How to level up the customer experience

Whether you’re new to payments, or have dreams to become a full platform payments solution, we’re here to give you expert guidance to find the right solution.

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Why Choose Embedded Payments?

According to venture capital firm Andreessen Horowitz, by adding financial services like payments alongside a software company’s core software product, vertical SaaS businesses can increase revenue per customer by 2-5x*.

Adding payments also helps grow revenue per customer, and makes your product stickier. The result? Lower cost of customer acquisition, while increasing the lifetime value (LTV).

In fact, the potential for payments to increase LTV means that companies like yourself can offer your SaaS product for less — or even for free — to attract customers who may be reluctant to go online, and even introduce additional fintech products for greater monetization.

*Source: Fintech Scales Vertical SaaS

Embedded Payments 101

Common business models for embedded payments

Payments in our industry refer to payment processing — the ability for businesses to accept credit and debit card payments from their customers.

Here are some of the most popular models for a software company that needs to embed payments:

Integrated/Referral Solutions
Payments, with limitations

Referral solutions — payments, with limitations

Referral solutions, also known as an integrated ISO, enable out-of-the-box payments processing for a flat fee, plus a percentage of the transaction. However, it can be difficult to monetize through additional mark-up fees without passing additional costs on to the customer. Also, the inability to fully manage and control the payments relationship with your customer can have a negative impact.

Companies that have made this work either have sufficient transaction volume to negotiate a better rate with their payment service provider or offer a tangible reason to transact over the platform instead of over other methods (e.g. v. physical checks).

Key points:

  • Semi-integrated within the software; operate independently and share economics
  • SaaS platform doesn’t own customer portfolio
  • Tri-party agreement between bank, customer and referral partner
  • External lead form, disjointed boarding
  • Rev-share with limited control on pricing
  • Unclear statements and residual reporting
  • Sponsor controls settlement to customer
  • Confusion on support for software vs payments
  • Potential revenue: 1.25x

Payment Facilitator
High risk, potential revenue upside

Payment facilitator — high risk, high return

Payment facilitators — or payfacs — take a more active role in processing payments and can capture 0.75-1.25% on the transaction volume in exchange for taking on the risks and operations associated with collecting payments, including customer underwriting and onboarding, compliance, and reporting.

Although the benefit of becoming a payfac is greater control and higher profit margins, the initial and ongoing investment is steep, including:

  • Hiring a full-time payments team – business, legal, engineering, and customer service.
  • Set up — acquiring processor/bank sponsorship, gateway integrations, Level 1 PCI DSS certification, building customer dashboard and payout systems, hiring consultants/advisors.
    Time: 6-12+ months
    Cost: $650k-1.1M
  • Customer onboarding and compliance — develop customer underwriting and onboarding including ID verification, risk scoring systems, compliance with various licenses and card network requirements, data retention, and privacy.
    Time: 6-18 months
    Cost: Approx $1.8M
  • Ongoing management capability — account onboarding and monitoring, risk monitoring, fraud prevention, chargeback process handing (including evidence submissions, reporting, and annual compliance validation.)
    Cost: $200k-1M+/year
  • Additional costs — expansion into international markets, plus ongoing technical and procedural compliance due to new regulations.

Here’s the good news: today there are providers like Payrix who offer the payment infrastructure as a service technology for companies to become a payfac.

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PayFac® as a Service
Fast, simple, smart choice

PayFac® as a service — fast, simple, smart choice

In the same way that cloud computing services democratized the ability to launch software products, embedded solutions like Payrix are making it possible for SaaS companies to become payfacs, without taking on the huge capital expenditure. The result? Lower overall costs for better payment economics.

With payfac as a service — companies can:

  • Increase revenue per user by 2 to 5x* versus a standalone software subscription
  • Unlock new verticals where previously the total addressable market (TAM) for software was too small and/or the cost of acquiring customers was too high
  • Improve margins and makes the product stickier

Key points:

  • Payments and software operate as a single platform
  • Integrated software vendor (ISV) owns the customer portfolio
  • Dual party agreement between PF and sub-merchant
  • Instant onboarding with full control of customer experience
  • Dictate customer acquisition and pricing strategy
  • Full transparency into pricing; no hidden fees
  • Payment facilitator manages funding to sub-merchants
  • Better support experience as ISV manages complete support for software and payments
  • Best for companies that can justify the set-up cost, usually >$50M in annual sales
  • Potential revenue: 2-5x versus a standalone software subscription

You can tap into these payfac as a service benefits with Payrix Pro. Let’s bring your vision to life.

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