As more businesses adopt digital channels and back-office automation, KeyCorp sees an opportunity to place a payment portal at the heart of these developments.
“All trends are pointing to the digital acceleration continuing, so a small business needs to meet customers where they are with automated payments and other services,” said Ken Gavrity, head of enterprise payments and analytics at KeyBank.
KeyBank has released a payment facilitator service that enables software companies to support payment processing, allowing them to offer digital payments and other financial services to their own customers. Payment facilitation refers to a provider, in this case Key, that adds a payment rail for other firms. Stripe, Block and PayPal are well-known payment facilitators and the independent sales organizations that used to sell payment hardware to merchants have transitioned to the model as digital payments have grown over the past few years. Other firms such as GoDaddy have become payment facilitators. GoDaddy, for example, is offering payment acceptance devices to the sellers on its platform. The Cleveland-based Key hopes to use payment facilitation to compete in the growing market for embedded banking, or the practice of incorporating payment credentials into other digital functions.
It’s a strategy that has taken off over the past couple of years in consumer financial services, as banks partnered with fintechs to link payments with lending, money management and even digital entertainment. The Apple Card is one of the best-known examples of the concept, using the existing Wallet app and a partnership with Goldman Sachs to offer payments, fast credit card issuance and access to both financial services and Apple products such as streaming content.
Embedded banking is now moving into B2B and B2C payments and banking, according to Enrico Camerinelli, a strategic advisor at Aite-Noverica specializing in commercial banking, cash and trade finance and payment.
“In retail banking embedded payments are pretty basic. It’s one customer with their smartphone accessing different services through a payment app,” Camerinelli said. “In commercial banking the complexity grows. You have more intermediaries, and the differences between business types becomes more of a challenge.”
Key’s new service follows the bank’s November 2021 acquisition of XUP Payments for an undisclosed price. XUP provides the infrastructure that supports business-to-business payments, and the $187 billion-asset Key positioned that deal as a way to cross-sell added services to small-business and middle-market clients — particularly businesses looking to add treasury management and merchant services.
Key is also competing with providers of software that is tailored to specific business models.
About half of small businesses were using vertical software, or software tailored to a specific category’s product or service, at the end of 2021. That is up from 30% at the end of 2018, according to research from BCG, which attributes the growth to the pandemic era’s shift to digital commerce, as well as a demand to connect different business functions in the same user experience. That includes payments, access to credit and other banking services.
This trend creates competitive pressure to place payments within the underlying business software, according to Gavrity. “There is a likelihood that you can raise revenue per customer by placing banking capabilities into the software,” he said.
A health care provider, for example, could embed payments into its practice management software to combine transaction processing with other functions that can also be offered digitally. In this sample use case, Key’s payments technology would be the catalyst to move the practice and its patients away from paper forms to a workflow that includes digital appointment management and other automated communications, along with a payment using a Key card that’s already on file, or one of Key’s financing products.
Key predicts that other categories like commercial real estate and philanthropy can take advantage of embedded payments. Charities are increasingly moving toward digital options — and even digital assets — for collecting donations.
“It’s about ingraining financial instruments into another customer’s process,” said Christopher May, executive vice president and head of XUP Payments at Key, who was president of XUP before the acquisition. “The fact that you are dealing with Key is almost invisible.” When targeted at B2B or B2C use cases, payment facilitation and embedded payments will require technology providers that are in tune with the business’ products and payment needs, which aren’t as clear-cut as consumer payments, Camerinelli said.
“The way in which payments happen, and when, in different businesses varies,” Camerinelli said, adding he considers the concept more about “lifecycle” management than merely embedded payments into business software. “Key is hinting at this with it mention of XUP’s expertise,” Camerinelli said.
Writing for American Banker, Rick Agajanian, vice president of product management at the business software firm WorkWave, says using a payment facilitator model gives firms more options when adding financial and business services, since the credentials are centralized and can support multiple relationships.
“It’s a leveraged customer acquisition model,” Gavrity said. “If a software platform is the primary customer, then there are thousands of dentists, and their patients, that could be underneath.”