Business Models Drive Integrated Payments Innovation

It’s easy to make things complicated. It’s harder to make them simpler, especially when it comes to payments.

In a Masterclass interview with Karen Webster, Bob Butler, president at Payrix, said turning payments from a cost center into a profit center increases companies’ value to their end customers in any number of ways, but getting there can be a long journey, with twists and turns for the Software-as-a-Service (SaaS) firms and marketplaces who serve those merchants.

The Evolution Of Embedded Payments

To integrate payments in the most efficient way, it, of course, helps to define what integrated payments actually mean, across a constantly shifting payments ecosystem.

Not surprisingly, there’s been an evolution over the past several years as the roster of providers and technologies has changed. Embedded payments started as a complex addition to back-end software and required partnering with an acquirer. Now there are more dynamic choices for who and how to process using pre-written code that fits into the software.

A decade ago, Butler said, an integrated software vendor would partner with an acquirer on the back end. Fast forward to more recent times, he said, and giants like Worldpay offer applications for each software vendor to embrace and code to within a given vertical, and merchants could get payments functionality from a range of different providers.

And today, as Butler maintained, “When you look at embedded and invisible payments, I see those as similar kinds of applications.” With a nod toward Payrix’s own approach, he said the company embeds its software within partners’ platforms. The payments are almost invisible to the end customer, he said.

The Journey

Getting from point A to point Z, where that value ripples across to the end-user, where the payments are part of the experience — well, that’s the tricky part of the journey.

As Butler explained, “There are a lot of decision points along the way, that software companies need to make.” Among those decisions: Whether to become a payments company — to go out and register to be a payment facilitator. Alternatively, perhaps these software firms and marketplaces might opt to partner with a provider that offers payments technology — or outsource that functionality altogether to an acquiring partner.

The answers, as Payrix has discovered, may differ depending on whether a merchant customer is looking at payments from a monetization perspective or whether they are focused on payments from a customer experience standpoint.

In other words, when it comes to embedding payments, this age-old question must be addressed: Whether to build, buy or partner. Determining a company’s main motivation is especially important since the lines between payments monetization and customer experience continue to blur.

Consider the case of Uber, where, as Butler said, payments themselves are part of the product. The value-add to the end customer is that they are able to hail rides at almost any time, in any place.

And, importantly, they’re able to do it at scale, Butler observed.

The Scale Issue

“As you look at some of the smaller or midsize software platforms, they also want to have that same type of experience” as Uber, said Butler.

But when it comes to embedding payments, scale can be a challenge as they enter new markets and expand their customer bases. Uber, after all, may have dozens of people staffing the payments side of the operations, but smaller firms simply do not have comparable resources.

Using a vertical software application that focuses on gym management as an example, Butler said the businesses that are buying or building gyms want to be able to use software with seamless payments built in, offered as part of the user experience, one that builds loyalty.

“But for some applications,” he told Webster, “payments are just bolted in as an afterthought, especially when it comes to some of the legacy players in that particular vertical.” That leads to a less than optimal experience — matching bank and processor reports up to what’s actually going on with the software — and, as Butler said of merchants, “they don’t want to have to sign multiple contracts and go through a clunky process just to accept payments.”

Small businesses, he said, are increasingly demanding that a continuum of customer data be embedded within the software applications they use.

“In fact, some folks have even said, ‘If I never had to go to the bank again and I could make all of my purchasing decisions through the software, I probably would,” he said.

As Butler said, some of Payrix’s software and marketplace customers are fielding inquiries on how they can get quicker funding, where funds can land in merchant accounts as soon as customers swipe their cards.

Data is key, of course, when it comes to payments. And as Butler said, the digital age increasingly offers smaller providers the ability to gain insight into how their merchants are looking to grow their businesses, especially internationally.

SaaS firms, he said, tend to follow a pattern as they leverage data (with insight into regional or local payment preferences) to expand beyond the U.S., moving into markets such as Canada, the U.K., Australia and New Zealand, eventually moving from English-speaking regions into new opportunities into other markets. But no matter where they may be looking to expand, he said, these companies want to be able to embed payments applications and create the same overall experiences in a uniform manner across a range of alternative payments.

The challenge is there, and as Butler said, for Payrix and other providers serving SaaS firms and platforms, offering payments simplicity can be the ultimate complexity — which in turn has its own rewards.

“At the end of the day,” said Butler, “what embedded payments allows our customer to do is to create, own and manage their own payments brand.”