Software-driven payments are dominating commerce. More businesses are opting to get payment services directly from the companies that develop the applications they use every day, shifting payments toward embedded, all-in-one solutions.
Your software company can seize the opportunity by offering payment processing and merchant services directly to your users. But should it?
The answer hasn’t always been clear. In the past, complexities and lackluster commissions made payments monetization unattractive to many software developers. Today, the answer is clearer thanks to a new model that puts a turnkey payments platform at the heart of embedded software payments.
In this article, we’ll look at the importance of embedded payments monetization for software developers, the limitations of traditional models and how the new, platform-enabled monetization model allows you to leverage payments without sacrificing time, resources or effort that could otherwise be used for development.
Why Your Software Company Needs To Monetize Payments
Traditionally, merchants would get their operational software and payment processing from two separate companies. Then, they would connect the two. Today, over half of all businesses get their payment services directly through an independent software vendor (ISV). Software-led payment processing is growing at a mid-teens rate every year.
Businesses want to get payments and software from the same place. It makes things simpler and more accessible—two factors steering the industry. If you aren’t offering your users the option to get their payment services directly through you, you’re failing to provide them with the critical convenience they’re demanding.
Offering merchant services directly to users turns the implementation of a new feature into a revenue driver rather than a cost center. You’re probably already embedding the capability to accept payments into your software. Without payment monetization, though, the revenue from those payments bypasses you entirely. Essentially, you’re building a feature that makes money for another company.
By monetizing embedded payments, you can earn the rewards generated by the payments volume that moves through your software — a potentially huge source of latent revenue.
The Traditional Options for Software Payments Monetization
Considering how beneficial monetizing payments is to your users and your company, why doesn’t every software vendor do it? Monetizing payments has traditionally been either easy or lucrative, but not both. That tradeoff kept many software providers on the sidelines.
There are three ways to begin embedding (and monetizing) payments: the referral model, the ISO/PayFac model and the partner-enabled model.
The Referral Model
The referral model is the easy option. In this monetization model, the software vendor treats its users as leads. They send them to a third-party payments company, which manages the process and pays a commission on any payment services they sell. The referral model requires very little of the software provider. That’s a good thing since, if you’re in the software business, you may not be interested in navigating the complexities of becoming a payments company, too.
Unfortunately, the referral model has two drawbacks:
- The user experience can quickly become disjointed and poor quality (both unacceptable in payments)
- Referrals earn commissions so low that many software vendors don’t even bother to pursue them. Often, these are small, one-time referral payments rather than recurring, scalable revenue
The ISO/PayFac Model
Software companies that want to drive significant revenue from payments can register as an independent sales organization (ISO) or payment facilitator (PayFac). ISOs and PayFacs are companies that directly recruit merchants on behalf of a bank and earn a portion of the transaction fees, known as residuals.
Registering as an ISO or PayFac allows software companies to earn significant revenue from the transaction volume that passes through their software. PayFacs also have a high degree of control over which merchants they work with. That’s beneficial for maximizing the number of users that can be approved. However, this model requires software companies to register as payments companies and hire dedicated operations staff — a long, complex and expensive process. While it works for some (very) large companies, it’s a non-starter for most.
How the Partner-Enabled Model Allows Software Providers To Leverage Monetization
The payments space needed a model that could generate worthwhile revenue by monetizing payments and let software companies avoid the complexities and headaches of the payments industry. That ideal mix now exists through the partner-enabled model of software payment monetization.
The partner-enabled model sits between referrals and becoming an ISO or PayFac. It gives you and your users a higher-quality payments experience than referrals and drives more revenue to your company. The best part is that this model puts the complexity of payments entirely on the platform, enabling you to focus on creating great software.
Benefits of the Partner-Enabled Model
We can break down the benefits of the partner-enabled model into four main areas — choice, users, backend and earnings.
Choice: Flexible, Modular Payment Solutions
With the right platform partner, you can select which types of embedded payments to include in your services and how your business will interact with the payments space as a whole. You can choose which systems you build and which you integrate off the shelf.
If your users need payments hardware or add-on services, like anti-fraud tools or subscription payment systems, you can offer them. You choose what your payment offerings and your relationship with the partner look like. That gives you the flexibility to grow and scale; it also ensures you never take on any complexity, risks or costs unnecessarily.
Users: Create a Better Experience and Foster Loyalty
With the referral model, your users go through a third party with a separate sign-up experience, a separate sales process, separate support, and a separate brand they may not know or trust. While you might make a small commission, your users gain very little, which will ultimately worsen their experience.
With the partner-enabled model, your users get a frictionless experience from initial sign-up through the lifetime of their processing. White labeling (the process of adding your branding to a solution) allows the entire journey to happen through your software and under your brand, even though all the logistics are actually going through your platform partner.
Your users won’t notice the complex side of payments — all they’ll see is a lightning-fast sign-up experience, rock-solid service delivery and quick payouts. That high-quality experience increases your software’s value proposition, makes your users happier and keeps them loyal longer.
Backend: A Turnkey Foundation That Puts an Expert Team Behind You
Software companies that enter payments are challenged with providing high-level service in a new industry. So, what happens when a user has an issue or needs support? What kind of regulatory requirements do you have to consider? How do you keep up with the rapid evolution of payment needs and technology?
The partner-enabled model eliminates those challenges. When a user requests support, you’re backed by a team of specialists through your partner. Your partner also has experienced experts to navigate compliance for you. Since solutions are designed to easily plug into your existing stack, integrating payment processing into your software becomes simple.
Partnering with an industry expert enables you to leverage knowledge and experience that would otherwise take decades to build, all without adding work for your company.
Earnings: Easy Access to Valuable Sources of Latent Revenue
The partnered-enabled model through embedded payments providers like NMI offers significantly better revenue splits on payments volume than traditional referrals do. Since NMI offers a complete suite of value-added extensions, you can generate additional revenue by selling fraud protection, secure card data storage, advanced Level 3 processing, automatic card updating and more. The platform-enabled model enables you to earn like an ISO or PayFac without working like one.
NMI Payments can help you improve your software’s value proposition and unlock latent revenue. To find out more, reach out to a member of our team today.
Don’t just turn on payments, transform the way you do business
- Generate New Revenue By adding or expanding payment offerings to your solution, you can start earning higher monthly and transaction-based recurring revenue.
- Offer the Power of Choice Allow merchants to choose from 125+ shopping cart integrations and 200+ processor options to streamline their onboarding.
- Seamless White Labeling Make the platform an extension of your brand by adding your logo, colors and customizing your URL.