Embedding payment functionality within a software platform is not just a future possibility. It’s now recognized as an essential feature for today’s software platforms to offer.
In fact, private equity firms are increasingly insistent that the SaaS companies they’re investing in or purchasing have payment functionality as part of their software package. However, when software vendors first decide to include payments as part of their offering (or are told to do so by their board of directors), it’s likely they don’t know where to start.
For those platforms looking at offering an embedded payment experience for their clients, here’s some important information to get started — including how to overcome challenges and maximize benefits.
What Are Embedded Payments for Platforms?
Embedded payments are when payment functionality is embedded directly within a software platform, so clients do not need to integrate with another service to accept payments. A well-executed third-party solution allows software platforms to control the full experience, including onboarding clients as merchants, accepting payments, executing payouts and more.
Part of what makes embedded payments so highly valued is that they’re just one aspect of the global economy’s larger move toward embedded finance. Driven by digital technology and an increasing desire for quick and simple transactions, embedded finance refers to any financial service that can be directly integrated into a product or service: including embedded lending, embedded insurance, embedded investing and embedded banking.
However, it is embedded payments that stand apart as the fastest growing aspect of embedded finance based on a universal need.
Benefits of Embedded Payments
But what is it about the embedded payments benefits that make them so important for software vendors in particular? According to research from JP Morgan, software platforms that embed payments see up to a 5-time increase in value per client. In addition to increasing revenue, embedding payments also allows software platforms to own their payment experience and enhance the value of the platform for their clients.
- Increases Revenue and the Value of the Company: Embedded payments provide an additional source of revenue through processing fees. Depending on the number of processed transactions, this can be a significant revenue increase, boosting the company’s market value of the company and making it more attractive to investors and buyers. The convenience offered by embedded payments also makes the service more attractive to new merchants. This can be especially true for cross-border payment expansion, as the payment facilitator can take responsibility for handling the complicated international issues related to routing and local acquiring.
- Owning the Payment Experience: By owning payments, the software platform has greater autonomy over making decisions for platform features, functions and customizations. Also, this helps ward off future headaches as it allows the platform to spend less time integrating with the different payment solutions that their clients bring with them. Exactly how much the platform owns is up to the platform and how they decide to implement their embedded payments.
- Provides Added Value for Clients: When software platforms offer embedded payments, they are offering more value to their clients. Now, merchant clients can work with a single source, the software platform, to support more of their business. This eliminates multiple integrations for your clients, helping to free up their technical and operational resources.
Choosing to work with an embedded payments partner for your solution can also have additional benefits, as they will be the ones to deal with compliance issues, make necessary software updates and provide any needed technical resources. This can help to solve some of the challenges of embedding payments into a platform.
Challenges of Adopting Embedded Payments
Software companies that want to embed payments into their platforms must decide whether they want to become a registered payment facilitator themselves or partner with a third party that can offer them an embedded payments solution. Depending on the direction, the software company will have to address some major challenges.
- Resource Investment: Becoming a payment facilitator means building the required infrastructure, developing the software, getting the banking licenses and handling all the compliance requirements in-house. This is a complex process that requires millions of dollars of investment and detailed institutional knowledge to succeed. In addition, the company needs to take responsibility for keeping all aspects of their payment solution compliant, operational and up to date.
- Compliance and Licensing: Having to deal with regulatory bodies can be a nightmare, especially with cross-border payments. Registering as a payment facilitator involves obtaining specific certifications, passing an underwriting process and ensuring compliance with payment card industry (PCI) standards and other mandates, which can vary from country to country. Additionally, each of these steps carries a separate fee.
- Onboarding Clients: Managing the complex process of onboarding new merchant clients requires specific paperwork such as KYC (Know Your Customer) and AML (Anti Money Laundering) obligations. The software company would have to go through details of every client to ensure they’re a legitimate business and are accurately reporting revenue, on top of needing to test functionality for the payment system and providing training for personnel.
These challenges are compounded by other concerns such as how to enable reporting to generate insights, how to expand customer support or needing to expand the payment solution to accept new payment types. Consequently, many software providers may not have the internal resources or clients that process enough volume to warrant becoming a registered payment facilitator. Therefore, for many platforms, partnering with a third-party payment solution makes more sense.
That’s part of the reason why, when we’ve talked to software platforms, the vast majority (88%) would opt to embed third-party technology into their platform instead of attempting to build their own payment facilitation solution from the ground up. Choosing the right embedded payments partner significantly reduces the risk for software vendors by alleviating many of the responsibilities. Best of all, the software platform can focus on their own expertise and leave payment-related complications to their payments partner, such as tracking complex regulatory guidelines or managing fraud and chargebacks.
Embedded Payments Examples
As more and more industries expand their digital services and seek to take advantage of embedded payments, the need for an experienced payments partner increases. Partners like BlueSnap are helping many different software platforms overcome the daunting technical and knowledge requirements of embedded payments.
In education, software platforms allow students to sign up for extracurricular activities and transportation. With embedded payments, platforms like Veracross and SchoolsBuddy can help alleviate the frustration for parents and schools when it comes to paying and collecting tuition or fees for sports, after-school activities, field trips, meals and more.
In the medical and healthcare fields, patients can directly access their medical records, receive their lab results and make payments without having to wait for bills to arrive by mail. When healthcare platforms like CoFi are able to effectively embed payments, they give patients the ability to pay multiple providers and medical facilities in a single transaction, making it easier and more organized for payers to settle their payment obligations.
In the charity and nonprofit sector, embedded payments allow organizations to offer a direct and simplified donation process through their own sites. As a result, software companies like Benevity empower nonprofits to receive global payments, aiding in their growth and better supporting their goals and initiatives.
Every software vendor, no matter the industry, should consider what embedded payments can offer and how it can work for them.
How to Get Started with Embedded Payments
The most important step in getting started is to select the right payment partner. Here are the embedded payment services that you should prioritize:
- Avoid any payment facilitator that only offers a single solution for embedded payments. You’ll want to look for partners that provide different options that can meet you where you are on your payment journey — and scale with you. Talk with them to see if they offer services and support that will continue to meet your needs after the initial setup.
- Look for payment facilitators that have global capabilities with local card acquiring and automated onboarding. Are they able to help you efficiently accept payments in different countries, supporting local payment methods and currencies? Do they have flexibility in transaction routing if an initial transaction request fails? Can they help you provide localized onboarding that’s optimized for a frictionless user experience? Even if your current clients are domestic and aren’t accepting global payments right now, this could change in the future. Prioritize partners that can provide services and scalable support for long-term growth.
- Check that the payment facilitator has built-in tax compliance and regulation solutions to ensure you’re in compliance with all regional requirements. A good payment partner will offer frictionless and efficient onboarding, have the capabilities to handle the necessary paperwork and compliance matters and can manage all current and future KYC and AML requirements.
Experienced providers like BlueSnap will also offer convenient services like frictionless migration, which simplifies the process of onboarding your existing clients by bringing over your whole book of business through a simple and secure import — no need to piece things together.
In fact, one of the key advantages of partnering with BlueSnap is the ability to mitigate many of the challenges that come with embedding payments in your software platform. Our experience working with software platforms across many different industries has informed the variety of our solutions. We know that every vendor has different needs, and that’s why we offer three options for Embedded Payments and Payfac-as-a-Service:
- BlueSnap DashTM: Our hosted, turnkey, Embedded Payments solution that gives you the fastest speed to market.
- BlueSnap RelayTM: Our quick-to-market, Payfac-as-a-Service, white-label offering shields you from risk while letting you brand your way.
- BlueSnap FlexTM: A branded Payfac-as-a-Service solution that leverages our API while you keep complete control.
No matter your choice, we can help you determine the best way to embed payments into your software platform. Even if you’re already a registered payment facilitator in one country, you may be looking to expand internationally, in which case you can work with us for facilitating cross-border payments.
Ready to join in the payments business? Talk to one of our experts to get started.