Embedded Payments have come a long way since the mid 2000s, but we’re still in the early innings. More exciting is what’s ahead and the fantastic opportunities that await software companies who focus on driving profitability as well as customer satisfaction. Those who do have the potential to become a category leader, according to Matt Downs, Worldpay for Platforms President.
Matt recently sat down with Bob Butler, host of Payrix’s PayFAQ Embedded Payments podcast, to dig into the evolution of Embedded Payments and what the future holds. Matt’s an all-star on the subject. He just celebrated his 23rd anniversary in the payments and software space and is one of the core founders of the integrated payments model as well as a key player in authoring the PayFac® model.
From the days when integrated payments simply meant a payment application between a software company and a payment processor, Matt’s been at the forefront and thinks the time is right for software companies to look at embedding payments so they can be well positioned when capital frees up after the down cycle we’re in now.
Key to that decision is finding the right partner that will go to bat for you in the long term. “Who you choose to do business with, and how you do it, is a big part of whether or not someone will be successful.”
Tune in now to learn more from Matt and how software companies can hit it out of the park with Embedded Payments.
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Full Transcript
Bob Butler
Hi, everyone. Welcome to the PayFAQ Embedded Payments Podcast brought to you by Payrix and Worldpay for Platforms. I’m your host, Bob Butler. And today I’m going to be speaking with Matt Downs, the President of Worldpay for Platforms, leading the integrated payments business, Payrix, and the PayFac® business at Worldpay. And we’re going to be speaking about the evolution of embedded payments, and what it means for software companies. So very excited to have you here today. Matt, welcome to the show.
Matt Downs
Hey, Bob. So glad to be here. Thanks for inviting me.
Bob Butler
So, before we get started, can you tell the audience a little bit about yourself and your software and payments background?
Matt Downs
Yeah, Bob, it’s kind of ironic that I’m here to spend some time with you today, I actually just celebrated, it’s gonna date me, my 23rd year of being in payments and software. A little bit about my background, I actually started out working in selling payments through financial institutions. First eight years of my career I think, literally built the world’s largest bank -Citibank, their merchant acquiring program. Several years later, I actually started one of the original integrated payments business models. I saw this market opportunity to have a better product technology, go to market, and service experience. And here I am, 17 years later, three versions of that offering later, still in the same space. And I think we’re still in early beginnings. So that’s a little bit about my background.
Bob Butler
I think from your vantage point, and from your payments and software, SaaS experience, what are the biggest and most exciting changes you’ve seen within embedded payments over the last 10-15 years?
Matt Downs
Yeah, Bob, it started out really simple. In the early days, you know, this concept of an integrator, embedded experience was really just a payment application applied between a software company and a payment processor. And it’s come so far, right? That was the first version of product that kind of came out in the mid to late 2000s. Several years later, I actually done a startup that focused on that space. And then I joined what was then Vantiv, now Worldpay. And we actually authored the PayFac® model. And that’s where things started to change very dramatically, where vertical software companies that saw payments as part of their core, we were the ones that kind of originally helped many of those companies get into the business. Some years later, we, you know, we still maintain 80% market share within that space here domestically. So clearly, we’re doing something right. And then along came this class of software companies that could provide a payment facilitation service, aka Payrix. They’ve taken it to the next level. And you know, what you really see is the markets changed so much in that decade and a half to where now, non-financial entities, software companies can literally get in and distribute financial services products, where those have been heavily regulated over the last 30 or 40 years. And ultimately, it’s a pretty fantastic opportunity, because it allows software companies to create better experiences with deep, integrated workflows. And I still think we’re actually in early innings.
Bob Butler
Yeah, I agree with you on the early innings. And I think the next question is really, how do you see, because we are early, and I think things are moving fast. But what do you see changing the future of FinTech and embedded finance? You touched on that.
Matt Downs
Yeah, I think it’s the convergence of both the technology and financial systems. It’s what I would say it’s still early innings, right? There’s a stat that says, Open banking is really only at a 4% penetration rate. And I would tell you, well, integrated embedded payments had been around for a decade and a half, we’re only about 45% of the workflows today are fully embedded and integrated. And oh, by the way, many of those, there’s lots of rooms to room to go back and look at the workflows and understand like, how do you actually drive better adoption from business owners and create delightful experience for consumers? You know, I think the market is going to be full of lots of continued opportunities, but I also think there’s gonna be some challenges, Bob. And those challenges will create more opportunity to solve complexity. Onne example would be regulatory and compliance as a factor. That’s not simple. And a lot of things that are required within the financial systems are kind of foreign to software companies. So, I think there’ll be new products and offerings and companies like Payrix, not to be a little bit of self-promoting here, but we’re going to be out in front and our PayFac® entity has been out in front for a decade around how to be super forward, looking around policy products, and thinking about how do you actually protect companies and allow companies that maybe aren’t great? Or don’t have domain expert or don’t want to bring that in house? How do we actually do that on their behalf and protect them and their customers? And I think that divergence between the two fundamental businesses will allow for new opportunities.
Bob Butler
Yeah, that’s really interesting. I mean, when you think about the software companies that are out there, and we’re talking about all this opportunity that’s going to continue to happen. What do you think software companies should be thinking about if they want to stay competitive going forward?
Matt Downs
Yeah, I mean, I think the reality of like just picking a payments partner, or maybe having a couple of integrations, I think those days are over. Meaning, if you think about, the fact that the software is the main system of record, and as the brains behind these businesses that they serve, just, you know, picking three or four partners, or having a gateway plugged in, you’re only going to be as good as your weakest link. So I think the reality is software companies want to think long and hard about, who are they partnering with? Is it really a partner model? Meaning, are they able to leverage the other entity to go, how do I give them the best products, the know-how and the experience so that I can drive value for my customers, and for my company, because at the end of the day, when you have the integrated workflows and the end to end and you’re helping your customers with the receivables, and all things payments, and financially oriented, you’re gonna be able to set yourself up, competitively different than the competitors that may take a more lackadaisical approach, right, to this particular product offering. And I think it’s going to allow you to kind of set yourself apart out there in the market.
Bob Butler
So, when software companies get embedded payments right, what are they doing that differentiates them from their competitors?
Matt Downs
Yeah, you know, people out there will call it frictionless. I actually don’t think it’s frictionless. Frictionless just means you can kind of get it and get it faster. I believe when you see a software kind of get it right, it shows up being more intuitive. I mean, the best companies that make their payment products and their overall products intuitive generally win. Like, think about large mobile platforms, think about some of the companies that are known as innovation. They’re really thoughtful around intelligent design. And when you think about b2b customers, you know, they’re expecting more. And when you bring it in house, it’s great because you can own the experience.
But ultimately, you’ve got to make sure that you’ve thought about, how do you create that experience that’s going to differentiate you from your competitors, and to use the cliche one, Uber got it right 12 years ago. They were a software firm that used payments, both on the acceptance and payouts side, mobile wallet, and they created something pretty frictionless. And more importantly, they created a better experience where you as the consumer, whether you were the driver or rider couldn’t figure that out. Fast forward. Now 10 years, any single software company can go out and create a similar experience. But again, it’s who do you partner with? Are you investing right? In thinking about how do you actually make the right investment in order to create that very unique experience?
Bob Butler
Yeah, I love the example of Uber, Matt, because it’s almost like that’s what people expect when they boot up their software. If you really have to think about sort of the next evolution of payments and software, you know, what are some of your predictions and what really gets you excited about the industry as a whole?
Matt Downs
Yeah, I think we’re in a little bit in the middle of prediction, right? Like a year ago, I would have said, we are about to be in a cycle where many people were thinking about high growth, they were thinking about valuations, you don’t hear about either of those things. Right now, the rule of 40 is right back in for all software companies. So companies have got to think about intelligent growth from an investment return and sustainability, profitability, solid metrics across the businesses and strong KPIs are really, really critical. And when you think about all that, and the opportunity to kind of grow, maintain, and keep customers happy. Think about your SI SATs, everything that kind of goes along with it. I think payments is an opportunity and embedded finances is an opportunity right underneath every software companies foot today. If you think back to 2008, in the last significant crisis, there was a lot of winners and unfortunately losers that were born. But more importantly, it was a lot of category owners were defined, they weren’t defined in 2008. But the smart companies that invested looked inward and thought about how do I drive profitability? How do I re-intrench in my business so that when capital does free up and M&A opportunities start to show up, I’ve positioned myself as a winner. And I really think we’re in a cycle where payments is always important. But in a down cycle, like we’re all living in, kind of right now. Right? We’re someplace not maybe at the bottom of the trough, we’re someplace in part of that trough, I think looking inward and going How do I drive profitability? And how do I make customers more happy through experience. I think now is the time for companies to take a look at it. I think the ones that do will set themselves up so that when they come out of this, they potentially could be a category owner or winner.
Bob Butler
Yeah, I’m a strong believer like you. I think there’s always great opportunity when there’s great chaos happening. And I think you’re spot on, on the market. And where we are in the trough. I guess, you know, before we wrap, are there any last pieces of advice you’d like to leave for a software company?
Matt Downs
You know, looking at embedded payments or embedded finance? Yeah, I think a lot of it’s what are you looking to accomplish? And being really thoughtful in long-term about your partner, right? There’s many companies out there will say, hey, we offer payment facilitation is a service or we offer integrated payments, by the way, pull back the covers, take a look at the technology, are they actually registered with the card brands as a payment facilitator themselves? Do they allow for you to kind of grow? Because you may come into their business model, focused on card-present or card-not-present? Or maybe you want to start off at the easy button and grow over time? Do they have that flexibility built technology businesses model wise to allow you to grow? And even more important is – How committed are they to your success? Meaning, is it a do it yourself? Are they going to lean in and help you, on not just the technology front, but the business model? Right? You’ve got to show up with resources and commitment yourself. But take a look at the partner and say – Do they have a sustainable track record of making software companies successful in this? And how are they going to show up? While the revenue is really important, you’ve got to look at the product roadmap, you’ve got to look at the depth of the team and understand, ask yourself the question? How is this particular partner going to make me successful? And I think that inevitably will help you think about not just now or next year, but five years from now when you think about your payments business. Are they going to be there around the curve on the next compliance issue, the next network issue, the next product innovation to help you address that. So I think being real thoughtful Bob, on who you choose to do business with and how you do it, I think is a big part of whether or not someone will be successful, extending themselves or recreating their payments business.
Bob Butler
Well, that’s fantastic. Matt, I really want to thank you for being on the show today.
Matt Downs
Well, thanks for having me, Bob. And it’s a topic that I’m really passionate about. So when you reached out, I was all over it.
Bob Butler
Well, having spent quite a bit of time with you over the past, well, actually years, if we go back to the early days that you referenced. I know that we’re both big believers in sharing knowledge and experience. So, we really appreciate you joining us today.
