Embedded Payments explained: Everything software companies need to know

In a market shaped by fierce competition, emerging technologies, and dominating customer expectations, B2B software companies have evaluated many angles of differentiation to keep the attention of their customers. Among the most recent strategies proving successful for software companies is Embedded Payments. In fact, a recent report from IDC estimates that by 2030, 74% of global digital payments will be processed through platforms owned by non-financial institutions, including software companies. Compared to other strategies to generate additional revenue streams, Embedded Payments offer a streamlined path for pulling in new income.

But there’s much more to Embedded Payments than their monetization value.

What are Embedded Payments?

Embedded Payments are the integration of payment acceptance or payment processing into an existing software platform.

There are three main models of Embedded Payments, each with their own set of features, benefits, and considerations:

• Referral partnerships (or integrated payments)
• Payment facilitation (PayFac)
• Payment facilitation-as-a-Service (PayFac-as-a-Service)

Let’s explore the differences between each Embedded Payments model and how they can be implemented by software companies.

How can software companies embed payments?

• Referral partnerships

  Often referred to as Integrated Payments,  this model connects the payment processing with point-of-sale (POS) system software that can sync with other business-critical systems. It’s the fastest and easiest model for monetization with the least amount of risk and responsibility. This experience allows software companies to monetize payments without taking on the risk and compliance that comes with payment processing. Software companies work with the payments partner to get merchants processing, but they don’t architect the payment experience.

• Payment facilitation (PayFac)

  Today, many software companies have a pulse on the opportunities of becoming a payment facilitator, also referred to as a PayFac® developer. In this model, software companies take over all payment responsibility and essentially become a payments company. This allows them to manage the full payment experience with tailored solutions that contribute to a more seamless customer experience. However, the level of control also comes with an added level of risk and responsibility in terms of financial and compliance liabilities. For software companies with the resources to manage selling, marketing, servicing, risk and compliance, the effort can be very rewarding.

• Payment facilitation-as-a-Service (PayFac-as-a-Service)

  For those not quite ready to become a full PayFac but interested in more control over the payment experience than the referral partnership offers, this model can become the perfect ‘sweet spot.’ This model offers software companies the chance to embed payments with a PayFac-as-a-Service partner who provides the infrastructure needed to offer payments as a white-labeled solution. Within this model, customers of software companies can fully experience embedded payment acceptance and brand continuity offered within a single platform. At the same time, they get the benefit of their payments partner managing the risk and compliance complexities associated with payment processing. If you’re considering PayFac-as-a-Service for your company, there are a few questions you’ll want to ask yourself, and we’ve outlined them for you here.

To summarize there are three Embedded Payments models available to software companies today: referral partnerships (also known as integrated payments), PayFac, and PayFac-as-a-Service. For a side-by-side comparison of each Payrix solution and how they may satisfy your needs, check out this chart.

Embedded vs. integrated payments: What’s the difference between referral partnerships, PayFac, and PayFac-as-a-Service?

The greatest differentiator among these model types is the level of control (and revenue sharing opportunity) each offers over the payment experience. Referral partnerships (or integrated payments) offer bolt-on solutions that offer fast-tracked monetization but don’t fully integrate into your platform experience. Whereas PayFac and PayFac-as-a-Service models, or Embedded Payments models, offer the greatest control over the payment experience and more opportunities to enhance the overall customer experience and grow revenue but require more internal roles and responsibilities to stand up and support.

What are the benefits of Embedded Payments?

We’ve touch upon a few benefits of Embedded Payments throughout this blog already, but let’s dive a little deeper into the advantages. Embedded Payments can be extremely rewarding (and lucrative) for software companies that embrace their potential, positively affecting things like the customer experience, brand stickiness, revenue, and more.

• Gain greater control of the customer experience
  • With the PayFac and PayFac-as-a-Service models of Embedded Payments, software companies are granted a greater level of control over the payment experience.
  • This provides the opportunity to remove points of friction, maintain brand continuity, and deliver a seamless experience.
• Boost user acquisition and retention
  • By creating the ideal customer experience through an Embedded Payments strategy, software companies can drive deeper customer engagement within their platform.
  • Embedded Payments can fill the feature and functionality gaps of payment acceptance, giving customers more reason to rely on the platform to address every need of their business.
  • Rather than sending customers to accept and manage payments with systems outside of your platform, they can enjoy the streamline experience of staying directly within your software walls, managing the entirety of their business all from one place.
  • The added value of offering a unified customer experience enhances the overall appeal of your platform, resulting in a more profitable subscriber base.
• Access valuable insights
  • Embedding payments often creates pathways to access data that can help generate actionable insights. With detailed purchasing data at their fingertips, software companies can optimize their offerings, more effectively address needs within their user base, and even prevent issues related to payment fraud.
• Get dedicated support
  • When you establish a partnership with an Embedded Payments provider through the PayFac or PayFac-as-a-Service models, it’s not just a matter of handing off your payment acceptance to a vendor. You’re also supported with the expertise, consultation, and white-glove level of customer service provided by payments experts ready to guide you through your full Embedded Payments journey — no matter what stage you’re at.
• Generate new revenue streams
  • As we’ve mentioned before, one of the biggest draws to embed payments into a software platform is the opportunity to generate additional streams of revenue. According to Bain and Company, there is $35 trillion in payments that software companies have the opportunity to address by integrating payments into their systems.
  • New revenue generation is possible at varying levels across all three types of Embedded Payments models, but when combined with the other benefits of models like PayFac and PayFac-as-a-Service, the potential for continued growth is amplified.

Despite the known advantages to embedding payments, there is no shortage of Embedded Payments myths floating around. So, chances are if you’re thinking it, we’ve probably heard it. In fact, we’ve had many myth-busting conversations over the years with our software company customers and on our PayFAQ: The Embedded Payments podcast, discussing everything from security concerns to being locked into a single payments monetization model. Allow us to ease your mind and demystify Embedded Payments for you by reading our software payment myths blog post. We’d hate to see these common misconceptions hold you back from growing with Embedded Payments.

How do software companies make money with Embedded Payments?

Software companies are becoming increasingly more aware of the massive revenue opportunity that exists by monetizing payments within their platform, but how are they making money with Embedded Payments? Watch this short video to get a clearer sense of where the revenue sharing opportunity lies for software companies who embed payments.

Why an Embedded Payments provider is a game changer for software companies

Software companies are adding Embedded Payments to their platform for a variety of reasons, including the ability to deliver a more seamless and desirable customer experience, grow revenue, and enhance security, just to name a few. But navigating the world of digital payments can be a tricky business, which is why partnering with an Embedded Payments provider is critical to success. Regardless of the Embedded Payments model that makes sense for your business, a strategic partner will provide you with the clear roadmap to meet (and exceed) your goals.

“Having a partner like Payrix, who’s willing to have conversations with you, and actually turn them into actions, is a game-changer for us.” Kellie Kucik Head of Payments, Real Green Systems

Take Real Green Systems, a lawn care business software, for example. Real Green Systems uses Payrix Premium, Payrix’s PayFac-as-a-Service solution, to embed payments in their platform. The solution enabled the company to harness all the benefits of being a registered payment facilitator – without the time and expense of building a technology solution in-house. Kellie Kucik, Head of Payments shared that “having a partner like Payrix, who’s willing to have conversations with you, and actually turn them into actions, is a game-changer for us.”

Real Green Systems implemented Payrix to its platform in August of 2019, launching to hundreds of merchants. Since then, that number has grown to almost 2,000. “It’s nice to finally have a best-in-class payments solution that saves our customers time,” Kellie said, “and helps them focus on growing their lawn care businesses.”

Like Real Green Systems, many software companies have found success with Embedded Payments powered by Payrix, including iClassPro, Neon One, and JobNimbus.

See how JobNimbus uses Embedded Payments to help their business operations run smoothly and efficiently year after year.

For even more real-life Embedded Payments success stories, read our Payrix Transformation Stories.

How to implement an Embedded Payments strategy and what to expect

Embedded Payments can open doors for software companies, delivering opportunities to:

• Generate new revenue streams
• Take control of their payment experience
• Create greater long-term value for their customers

Implementing an effective Embedded Payments strategy begins with understanding the options and identifying the model that best aligns with your business goals, customer needs, available resources, payments knowledge, and appetite for risk and responsibility. Should you choose to partner with Payrix to embed payments, here’s a sneak peek of what you can expect implementation to look like.

We’ve covered a lot in this blog post. So, if you walk away with anything let it be this. Embedded Payments provides software companies with easy transactions and potential profit boosts—all in one place.

Have we piqued your interest? To learn more about the different models of Embedded Payments and discover which model might be best for your current and future growth goals, check out our eBook: A complete guide to Embedded Payments.