security and compliance.
Biometrics
Biometric verification leverages unique physical characteristics—such as fingerprints or facial features—to authenticate individuals.
By confirming the payer’s identity with a simple touch or glance, biometric systems offer a fast and secure way to process payments. These systems have become more sophisticated and accurate over time.
Near-Field Communication (NFC)
NFC technology allows two devices—such as a smartphone and a payment terminal—to communicate when they are in close proximity. With it, your customers can simply tap or hold their device near the terminal.
Widely integrated into smartphones and payment systems, NFC has become a staple for swift, minimal-touch payments, becoming key in the overall customer experience.
Real-Time Fraud Detection
Global losses from payment fraud grew to $41 billion not too long ago. In light of such events, financial institutions and banks seek to adopt advanced solutions to protect their customers. Real-time fraud detection is also known as KYC (Know Your Customer) and KYB (Know Your Business)—key elements of Cybrid’s embedded finance platform.
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Did you know? Cybrid can be your single vendor for all of your KYB through:
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Financial institutions and banks are increasingly adopting advanced solutions to safeguard their customers against fraudulent activities. One such cutting-edge approach involves the use of machine learning algorithms.
Machine learning plays a crucial role in identifying suspicious activities by analyzing vast amounts of transaction data in real-time. These algorithms can learn from historical data, recognize patterns, and detect anomalies that might indicate fraudulent behavior.
Tokenization
Tokenization involves replacing sensitive payment information with unique identifiers, or tokens. These tokens cannot be traced back to the original data without specific decryption keys, which are stored separately. This way, sensitive data is not exposed during transactions.
One example of this is the Interac token. Interact is Canada’s first domestic token service provider, which also recently enabled Interac Debit with Apple Pay in Canada.
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Examples of Frictionless Payments Used by Businesses and Customers Alike
Here are several examples of frictionless payment methods that have become integral to modern commerce.
Account-to-Account (A2A) Payments
A2A payments streamline the process by allowing customers to link their bank account once during checkout. This is enabled by services like Plaid, which allows customers to log into their bank account and securely check the balance, get account details, or move money – massively simplifying bank account linking and potential errors.
Subsequent payments are then completed easily, enhancing convenience and efficiency. This method is particularly useful for recurring payments and subscription services.
Contactless Cards
Powered by NFC technology, contactless cards offer a quick and touch-free way to pay. Simply tapping the card near a payment terminal completes the transaction in seconds. Retailers and service providers benefit from faster checkouts and higher transaction volumes, particularly during peak times.
Digital Wallets
Digital wallets have transformed how people store and use their payment information. Beyond just a repository for credit and debit cards, digital wallets also manage loyalty programs, tickets, and boarding passes.
For consumers, this means all their monetary tools are conveniently accessible with a single authenticated action, such as a fingerprint or facial scan. Businesses benefit by integrating loyalty and reward systems directly into the payment process.
In-App Payments
In-app payments streamline the purchase process within a merchant's mobile application. Customers can complete transactions without leaving the app, providing a seamless and uninterrupted shopping experience.
One-Click Payments
One-click payments revolutionize the online shopping experience by allowing customers to complete purchases with a single click. By linking a bank account or payment method at checkout, subsequent payments are processed instantly. This reduces cart abandonment rates and enhances the overall user experience.
QR Code Payments
QR code payments are becoming increasingly popular. Customers scan a QR code with their mobile phone camera, which initiates the payment process. This method is quick and easy, suitable for in-store purchases, restaurant bills, and even peer-to-peer transactions.
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How Businesses Are Enabling Frictionless Payments
In an increasingly competitive market, businesses are enabling frictionless payment solutions to meet consumer demands for seamless and efficient shopping experiences. Let’s take a look at a few ways how they’re doing it.
Improved Security
Technologies such as token-based authentication protect sensitive payment information, reducing the risk of fraud. By securely storing user billing information and using tokens for authentication, businesses can provide a safe and efficient payment process.
Some other elements of security for frictionless payments include:
- Embedding secure checkout on your site: This approach involves integrating secure payment gateways that encrypt data during transmission.
- Tokenization: Payment data is never stored in its original form within your systems. Even if a token is intercepted, it cannot be used to access the underlying payment information.
Cryptocurrency On/Off Ramps
Crypto on/off ramps enable the conversion between cryptocurrencies and traditional fiat currencies digitally. On-ramps allow users to exchange their fiat currency (like USD, EUR) into crypto, while off-ramps enable the reverse process—converting crypto assets back into fiat.
Think of them as digital currency exchanges, where instead of physically exchanging one form of money for another, the entire process happens online, converting your fiat money into crypto and vice versa.
On-ramps typically leverage payment gateways or fiat deposit methods like credit cards or bank transfers to facilitate the buying of crypto.
Off-ramps use APIs and smart contracts to sell crypto and transfer the equivalent value to a linked bank account.
The integration of these on/off ramps within a payment system simplifies the process for both businesses and consumers, offering flexibility, faster settlement times, and reduced transaction costs compared to traditional payment methods.
Internet of Things & Technology Integration
The Internet of Things (IoT) is transforming the way businesses deliver frictionless payment experiences. As IoT devices multiply in retail environments—from cameras and kiosks to routers and mobile computers—they are revolutionizing the way transactions are handled.
For example, biometric authentication through IoT devices can automatically verify a customer's identity. IoT devices create a trusted network of payment receivers that can connect automatically with consumers’ personal devices as they move through the store.
With all of this information in mind, are you ready to streamline your payment processes? This is where Cybrid can help.
Unlock the Future of Payments
Discover how Cybrid’s cutting-edge embedded finance platform can help you stay ahead in today’s fast-paced market. With us:
- Get your payment solution up and running in as little as 30 days
- Tap into an option trusted by over 50 fintech solutions
- Rely on our team's 100+ years of combined industry experience
Get in touch with us today to learn more about our innovative frictionless payment solutions and how they can transform your business.
Lee Cocking, Head of Product @ Cybrid
