Ian Hillis
Hi, everyone. Welcome to the PayFAQ: Embedded Payments podcast brought to you by Payrix and WorldPay. I’m your host Ian Hillis and today I’m continuing my conversation with Andy Meadows, the Head of Partner Success at Payrix about how to build a successful Embedded Payments strategy. This is part two of a multi-episode series. Andy, welcome back to the show.
Andy Meadows
Yeah, glad to be here.
Ian Hillis
Excellent. Well, Andy, last time we talked, we covered the resourcing commitment software companies need to consider when starting to embed payments. And today, let’s pretend everyone went out there and listened to your advice, they understand the full extent of the resources they need to plan for, they’ve got a plan in place to activate those resources to be successful. For the next few conversations, I’d love to spend some time better understanding the ways to maximize the value a software company can get through payments. And Andy, I’ve got to imagine this comes up in your world daily at this point. So, as you think about it, what are the different levers you talk to your partners about for maximizing that payments experience?
Andy Meadows
Yeah, and that comes up every single day. This is actually the crux of what we, what we provide from a partner success management perspective here at Payrix to both new partners and existing partners. So, you think about some of those levers. First and foremost, it all starts with attachment, right? Or adoption. Partners come to us software, SaaS companies, and they have a base of software customers, and they’re adding new software customers every month. How do they think about attaching payments to those existing customers? Separately and differently, how do they think about attaching payments to the net new customer that they’re going to win tomorrow? Now attaching is just one motion, then you have to drive adoption of the payment solution. So, you can attach payments to the core software platform. But how do you make sure that your software customers are then driving payments of volume, digital volume, through that payment solution? So, you know, that’s kind of a combo lever that everything starts from, but then you start to add on to that. How do you increase the lifetime value of that software and payments customer through value added services, think Embedded Finance, gift card solutions, digital, or you know, physical gift card solutions? How do you think about retention? So, there’s retention of a software customer, which is a different motion from the retention of a payments customer, and that’s inevitably going to come up once you’ve driven the adoption rates. And then, you know, the other global consideration is monetization optimization, and I never use the term maximization because you’ve got to be cognizant of your overall go-to-market pricing strategy that’s a combo of both software, SaaS payments, or software, SaaS costs as well as your payments cost. So, you want to optimize your monetization of payments within your software platform.
Ian Hillis
Excellent. So just to play that back. I heard attachment slash adoption. And we’ve got value added services and the optimization across all those pieces. One that’s come up, as I’ve reflected on some of the pieces has also been just the element of retention. How do you keep people using that experience and staying within it? So, it sounds like four discrete levers and pretty meaty topics across each one of those. Let’s focus today on the first one and really go into depth and do it justice. That first lever was around attachment and subsequently adoption, that seems pretty critical and a good place to start. If you’re a software company thinking about this, and let’s start with attachment, where am I starting? What do I start to think about in this topic?
Andy Meadows
Yeah. A value proposition. You got to have a compelling value proposition of how payments compliment your core software platform. From that point, where do you start? Well, you want to start with thinking about how do you attach payments, now I’ll say maximum, at the maximum rate to your net new software customer, the software customer, you’re winning today, tomorrow, next week, and next month. What I see? A pitfall I see a lot of software companies fall into it’s almost a fear or anxiety of trying to couple payments into their core software feature functionality set. And I call that a pitfall because that’s exactly what they need to do. Payments is critical to any business. It’s the lifeline of any business. So, if you have embedded payments into your software platform, why would you not want it to be one of the key core main feature functionalities of your software platform? And then what you get to do once you’ve adopted that approach or that mentality is you get to create a single selling motion. That’s important to maximizing the attachment rate of payments to that net new software customer. So, you go sell your software, and you talk about my software does XYZ and payments, payments being, again, a core feature functionality. And so, you don’t have a second buying decision around payments, which is, again, I’ll go back to that word pitfall. That’s a lot of that’s a pitfall I see a lot of software companies make as they sell their software, they get the yes in that buying decision. But then they come back around for a second conversation around attaching payments. And now you’ve created a second buying decision. And I’m a huge proponent, both personally and experience when I was running payments for a software company, but also seeing the success that our partners have when they when they take this approach and have this mentality of coupling payments into the software sell. And in that scenario, you’ll find it’s almost an assumptive close and an assumptive attachment and assumptive sell where payments automatically comes along with the “yes,” that you’re seeking in the sales process of your software platform.
Ian Hillis
Andy, you mentioned kind of two potential populations in your response there. One around what we’ll call net-new customers to the software platform, or the terminology sometimes I’ve heard is “front book” across that and so, they’re looking at both the software as well as potentially bundled other services across that. There’s also the potential for, it’s sometimes referred to as that “back book” or someone who’s already an existing software customer coming into that. Are those two distinct strategies? Is there one you would start with before the other if this is a new motion for you? Or how have you seen that handled by successful software companies?
Andy Meadows
So, Ian, distinct strategies. So, I’ll answer that question first. The way you attach payments, or bundle payments into the sell of software, the net new customer, is totally different than how you think about trying to cross sell, upsell, or in some cases, migrate your existing software customer base. When you’re going back to your existing base, whether they’re on a legacy payment solution within your software platform, or whether they’re not, we call those “unintegrated.” Either way, there’s a cross sell component to it, there’s an even greater emphasis on the value proposition of your new Embedded Payments solution. Again, you may be competing against your legacy integrated payment solution. So, what’s the value prop? What’s the benefit that the new solution is bringing against the old? In some cases, you again, you’re going back to an unintegrated subset of your software base, but likely they’ve got a payment solution outside of your software platform that you’re going to be competing against, so what’s the value proposition? You know, cost is always going to come up. What’s the cost of payment acceptance? So, when you think about the “back book,” or the existing base. I mentioned, legacy payments solution, you know, unintegrated, well, that’s a segmentation conversation. So, what we encourage software partners to do is look, and let’s use a hypothetical example, they have 1000 software customers. So, then the first thing we say is how many of those customers are on a legacy payments integration? And they may tell us, Andy, 600 of those customers are processing through two separate legacy payments integrations within our software platform. And that leaves 400 that are unintegrated. While you’re likely going to have three separate strategies, selling motions, value propositions that you need to be cognizant of. Another way of thinking about segmentation of that back book is the size of your customer base. You may be dealing with a software company that solely focuses on the SMB. Or you may be dealing with a software customer that goes SMB up to mid-market up to Enterprise. And again, the way you articulate the value of payments, the cost considerations associated with it are going to differ depending on the segment of the market that you’re playing in. So just a few ways. Again, I’ll go back to the original topic around the net new customer, the front book, that’s an attachment, that’s a single selling motion, that’s an assumptive close. When you get into the back book, existing software customers, you really need to have a kind of a scientific approach to segmentation, that then tells you how you’re going to approach those subsets of your base.
Ian Hillis
Really helpful. And it sparks a lot of questions on my end. Let’s start with that front book and finish the swing on the front book. You mentioned an assumptive close. How new is that motion? So, if I’m a software company, I’m picking this up and bringing payments in-house for the first time. Is that a brand-new muscle? I’m imagining I’ve got a salesforce that’s out there selling my software. Are these the same folks that are managing the payments piece? What are some of the strategies for the activation of that front book assumptive close component of this?
Andy Meadows
Yep. Well, and we hit on this in our previous podcast series. So, for those of you who are listening, if you haven’t listened to that session, please go back, and check it out. We talked about resource considerations and that falls into the same thing you just asked. The software companies have feet on the street or sales professionals selling software. Is that the same person that’s trying to attach payments to that net new software customer? And ideally, the answer is yes. Is it a different muscle? The answer is also yes. And that’s where we said from a resource consideration perspective, you need to bring in some payments expertise, you know, be that a learning and development trainer who can bring payments and payment sales strategy to your software sales team. It could be a sales leader, or it could be, you know, an A+ sales player that then, you know, does peer education across your software sales team. But there’s a different muscle, there’s different motion, there’s a different, there’s different conversation points that are going to come up, even as you’re bundling payments into your software sale and creating this single selling motion, this assumptive close. And it all sounds so easy. And then they asked the first question about payments. And if your software sales rep has never been trained on how to address that question or doesn’t have the education on the frequently asked questions, they’re going to encounter than they’re put on their heels. And it makes that that single selling motion a little more difficult.
Ian Hillis
What about order of operations there? Do you see software companies addressing both the front book and the back book at the same time? Is it, you know, really cut your teeth on the front book get used to that motion, then address while you’re segmenting? I can imagine a number of different approaches there. What have you seen be successful across both front and back book?
Andy Meadows
Yeah, I mean, firstly, we’ve seen partners approach it in in a variety of ways. Some say, hey, I’m going to skin my teeth and get my feet wet with just selling or attaching to my front book. So, I’m actually take that same approach or mentality, but apply it to their back book and say, these are my existing customers, I feel more comfortable talking to them, you know, cross selling, I don’t want to sacrifice or put at risk my net new software acquisition efforts. So, I’m going to sell into my back book. Now you talk about success, I think success is being grounded in A.) your capabilities, your bandwidth, you know, in order to execute on a front book, or a back book sales motion. The other piece that comes into play, when you think about what do you do out of the gates. Do you want to do a mass migration of some or all of your back book? Because a mass migration is less of a selling motion than it is an event. So, you could create the event, which is an end of life of your legacy payments integration, which in turn, brings your existing software customers onto your new Embedded Payments platform or solution in one fell swoop. And the reason I bring that up, Ian, is where I’ve seen partners most successfully couple a net new acquisition in a back book is when they’ve decided to do a mass migration, because then it’s more of an operational motion that they put into play, while having their sales team continue to focus on the front book attachment and the front book, that new customer acquisition. And when we get into talking about back book migrations or existing customer migrations off of old platform to new payments platform, that’s probably another podcast, not setting myself up to hang out with you any longer. But the back book migration, then again, I said an operational motion gets into a lot of things that we could talk about in a, in a full session.
Ian Hillis
Given those different populations of the back book, you mentioned, there’s integrated, there’s unintegrated, complexity again, that’s the theme I want to continue since this will be new for software partners out there. And I love the idea of a deep dive on the mass migration. Integrated versus unintegrated order of operations addressing those which should they be thinking about first? Let’s say I’m a software company I’ve assessed my base. I’ve segmented it by these folks are using existing integrated solution and these are unintegrated. Where am I going first?
Andy Meadows
Well, there’s a couple schools of thought. The one school of thought is the unintegrated. I’m not currently monetizing payments within my software platform. Whereas the integrated I have some level, likely some level of monetization, maybe not as good as the monetization I’m going to experience with my new Embedded Payments solution, but I’m making money, you know, via payments through my platform. So, one school of thought would say, “hey, let’s go after those unintegrated, so we can start to monetize payments.” But separately, you’re still deploying dollars, operations dollars, development, upkeep of legacy payments integrations. And if that’s not your payment solution of the future, there’s cost benefit or cost savings of getting those legacy integrated payments customers off of that old platform onto your new Embedded Payments platform where you’re likely improving your monetization rate. And then sunsetting that old integration, so you’re not deploying people dollars, development, you know, sweat equity into the upkeep of a legacy payments platform that you don’t actually want to keep going forward. So long winded way of answering that question, but it’s certainly the kind of the puts and takes, the pros and cons, of how software companies think about where they’re going to attack. Now, the one last comment I would make is the software customer that’s on a legacy payments integration through your platform already views you as their payments provider, to some degree or at large. So, it does make the conversation a little more organic and natural. And we do see, you know, in some regards higher conversion rates, because of that, that affinity towards an Embedded Payments solution within your software platform. Whereas that unintegrated base, you may have pitched it to them in the past, and for some reason they’ve chosen not to process through your platform. So, you may be running into, you know, preconceived notions about why they would or would not, or you may be running into obstacles that you’re blind to because they’re not processing through your platform. So just a few thoughts.
Ian Hillis
You read my mind. Where I was going for my last question, here was more around that unintegrated book. So, in the integrated circumstance, I know a lot more about them as it relates to payments. I’ve probably got a lot of that data and pieces there. That’s a different conversation. What are the different levers I have to pull as a software company to communicate with that unintegrated base? What is my value prop? Who internally is talking to them? What’s that look like?
Andy Meadows
Yeah, I think the levers, you have to understand the experience they likely have today, which is a fragmented experience for running their business. And you’ve got to anchor on that value proposition. If they’re working within the UI, UX of your software platform on a daily basis to run their overall business, that yet they have to step outside of that environment, to interact with their payments provider, from a service and support perspective, from a technology enhancement perspective, from a reporting and reconciliation perspective, then that’s your value proposition. The mistake I find a lot of folks making is trying to compete on price. So, they go after that unintegrated base, and they say, you know, what are you paying today to process payments? Let me see if I can lower your price. But you’re not actually speaking to the problem. You’re not speaking to the opportunity to improve their life on a daily basis. And that’s more in the consolidation of two really important parts: their business management software solution and their revenue stream. If you talk about consolidating those two really important parts of a business into a single experience, now you’re touching on what’s likely relevant to them, whether they knew it or not going into the conversation.
Ian Hillis
Shifting gears, a little bit, Andy. I think we’ve got a good picture of what successful activation looks like, and probably some more deep dives on migration and such. But you also mentioned adoption. So, activation, they’ve come on, they signed up for payments, you mentioned that you want to make sure you see volume flowing through there, they’re actually adopting a solution, utilizing it. Where do I start if I’m thinking about making sure that that’s happening?
Andy Meadows
Yes, it’s a post-sales sales process. That’s how I’ve always been, it’s called merchant activation. So, it’s one thing to attach payments to the software platform, i.e., they signed up, you got them, you got them boarded, you’ve enabled that function within the software platform. It’s another thing to get them activated, to get the end user to actually start running their digital payments volume, credit card, debit card, electronic ACH, getting them to run that through that particular, you know, aspect of the software platform. It’s called a merchant activation strategy. And you heard me say it’s a post-sales sales motion. I encourage software companies to have bodies, or a very acute digital strategy that transpires immediately after selling the payment solution. Whereas you’re reaching out to your end users letting them know they’re ready to go. They’re enabled to run digital payments volume through the platform, showing them how, helping them interface with their merchant portal, which is where they go in to see activity associated with payment processing. That all has to happen, otherwise, what you get is a lot of fallout. You see a sub optimal activation rate. And the other thing I tell any partner that I work with, any payments company, legacy traditional payment processing company has a merchant activation team standing behind the sales and the onboarding process. So, it starts there. It starts immediately after sales and onboarding of payments that you then have some type of activation strategy, either people or again, I mentioned a, you know, a very deliberate digital outreach motion.
Ian Hillis
I would love to understand the difference, actually, between the attachment of the payments and the adoption of it. Where do you see more of the challenges when software companies are looking at this?
Andy Meadows
Gosh, I think to say more of a challenge versus different challenges. I go back to if you effectively bundle payments into the software sale of that net new customer I think attachment of payments, which is just saying that you know the customers agreed to have payments enabled within the software platform. Actually, I think attachments to that net new software customer can be, I don’t want to say easy, but can become a very natural and organic part of the software sales motion. The adoption or said differently, the activation. You know, I think if those two things the same way. It’s sometimes that can be more difficult, and it can be more difficult for a couple of reasons. One, you’re asking them to do something new and different. So not only are they having to learn your software platform, but now you’re also asking them to start taking on a different solution to accept payments. Another challenge, which is different from learning how to use it, is you may be selling software to an end user that’s historically not taken digital payments altogether. So now you’re having to teach them and they’re having to teach their customers about the ability to use a digital payments solution and pay in a different manner outside of traditional cash or check, you know, or invoicing, so to speak. So, again, I don’t know if attachment versus activation, which one is more or less difficult, I think they present different challenges that you’ve got to be aware of, and that you can’t ignore specifically. And I say ignore, you can’t ignore the merchant activation piece. If you don’t pay attention to it, you will have sub-optimal activation rates or sub-optimal volume processing through your platform, you know, compared to the attachment of payments to that platform.
Ian Hillis
That’s excellent. And I think a really logical place to wrap this piece of the conversation. As I said, next time, we’re going to get into the additional levers that Andy talked about, and specifically on our next episode, we’re going to focus on the value-added services and how those services really enhance the overall experience. And then we conclude with a final episode in this series around minimizing attrition or retention as well as that optimization component to it. But Andy, as always, thank you for being on the show and we’re looking forward to the series ahead.
Andy Meadows
Yeah, love it, love, appreciate the time, Ian.
Ian Hillis
Of course. Thank you everyone for listening. We want to be a trusted resource for software partners who are out there trying to make sense of Embedded Payments and finance to help them get the education they need to make the business decisions their customers and investors will thank them for. Thank you everyone for joining our conversation today and look forward to continuing the conversation.
Thank you for joining us today on the PayFAQ: Embedded Payments podcast brought to you by Payrix. For more information about Embedded Payments, subscribe to our show at payrix.com/podcasts.
