Why Europe’s SME platforms cannot copy the U.S. embedded payment playbook

This article is co-authored with Mariagiovanna Di Feo and Karim Ahmad, partners at the leading consultancy firm, Bain & Company.

In the United States, software and payments convergence already dominates SME commerce. In Europe, fragmentation and regulation mean this playbook does not directly apply.

Platforms on both sides of the pond are developing integrated business management and point-of-sale software, often with self-designed hardware. They create new revenue streams by bundling or integrating payments with one or two strategic payment partners, improving the experience for merchants and their customers, particularly across restaurant, gym, pharmacy and retail sectors.

However, several key market differences mean SME commerce in Europe will likely diverge from the U.S. playbook:

• Europe’s landscape is highly local and fragmented: Bain and Nexi estimate that more than 2,500 software vendors operate across the UK, Germany, France, Italy, Austria, Switzerland, Nordics and Eastern Europe. The largest vendors serve only 30,000 to 60,000 merchants. Many mature markets are dominated by vertical specialists.

• Local, complex regulation: Regulation varies significantly, both for payments and sector-specific requirements.

• Local payment methods dominate: In the Eurozone, we estimate that around 50% of digital payments rely on local schemes or country-specific APMs. These are often critical to achieving high conversion rates.

• Less attractive unit economics: We estimate that European SMEs spend €1,500-€3,000 annually on software, compared to €4,000-€5,000 in the United States. European payments economics are also three to four times lower, with lower average transaction volumes, lower total take rates, and capped interchange fees.

• High compliance and costs burdens: Extensive EU regulations, such as AML and KYC, drive up costs. European software vendors seeking control of payments flows via a PayFac (payment facilitator) model – which is common in the U.S. – must become registered, regulated financial institutions.

These realities make scaling payments revenue and improving the customer experience more challenging. They encourage reliance on specialised payments partners to reduce investment costs, manage local fragmentation, and navigate regulatory complexity.

Why integrated payments still matter

Despite these complexities, integrated payments remain a major opportunity. Bain and Nexi expect natively integrated payments volumes (in which payments processing is built directly into a business’s software) to increase at a roughly 25% compound annual growth rate (CAGR) in-store, and about 10% when ecommerce is factored in, significantly outpacing the broader EU digital payments market at just 5% CAGR.

By 2030, natively integrated payments could represent more than 30% of the total SME revenue pool in Europe. It allows SME commerce platforms to:

• Earn a profit on every transaction
• Use payments data for enhanced market insights and value-added services
• Monetise new services such as recurring billing and instant payouts
• Raise customer retention rates by owning ‘stickier’ transaction flows

The key to realising this opportunity is identifying the appropriate integration model with the payment provider.

Choosing the appropriate model

Integration journeys will vary depending on each SME commerce platform’s scale, ambition, and risk appetite. Tighter integration brings more control and profitability but also greater complexity. This has led to the emergence of four common partnership models:

2. **Lead referral: **The platform directs merchants to a partner PSP and earns a referral fee. The PSP manages the sale of the payment capabilities. This model enables fast market entry, but profit margins may be limited.
3. Agent or ISO: The platform sells integrated payments on a PSP’s rails and earns a share of revenue. The platform gains greater control and captures higher margins than referrals, but this model requires more commercial effort and broader technical integration.
4. **Full reseller: **Payment capabilities are fully integrated within the platform and sold through a wholesale price agreement. This enables the platform to optimise the checkout experience and maximise payments revenue, but also demands significant commercial and technical integration.
5. Full PayFac: The PSP manages onboarding, risk and settlement. This model generates the highest revenue share, but requires substantial upfront investment in technology and regulatory compliance.

In all cases, payments should be run as a profit centre, tracking profits, losses, economics, and customer KPIs. The opportunity is great, but capturing it will take bold bets, the right partners, and a clear vision of what it takes to win.

Lessons from early movers

Launching payments may compete with other priority SME investments, such as refining core software and scaling distribution. Bain and Nexi have unearthed some practical lessons from the pioneers:

• Start small, plan big. Investing early in complex integration and sophisticated partnerships can slow market entry, cede space to agile competitors, and delay the learning curve. Put products into merchants’ hands as soon as possible, then evolve the merchant experience over time.

• Battle for the entire merchant ecosystem. Integrated payments are part of a broader merchant ecosystem that expands value for customers. Maximising payments revenue in isolation is less effective than simplifying the payment experience for customers.

• Anticipate complexity. Payments sit at the intersection of complex technology and multilayered regulation. Leveraging payments partners’ expertise can avoid expensive mistakes and delays.

• Plan for customer support. Payments typically require more frequent customer support than software. Platforms need to include the payments provider in this process to avoid degrading service and customer satisfaction. More complex integration and partnership models will inevitably place a higher customer service burden on the commerce platform.

Why the real prize is ecosystem control

Working with more than two payment partners often introduces unnecessary operational and technical complexity for commerce platforms. A single partner offering flexible integration models, strong local regulatory expertise and seamless onboarding will typically provide greater control and certainty.

By sitting close to merchants, these partners can support multiple channels, languages and payment preferences to  boost in-store conversion. Over time, the right partner can accelerate business growth by expanding seamlessly into different store formats, embedded finance solutions and adjacent financial products.

Integrated payments in Europe will not directly follow the U.S. playbook, but the market still presents clear strategic opportunities for SMEs beyond payments revenue, by mining the commerce ecosystem around the merchant. Platforms that make deliberate choices aligned with local regulation, industry needs, and investment appetites will be best positioned to unlock durable growth.