When it comes to relationships, even payments can be complicated. That’s why it’s crucial that SaaS providers carefully consider which embedded payments relationship is right for them.
To help break it down, we enlisted the expertise of Worldpay’s Head of Partner Success, David Barker and Worldpay for Platforms Vice President of Business Development, Brad Pinneke.
On this episode of PayFAQ: The Embedded Payments Podcast with host Bob Butler, Dave and Brad discussed the three dominant models that can facilitate and grow the SaaS embedded payments relationship: the referral model, the managed PayFac® model, and the registered PayFac® model. What makes each of these models unique? We dive into the specific prerequisites and protocols of each.
When deciding on your own embedded payments relationship, there are three important questions to consider:
- How much flexibility do you want?
- How comfortable are you with risk?
- How sophisticated is your tech stack?
If you prefer lower risks, you may lean toward the referral model. On the other, if your goal is to optimize returns then you might find the registered PayFac® model more appealing. But if you’re looking for a Goldilocks setup—one that fits “just right”—the managed PayFac® model can give you the best of both worlds.
Tune in to catch the full discussion on SaaS embedded payments relationship models. You’ll hear about the three key factors driving any major decisions in this space: flexibility, security, and compliance. Brad and Dave also reveal some “gotchas” that many software companies overlook when it comes to embedded payments.
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Transcript
Bob Butler
Hi, everyone. Welcome to the PayFAQ Embedded Payments Podcast brought to you by Payrix. I’m your host, Bob Butler. And today I’m really excited because I’m going to be talking with David Barker, who is the Head of Partner Success. And Brad Pinneke, who’s our Vice President of Business Development at Worldpay for Platforms, and we’re going to be speaking all about the embedded payment relationship models, and how software companies should think about choosing the best one. Hey Dave and Brad, welcome to the show.
David Barker
Thanks, Bob. And thanks for inviting us today. So this is David Barker. I have been with the industry now for over 25 years, the last 12 years here at FIS, Worldpay, and Payrix. During my time in this industry, I’ve managed everything from referral teams to ISO teams to registered PayFac® teams and currently I manage the team that supports our managed PayFac® model. This means I’ve been around long enough to remember when we deployed standalone terminals using an analog phone line believe it or not, sometimes that phone line was shared with a merchant business line. So I’ve definitely seen the evolution of this business over my career. And I don’t see that evolution changing anytime soon.
Brad Pinneke
Yeah, hey, Bob, happy to be part of your podcast. Like Dave, I spent nearly 25 years working for three different software providers, ranging from small to very large, mostly servicing the general retail e-commerce and ERP market. But the last 10 years, I’ve been able to work directly in payments for two large processors, Worldpay from FIS, and Fiserv. And in those 10 years, I’ve worked with hundreds of software providers from referral partnerships all the way to full PayFacs®.
Bob Butler
Well, this first question is going to go towards David. In previous podcasts, you know, we’ve had people on and I’ve talked about the three main models for embedded payments. And can you give a quick overview of how you explain those three models to software companies, and really how you see the main difference between each one of them?
David Barker
Sure, I think the way I describe this to partners generally, who have an interest in including payments processing in their software offering, is to think of the three models as revolving really around the roles and responsibilities between you and your payments partner. Equally important is how you go to market to service your customers, and how much of that payments experience do you want to own and manage. There are, as you referenced, there are the three models, the referral model, the managed PayFac® model, and the registered PayFac® model. So as an example, in the referral model, payments are more about the integration of the software, and then capitalizing on your payments partner relationship to help you sell, underwrite, onboard, service, and retain those merchants. So some software providers are stepping more into the sales and onboarding role. But they still don’t have an appetite for that deeper involvement or ownership of that full payments experience, which really then, which then brings us to the next one, which is the managed PayFac® model. This model allows for a full white-label environment where the vertical software company would embed their payments into the software, and the payment sale just naturally becomes part of that overall software sales process. In this model, the pricing, the merchant application, merchant onboarding, merchant support, and even merchant statements now shift to the software platform. In this model, you’re now dependent upon your payment provider too, so this is a key piece. You’re now dependent upon your payment provider who should also have a robust set of tools and API’s that allows you to facilitate these functions. And finally, to complete the models is the direct or registered PayFac® model where you’re recognized by the card brands as a payments provider, and you take on the full set of responsibilities, which now includes merchant underwriting, onboarding, risk, and you have a much deeper ongoing transactional risk monitoring capability. But the benefits now include ownership of that merchant agreement and full instant onboarding. An ideal solution would allow you to start out with a managed PayFac® model while you get comfortable with all the requirements. And then once you’re ready, you could transition to that full registered PayFac® without having to change out the tech stack that supports all of this.
Bob Butler
Now, it makes a ton of sense. And Brad, you know, what should software companies think about when it comes to choosing one of these models? I mean, really, what are they evaluating?
Brad Pinneke
Yeah, I think flexibility really comes to mind as number one. If you think about having a robust set of tools, and all the different functions that you need to support from multiple pricing methods, risk and onboarding requirements for each merchant, even merchant management and retention are often missed. A lot of people don’t think about those key and critical functions. And then I would add PCI Compliance is right up there along with security, and most importantly, picking a platform that has extremely high reliability. But I’ll also add that as important as the tools are, there are only as good as the people using them. So a company that can support you and augment your own company’s payments acumen is equally as important as the tool set.
Bob Butler
And Dave, what are the key features that the software companies should even be thinking about when it comes to this?
Dave Barker
Yes, the features for those software companies might vary from one software platform to another and maybe even the vertical that the software provider operates in. But the key is, really one of the keys really is, do you have the option to have portals, which will allow you to get up and running sooner, and also an API approach, which might give you more flexibility down the road for things like reporting, which you could then integrate into your systems as well. This allows you to maximize how fast you can get to the market using the portal, and to begin monetized payments. But at the same time, it’ll give you the flexibility for that hybrid approach later on using API’s, which also provides additional stickiness with you and your customer, your merchant down a long stream. But again, that portal will get you there fast, the API, maybe you want to do things that are more integrated longer term. But really having that ability to get into the market, using both of those types of tools is one of the things I would consider upfront.
Bob Butler
Now I like the way you’re thinking about it from a tooling standpoint. So Brad, as these guys pull their strategy together, how do they decide what’s right for their business? And really, in your role here at Worldpay, Payrix? How do you help them navigate that strategy?
Brad Pinneke
Yeah, I think it’s important to really sit down and honestly evaluate your own company’s assets around payment knowledge and abilities to sell and support embedded payments. People look at that and go, Hey, I sell software, can I also sell payments along with that? And then look at your customer experience and do they want one place to call for support? And are you really set up to do that? A lot of software companies already support their customers so adding the payment support is only a natural evolution for them. And then once you kind of understand what’s critical, and what’s important to you, then that really allows someone to sit down and map out those features and strategies to the payment providers they are looking at. And I think once they get that on paper, they can really figure out the right model and right payment provider who can help them get there efficiently and quickly. But also, of course, with the right balance of help and tools to allow them greater control over that experience.
Bob Butler
This next question is really going to be directed to both of you, but we’ll start with Dave. What do you see as the gotchas that some software companies are not thinking about when it comes to embedded payments?
Dave Barker
Yeah, you know, a moment ago, Brad was talking about evaluating your resources as a software provider internally. One of the things though, kind of turning that around would be, I think one of the biggest gotchas might be a failure to evaluate the payment providers that you may choose to work with. I think you should look at a payment provider that supports multiple models. With some providers, you may only have one model, because that’s really the only model that they would offer support. So for example, you may work with a provider who is pushing a registered PayFac® model before you’re actually ready to take on everything that’s involved and entails. Instead, our advice would be to find someone that gives you the flexibility to choose the right model for you at the time, you know, where you are in your business model and growth and future. And then they provide you with those options to help you grow from one model to another with minimal disruption to your merchant base.
Bob Butler
And same question to you, Brad, what do you think are some of the gotchas?
Brad Pinneke
Yeah, I think I’ll reiterate Dave’s point. I think that ultimately, it’s important to go back to somebody that’s right fit for your company. But I think one of the biggest gotchas you know, if you look at software providers, they go out there, they price their software application, then they think about monetizing payments. And they don’t have a great ability to blend that payment monetization mixed with their software. So, example is they give away their software for free or conversely, they feel like they have to provide the lowest payment, you know, processing rates to the merchants when reality is they can offer fair processing mixed in with their software. A total embedded solution that makes that customer’s experience so much more meaningful, that you don’t necessarily have to have a payment mentality of a race to the bottom. I think that’s probably the biggest gotcha I’ve seen.
Bob Butler
No, I agree. Brad, any last pieces of advice you’d like to leave for a software company?
Brad Pinneke
Yeah, I think it’s kind of back to what we’ve talked about in previous questions is, sit down and really map out what’s most important to you. And once you do that, what role are you prepared to handle versus what role can your payment provider? Some people honestly just love throwing the referral over and letting the payment provider do everything, and then other people are much better suited to really handle the entire payments journey. And I guess, don’t make that decision of who you’re picking solely on price. But factor in customer experience, factor in supporting customers, there’s more than just price in the equation. And I think if you can sit down and evaluate that, that’d be probably the best advice I’d leave.
Bob Butler
And same question to you, Dave. Do you have any last pieces of advice you’d like to leave?
Brad Pinneke
Yeah, I think mine kind of dovetails a bit into Brad’s, I would say you should think about your long-term plans and goals for your business in the payments space. Work with a provider that will be able to help you grow and educate you along your payments journey. This industry is always changing. And it’s going to be important to work with a partner who not only understands the industry today, but has the history, the knowledge, and the vision to help you plan for the future. As you make these decisions, these are big decisions for your business. So you always want to choose a partner that you can work with that can work hand in glove with you and understand your vision and move forward with you.
Bob Butler
Well, I think that’s excellent. And Dave, Brad, I really want to thank you for being on the show today. I’ve spent quite a bit of time with you, Brad, over the last few months, and you, Dave, over the last many years. And I know that we’re all big believers in sharing knowledge and experience. So, we really appreciate you for joining us here today.
Dave Butler
Thank you, Bob. It’s my pleasure.
Brad Pinneke
Yeah, of course, same. My pleasure.
Bob Butler
We want to be a trusted resource for software providers who are out there trying to make sense of embedded payments and finance and to help them get the education they need to make the business decisions their customers and investors will thank them for.
