Referring vs. Embedding payments
There are two main ways to monetize payments. You can either get a referral fee from banks or payment service providers for introducing users to them or you can take payments in-house and manage payments (and later financial services) as part of your own value proposition.
Referring users to a third party (a bank or another payment provider) and getting a referral fee is definitely the easier way to get started on payments and evolve from a SaaS subscription model into a hybrid model (subscription revenue + revenue per transaction). Especially, if you cater to large enterprise merchants, which have complex payment needs and are spread globally, then this approach is proven more effective than building up an entire payment organization from scratch.
However, when it comes to smaller and medium sized businesses (SMBs), which don’t have complex payment needs and have been underserved by larger banks in the past, we see a very large business opportunity for platforms to step up and invest into payments by embedding it fully into their product proposition. It requires investments and a strategy, but the alternative is that you give away control (how third parties price users, how much they charge, how integration is done, etc.), offer an inferior user experience (in our research only about 50% of users convert after referral) and have limited financial upside potential (only referral fees can be accounted as direct revenue contribution and not entire payment volume).
The big trend these days is owning the entire user journey and that includes payments especially for SMBs. Most platforms have started to implement and run payments as part of their own offering. This guide focuses on how to do so and helps you understand what to consider when embedding payments fully into your value proposition.
Following this practice, you’ll not only increase user experience by bringing all parts in-house, but also:
increase the attractiveness of your software offering as a one-stop-shop solution - a unified branding experience is considered more complete
increase valuation of your company by being on the forefront of innovation
educe churn and increase retention by creating a stronger value proposition for your users
account for all payment volume as your own revenue and make between 1-2% margin per transaction. This can lead to sizable revenue contributions
build the foundation for future growth by adding financial services on top of payments (not part of this guide, please reach out if you're interested in issuing, capital or bank accounts).
Let’s have a look at some of the examples in the industry and how payments contribute to the respective business:
Bringing payments in-house and running it from end-to-end as part of your product offering comes with implications on your organization’s setup. In the next chapters you’ll learn how to:
set yourself up organizationally
price for embedded payments
market embedded payments
sell embedded payments
support your users on payment related questions
This playbook is a collection of experiences, strategies, market trends and customer stories collected over the last 10 years. We keep learning, but hope this will get you started and help you sharpen your payments go-to-market.
Enjoy and feel free to reach out for comments, suggestions, feedback any time,