Payment Pulse – Ep. 36

Learn how software companies can build a stronger business case for embedded payments by connecting customer demand, revenue potential, retention, risk, and implementation.

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Episode Transcript

Shannon:  Welcome back to the Payment Pulse Podcast. I’m Shannon.

Michelle: And I’m Michelle. Today’s topic is one that comes up all the time when we talk with software companies about embedded payments.

Shannon: Many teams understand that payments can create new revenue opportunities, improve customer retention, and enhance the overall customer experience. The challenge is often getting leadership aligned around the investment.

Michelle: Exactly. Sometimes the product team is excited, the founder is excited. Hey, sometimes even the CFO is interested, but everyone getting aligned around the business can be harder than expected.

Shannon: So today, we’re talking about how to build a business case for embedded payments and the questions leadership teams typically ask before moving forward.

Michelle: So, one of the biggest mistakes we see is companies immediately jumping to revenue projections. They start talking about monetization before they’ve established why customers actually want embedded payments

Shannon: Yeah, so that’s a great point. So, the strongest business cases usually start with customer experience. Today, merchants expect fewer systems, fewer logins, and fewer disconnected workflows. They want to run their business in one place.

Michelle: And when payments live outside the platform, it creates friction. Maybe they’re bouncing between systems, reconciling data manually. Maybe they’re managing multiple support relationships. None of those things create value for the customer.

Shannon: Yeah. So the reality is that convenience matters. When payments are built directly into the workflow, you’re making it easy for customers to operate their business, and that becomes part of your competitive advantage.

Michelle: It’s not just about existing customers- it can impact sales conversations too. One contract, one onboarding process, one support relationship, those things can shorten sales cycles and simplify purchasing decisions.

Shannon: That’s true- especially in competitive markets where software functionality is becoming increasingly similar. So the customer experience often is what becomes the differentiator. So once you’ve established customer demand, then you can start talking about the business opportunity, and that’s where leadership teams usually start paying very close attention.

Michelle: ‘Cause now we’re talking about a revenue stream that grows alongside customer success. As your customers process more payments, the revenue opportunity grows.

Shannon: One thing I think is important here is that payments revenue doesn’t necessarily require customers to buy additional software modules or licenses. You’re monetizing activity that’s already happening inside the platform.

Michelle: That’s why so many SaaS leaders view payments as a strategic growth lever. You’re increasing revenue per customer while improving the customer experience at the same time.

Shannon: Then there’s also the retention story. So once payments becomes part of the customer’s daily workflow, switching platforms becomes significantly more disruptive.

Michelle: They’re not just moving software, they’re moving payment operations. They’re changing how money flows through their business, and that’s a much bigger decision.

Shannon: And then there’s product innovation. So payments creates opportunities to build new capabilities that competitors may not have.

Michelle: Things like payment plans, integrated invoicing, faster funding, automated collections, financing products, and other value-added services. Payments become a platform capability rather than simply a transaction function.

Shannon: Yeah. So one thing I think gets overlooked in these conversations is that many software companies underestimate the value of embedded payments. They look at processing revenue, and many of them just stop there.

Michelle: That’strue. When leadership teams start evaluating payments, they often focus exclusively on transaction economics. How many basis points can we earn? What’s the revenue share? How much payment volume can we process? Those are important questions, but they’re only part of the picture.

Shannon: Yeah, so in some cases, they may not even be the biggest part of the picture because embedded payments can influence multiple areas of the business at the same time.

Michelle: Customer retention is a great example. Let’s say embedded payments reduce annual customer churn by just a few percentage points. That improvement alone can have a significant impact on customer lifetime value.

Shannon: Mm-hmm. And in many SaaS businesses, retaining a customer is substantially less expensive than acquiring a new one. So when payments become embedded into daily workflows, you’re creating operational stickiness that can help protect revenue.

Michelle: Another area leadership teams sometimes overlook product expansion. Once payments become part of the platform, entirely new product opportunities start to emerge.

Shannon: Exactly. So payments often become the foundation for additional services. Things like invoicing, recurring billing, payment plans, next day funding, um, reporting tools, financing products, or automated collections.

Michelle: And every one of those capabilities create opportunities to deliver more value to customers while expanding revenue streams.

Shannon: There’s also the competitive advantage component. So when payments are integrated deeply into workflows, competitors have a harder time replicating the overall experience.

Michelle: Because you’re no longer competing solely on software features, you’re competing on the complete operational experience, and that’s a much more difficult position for competitors to challenge.

Shannon: Mm-hmm. The other factor that’s becoming increasingly important is company valuation. So this is particularly relevant for founder-led and investor-backed software companies.

Michelle: Absolutely. Investors are paying much closer attention to monetization efficiency than they were a few years ago. They’re looking at revenue quality, customer retention, and growth levers beyond subscription fees.

Shannon: And embedded payments can strengthen all three of those. So a software company that’s generating recurring payments revenue often has more revenue diversification and more monetization opportunities than a company relying entirely on subscription revenue.

Michelle: That’s why some leadership teams eventually stop viewing payments as a feature. They start viewing it as part of their own growth strategy.

Shannon: And that’s really the shift that we’re talking about. So the strongest business cases don’t simply ask, “How much money can we make from payments?” They ask, “How does payments help us build a stronger, more valuable business?”

Michelle: When leadership starts evaluating payments through that lens, the conversation becomes much more strategic.

Shannon: Mm-hmm. So now let’s talk about what finance teams care about because eventually every business case lands on someone’s desk who asks one question, which is, “Show me the numbers.”

Michelle: Exactly. Vision is important, strategy is important, but CFOs need a model.

Shannon: Mm-hmm. The first place to start is payments volume. What volume already exists within your customer base, and how much money is flowing through those businesses today?

Michelle: And if you don’t have exact numbers, you can still create reasonable assumptions. Customer surveys, industry benchmarks, representative customer samples- there are ways to build a credible estimate.

Shannon: And the second piece is adoption, and this is where companies sometimes get overly optimistic.

Michelle: That’s one of the biggest mistakes. Nobody gets 100% adoption overnight. Leadership teams will immediately challenge assumptions that feel unrealistic.

Shannon: So you’re right. So a much stronger approach is modeling adoption over time. So maybe that looks like 20% in year one, 40% in year two, 60% in year three. The exact numbers will vary, of course, but gradual adoption is typically more credible.

Michelle: Then you layer in your economics: revenue share, basis points, markup models, whatever structure you’re evaluating. That’s where the revenue projections start coming together.

Shannon: One thing I’d add here is that the most credible business cases don’t rely on a single scenario.

Michelle: That’s a great point. Leadership teams typically want to see a conservative case, an expected case, and an upside case.

Shannon: Mm-hmm. Exactly. So if adoption is slower than expected, what happens? If it’s faster than expected, what happens then? So showing multiple scenarios demonstrates that you’ve thought through the opportunity realistically.

Michelle: Now, at some point, leadership will ask another question: “Why don’t we just build this ourselves?”

Shannon: And that’s a fair question. So on the surface, building in-house can sound attractive. You get more control, more ownership, and potentially more economics.

Michelle: But what often gets overlooked is the complexity. Payments aren’t simply a product feature, they’re an operational business.

Shannon: Yeah, so things like PCI compliance, fraud management, chargebacks, underwriting, risk management, and regulatory requirements… the list gets long very quickly.

Michelle: And the opportunity cost can be significant.

Shannon: Mm-hmm.

Michelle: Engineering resources that could be focused on your core product suddenly become focused on payments infrastructure.

Shannon: And the other option is a gateway integration, and that can certainly accelerate time to market.

Michelle: But it often limits monetization opportunities and creates a disconnected customer experience. The merchant relationship ends up living somewhere else. Support lives somewhere else, revenue lives somewhere else.

Shannon: Which is why many software companies eventually look at PayFac-as-a-service models. They get the integrated experience and monetization opportunities without taking on all the operational burden themselves.

Michelle: And that’s often where the conversation shifts from, “Can we launch payments?” to “What’s the smartest way to launch payments?”

Shannon: So one area that doesn’t get discussed often enough is risk, because risk is what determines whether a project gets approved.

Michelle: Especially for executive teams. Revenue opportunities are exciting, but risk exposure is what keeps people awake at night.

Shannon: And every approach carries different risks. So an in-house model brings significant compliance and operational responsibilities.

Michelle: Gateway models reduce some of that risk, but often create customer experience challenges and support challenges.

Shannon: So the key is helping leadership understand where the risk sits and who owns it, because that’s ultimately what they’re evaluating.

Michelle: The best business cases don’t avoid risk discussions; they address them directly.

Shannon: And they demonstrate that the organization can pursue the opportunity without creating unnecessary operational strain.

Michelle: Now let’s finish with implementation, because this is where many business cases fall apart.

Shannon: Mm-hmm. Yeah, so leadership may agree with the opportunity, they may agree with the economics, but if they can’t visualize execution, momentum will stall.

Michelle: That’s why implementation matters. Show the phases, show the timeline, show who’s involved.

Shannon: Mm-hmm. That’s right. So things like, you know, discovery, planning, development, pilot, and launch. Those milestones help leadership understand the path forward.

Michelle: And don’t forget go-to-market strategy. Merchant onboarding, sales enablement, support readiness, customer communication, those pieces matter just as much as the technology.

Shannon: A strong implementation plan builds confidence that the opportunity is achievable, not just theoretical.

Michelle: And it helps leadership understand that this is more than just a technology initiative. It’s a cross-functional business initiative. So if there’s one takeaway from today’s conversation, it’s that embedded payments shouldn’t be evaluated solely as a payments project.

Shannon: It’s a customer experience initiative, it’s a revenue strategy, it’s a monetization strategy, and for many software companies, it’s becoming a business strategy.

Michelle: The strongest business cases connect all of those pieces together.

Shannon: So by showing customer demand, financial upside, operational feasibility, and a clear path to execution, you give leadership the confidence to move forward.

Michelle: And if you’re evaluating embedded payments and want help understanding the revenue opportunity for your platform, we would love to have a conversation!

Shannon: Thanks for listening. And if you’re looking for more resources like this, you can visit our blog at xplorpay.com. That’s X-P-L-O-R pay.com.

Michelle: We’ll see you next time on Payment Pulse.

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