Payment Pulse – Ep. 44

See where vertical SaaS companies should invest next, from AI and agentic workflows to embedded payments, product strategy, and long-term growth.

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Episode Transcript

Daniel: Welcome to the Payment Pulse podcast. My name’s Daniel Burton, Vice President of Payments for vertical SaaS here at Xplor Pay. Today’s conversation’s a little different. Over the past year, a lot of discussions have been within the vertical SaaS community around AI, and really a lot about what AI can do. But today, I think we really wanna ask the question of how is AI changing the way founders think about product strategy, advantage, and then ultimately that long-term enterprise value. To explore that conversation, I’m joined with two tremendous people that spend a lot of time working with vertical SaaS leaders, founders, and different organizations in the vertical SaaS community.

Mark Passifione, our senior VP of Integrated Payments here at Xplor Pay, and Luke Sophinos, of the Vertical SaaS group. Luke, Mark, thanks for being here, guys. Welcome.

Mark: Thank you

Luke: Thanks for having me. Appreciate it. Looking forward to it.

Daniel: Luke, let’s start with you. You know, I know a lot of people know your name, especially in this vertical SaaS community, but they may not know how the vertical SaaS group, which you lead and founded, came to be. Tell us a little bit about your background, what led you to that focus here, exclusively on vertical SaaS.

Luke: Yeah, for sure. Well again, thanks for having me. Excited for a fun conversation today. I started a vertical software company when I didn’t know that’s what it was called. I started a business called CourseKey, now it’s called Portico, which was an end-to-end software solution for trade schools.

I founded that company in my college dorm room. I built it up over about 11 years, and then I sold it to private equity in 2024. And, you know, during that time, I started writing a newsletter. Really just writing helps, helped me with clarity of thought and thinking through what I was attacking.

And I just noticed that there wasn’t anything out there that was specific around industry specific software solutions. It was all about these broad tools that covered everybody and I was trying to implement the stuff that I was reading as a first time founder, and it just wasn’t working.

So I started with a newsletter and over time, a bunch of kind of founders piled into that and we started sharing with each other and that’s really what birthed Vertical SaaS group. And, what we do is we just try to provide content, resources, whatever we can, to help every founder that’s building a vertical SaaS dominate their industry.

I have a bunch of channels, mediums, podcast, newsletter, a conference every year, where we really just lean in and help any way we can.

Daniel: Yeah, that’s a great story. I love kind of putting yourself through your own experience and trying to kind of take what you’re learning and then help others that are in those shoes you once were, to kind of continue their journey. I’m curious, as you develop this content and as you grow in this community, how do you really draw from your followers and founders and operators?

How many do you speak with to sort of gauge a lot of your ideas and on a regular basis?

Luke: Yeah. So, I’m definitely active, still. I’m also an operating partner at a group called Atomic, which is a, a billion-dollar fund. We’re constantly creating net new vertical businesses. And so, I’m in the trenches every day just like I was once, specifically in the zero to one stage.

And then additionally to that, I’m an active angel investor, so I think I’ve invested in about 25 different vertical software. My job is understanding what’s going on in verticals, where the puck’s headed, and trying to figure out how we can all grow faster, and build better businesses.

Daniel: Yeah, that makes sense. You investing in that software space, you really gotta stay ahead of the game, so that’s what keeps you drawn into the day-to-day and the challenges. ‘Cause I would imagine the challenges when you were building your company versus the challenges now are-

Luke: Ever evolving. Ever evolving

Daniel: …evolving. So, just to wrap, what’s one thing that keeps you excited about just vertical SaaS in general, as you’re so invested in the community?

Luke: Yeah, I mean, AI is the obvious answer. I think every company is getting rebuilt to a certain degree right now, and it’s such an exciting time to build. One specific thing in AI that I love is these vertical specific GPTs. So, when you go build the ChatGPT for your industry.

There’s just a bunch of people that haven’t had a ChatGPT moment in their business life. They’ve had it as a consumer, but they haven’t had it in their business, especially in verticals where we work with a bunch of folks that serve, quote-unquote, niche end markets.

Magic School and Education did this, Open Evidence did this for doctors. We’re seeing growth rates for these types of companies like we’ve never seen before. And so I think there’s a lot of surface area left for all of us to take advantage of that.

Daniel: Yeah. No doubt. AI, how that’s gonna change your foundation to build for the future definitely is something to be excited about. So let me pull you in on this, Mark. I know how much time you spend with vertical SaaS leaders and how much time you invest into vertical SaaS in general.

To pull you in, what’s one thing that those outside of this vertical SaaS industry don’t really understand what’s going on, in your opinion?

Mark: I think I can answer that in a kind of a different way. It’s not even people outside of the industry, even people in the industry. I point to something like Luke’s community, honestly. When I look at the community and kind of the things that they address in the newsletter, it’s all the things that as a vertical SaaS founder you don’t really think about.

Most of the people that are vertical SaaS founders have experience in a certain vertical. They’ve worked in field service, they’ve solved problems for plumbers, they’ve done things for lawyers, something like that where they have this real innate knowledge in the industry.

But then they find out when they get in there, like, “How do I scale a business? How do I raise capital?” You know, all of the things that, Luke’s community is talking about, those are all the things that go into really building a strong vertical SaaS company, it takes more than just the discipline of understanding the specific vertical market.

I think that’s one of the big things that within the industry and outside of the industry don’t really see, right? That it’s truly building a legitimate business, and you have to do a lot more, and you have to bring in a lot of other people to help you, normally. It’s very hard just to do it on your own.

Luke: I love it. It’s on the money, right? I think we’re all trained to just kind of dive into the industry and most founders that have these types of companies come from that industry, right? And so you just don’t know what you don’t know, and it’s amazing the amount that you can borrow from, successful plays and what people have done in other similar verticals, industries that have a bunch of components that you can leverage. So it’s exciting.

Daniel: So Mark, I’m gonna come back to you. You have shown the way that you’re passionate about helping vertical SaaS companies grow. Why don’t you tell us a little bit more about why your background has led you to become so passionate in this space specifically?

Mark: Well for me, it’s kind of a similar path that Luke had. So I started a software company years ago as the founder of a software company, CEO of a software company that serviced the wireless industry. This is pre-internet. The wireless industry kind of took control and then consolidated before the internet really became popular. And the way I found the payment industry is those customers which I had, which were large wireless companies like AT&T Wireless and Verizon and Cantel in Canada, and Telstra in Australia. They were large wireless companies. Now, it was getting consolidated, so there were fewer and fewer customers, but one of the things they started asking me for was a way to accept payments in their business. And in doing so, one of the programmers that worked for me, a really smart gentleman, created an API, and this thing got published in a development journal. All of a sudden, we were getting lots of calls for this API they had built. What it allowed you to do was turn any PC in any LAN environment into a payment terminal so that you could imagine a call center with forty PCs strung together on a local area network could now accept payments through a call center.

Think that type of thing, pre-internet. So then it just dialed out over the phone.You know, I’m not the sharpest tool in the shed always. But when the phone starts ringing and people wanted that product, we bolted a database on it. We did a few other things to put a GUI interface on the front end, and all of a sudden, we had this really powerful tool that became Supercharge, which led me to a life into payments.

What I saw in payments at the time was there was not a lot of technology. Most everything was happening over phone lines. The internet was just coming into play. So it was starting to drive data security a different direction because all of a sudden the world– all this data was available widely to the world. So all of a sudden protection of data became important. It just became an easy path to jump from the vertical SaaS business into the payments business where there was fewer, less competition, I would say. And, it just became a natural stepping stone for us as a company. That company’s still around today as a payments organization and I’ve worked in different capacity in payments since then, primarily in business development, but typically in a management or leadership role.

Daniel: Yeah. Specifically on your role, tell me more about some specific examples or applications of how your role has really evolved.

Mark: It’s almost always been around integrated payments, meaning working with software companies. After Intrix which became Agavi, which we were selling to those big wireless carriers, I went into a company called FTS, which was later rebranded to CardConnect. We sold into the enterprise space, so we built integrations into ERP systems like Oracle and SAP that were used by very large companies.

Think Dow Chemical, GE, companies like that are using those systems to manage their businesses. They had portions of their businesses that used cards. They were primarily concerned with the PCI at that time. This is almost 12 years ago now, 13 years ago. PCI was a big thing. Data security was a big thing. It was a costly audit for large companies, so we were playing that angle. That led me over here eventually when that company eventually went public and we sold to First Data, which eventually became Fiserv. I moved over here, and really we started to expand on that same principle here with embedded payments.

Here, I’ve been responsible for the BD motion and the sales motion in that embedded payment space. If you know anything about Xplor, we own some software companies, and then we also have a payment stack. And so we’ve been able to leverage what we built for a lot of our own software companies to all these other software companies that need embedded payments.

And we built what I would call a pretty nice stack. It allows you to go either as a referral partner or a PayFac as a service type of partner, depending on where you’re at in your growth journey.

Luke: Which by the way, is so cool. It’s such an underrated point that you guys bring to the table is you’re doing it with companies you own. You’re not just sitting in a vendor seat trying to tell people what they should do. It’s tried and true. It’s learning through all of the failures and challenges that we’ve all experienced.

So I love that piece that you guys have.

Daniel: Yeah, and just to lean into that for a second, owning software within Xplor Pay, where there’s a founder mentality within that particular software company within the bigger, broader Xplor Technologies, you can see the challenge as a software company comes up against, but how that company and payments interact, we’re often very intimately involved. But just as the last five years have gone, what are some of those payment discussions five years ago that are very vastly different today just based off our journey of having both software and payments under the hood?

Mark: Well, directed to me, I could think of a couple different things. I mean, the evolution that I’ve seen in the embedded software space is initially they were trying to create a non- integrated product. The idea of having two entry points of payments was a pain point for people because of reconciliation and just the normal kind of stuff. Over time, they wanted to make sure that people used gateways and things like that to get it done because they could appeal to anyone that way with a gateway. You basically could keep your processing relationship. Over time, they understood that they could create a better experience.

Companies like Stripe, Square, and Adyen really drove that point home, that you could create a much better experience for the user if you controlled the whole piece, not just the gateway motion. You were the gateway, you were the processor, you were presenting the entire solution. It created a much better customer experience, less friction in boarding. You know, all the kinds of things that we talk about. Today, when I talk to people, especially people who have kind of gone through that evolution, companies that have made it larger vertical customers that have been going through this process, they all of a sudden are worried about interchange optimization.

How do I do pricing better? How do I add other capabilities to the payment stack? It’s not just about accepting payments. Maybe it’s about paying out people in my organization or paying vendors or banking people or doing merchant lending. It’s really evolved into more of an infrastructure play, and it seems like it’s gonna continue doing that for some time.

Luke: If I were to weigh in on it, from the vertical software seat, my view of what happened is we saw Toast and ServiceTitan IPO, and we looked at Toast specifically, and I credit them and their team to this, that 75% of their revenue was coming through payments.

Daniel: Mm-hmm.

Luke: In that order of magnitude, somewhere in that range. And everyone sat there and said, specifically in the VC community, “Holy crap. There’s so much opportunity for every one of these verticals that we thought were way too small.” I remember being on Sand Hill Road pitching VCs trade school software, and they’re like, “There’s no way this thing could ever be venture scale. You’re out of your mind.”

And Toast really changed the narrative around software, per seat, per user monthly subscription is simply the gateway drug to payments, monetizing that, and then you could continue down the stack. Insurance, payroll- there’s so many more levers and every investor thought these things were tiny, and they ended up to be 10, 20, 50 times bigger than anyone thought.

Daniel: How we look at payments as a total end goal value prop is obviously a world we, Mark and I, spend so much time sort of evangelizing. But to your point, Luke, you still gotta go out and acquire customers. You still have to solve problems. You still have to drive value in the market. And it’s interesting because the group we have here on the phone, Luke, you’re hearing from founders and investors. Mark, you’re talking to software executives who are building these platforms. I spend a lot of time talking to the operators of these SaaS companies and really product leaders, how they’re creating their experience and differentiation. In all those different perspectives, it feels like everyone’s kind of asking similar questions, or kind of in positions of similarity where I wish I could just pump out more features and more value with as much capacity as I can.

And so it becomes a, “Which one am I gonna build?” discussion. These opportunities that are in some cases restricted by budget really comes back to the question of how do you decide where to invest as a software company? As you’re looking at your potential investment opportunities in these vertical SaaS companies that you consult with, Luke, what’s kind of a framework that you use and how you decide that, “Hey, we should invest in building infrastructure within our SaaS company around this area versus this, or invest in these other areas”? What’s kind of a framework or foundation you use?

Luke: I always try to kind of look at value levers. Typically, you’re gonna hear from your customer what needs to be built. I think that’s fantastic, but it can also be a little bit of a trap. There’s a famous analogy of the Bevill toaster, and you guys are like, “Where is he going with this?”

But the Bevill toaster is the most pristine toaster out there. It’s like $499 at some absurd price, and if the guy who invented the Bevill toaster listened to everything his customer said, the thing would have 500 buttons on it, right? I want it extra crispy, a little bit crispy. I want it black.

You could go down a whole rabbit hole. Instead, he had two buttons. He had the classic dial, the four, five, six, and then the second button was a little more. He was able to encompass all of those requests in something that was very eloquent. My framework is always, what is the customer telling you?

It’s what’s the size of the opportunity for them first, and for us from a secondary standpoint.Then, how do we encapsulate that in a way that it’s gonna work across our particular industry? Too many vertical software companies end up not doing what Bevill did, and they turn into 1,000 buttons on the screen.

If you’ve been living under a rock, 1,000 buttons on a screen is dying. We’re turning into prompt boxes and, and the simpler, the better. The one-click, my Uber shows up experience is what the end user wants. It’s value for our customer first.

It’s value for us second, and then third, how do we encapsulate that in a way that can work in the best possible way for everybody?

Daniel: Yeah, instead of chasing each individual problem in itself, it’s stepping back and thinking broad strokes about the problem to simplify how does this apply in the most eloquent way across my market? I love that. That’s such a brilliant product mindset. What about you, Mark?

What do you see when companies make strategic decisions that are good rather than maybe that you come up with that seem to chase opportunities individually?

Mark: Well, I think it’s along the same lines what Luke said. There’s a lot of noise coming at you as the founder of a software company. You’re constantly getting inbound emails, you’re constantly getting inbound texts, you’re getting LinkedIn requests, you’re getting all these things from vendors trying to sell you a new opportunity.

Another way to make revenue or a new choice. If you revert back to the customers source of that’s the customer and that’s who I really wanna listen to, to get my picture right. I love the spin of making it more elegant, ’cause I could see where the demands of the customer could get you to a million buttons.

It’s how do you create that simplistic view once you get that data from your customer? But I think the people that really separate themselves are listening to their customers very well, they’re internalizing it, and then they somehow present it back in a really elegant way. I tend to agree with what Luke said completely.

If you look at some of what makes Apple Apple, it’s exactly that. They do that so well. They get feedback from the customer, they bring it out, and it comes out in a way where it’s like, “Oh, that’s so easy.”

There’s so many things like that. Uber to me is like that, in many ways. The fact that my aunts in their 80s can know how to do an Uber, how to order an Uber, and a 16-year-old can order Uber. It’s that whole concept of making it so frictionless and so easy, is what makes it so valuable in my opinion

Daniel: Yeah, that’s great. Those are good examples, and I would agree. I think taking a complex problem and making it simple is definitely a differentiator, an untalked about one perhaps. Back to this idea of where to invest your dollars, what are some things you think vertical SaaS companies are underestimating from an investment perspective these days?

Luke: I think most companies, specifically companies that were founded pre-AI, are underestimating and underinvesting in not just the product transformation that I think that has to be made to dominate in this new era, but more specifically, the org chart transformation that has to be done in this new era.

I think 90-plus percent of companies are still kind of running the classic SaaS org chart that we all learned was the right way to do it. You got a PM, you got seven, eight, nine engineers glued to the PM’s hip. The PM is responsible for understanding what the customer wants, translating that to the engineering team.

And there’s not a right answer yet, but I think we all need to really rethink how we’re building in this new age, because it can be so fast and it can be so much more efficient. I’ll give you one example of a company that I’m working with that I think is doing this tremendously, and what they’ve done is they’ve set up a structure where the domain expert owns the module.

For example, their customer success leader is literally responsible for owning the customer success module in their product. The thing that I love is that person is literally vibe coding what the front end, what the screens, what the UI, what the UX should look like.

A couple years ago, even like 12 months ago, this wasn’t even possible for them to do. But they’re able to get it to a point where there’s no telephone. They know this better than anybody. The industry expert is building the industry-specific module, and they know it better than anybody.

There’s no telephone that’s happening, and they’re basically just handing off that UI front end in a beautiful way to the engineering team to build it scalably. The whole notion of a PM in that example is very different. They’re now more responsible for taking that front end build, putting it into sprints that the engineers can execute on to ensure scalability.

Org charts are shifting rapidly, and if you’re stuck in kind of the old product development org chart, and I say old, but it’s a year old, you gotta really rethink where you’re allocating investment dollars.

Daniel: Yeah, it’s fundamental to any SDLC, which is feedback loops and how you take those feedback loops and apply them has always been like a hidden factory of time to value in terms of how you adjust from the market. And if you almost significantly shut that feedback loop time down so far to where it’s so short that the value can be created more quickly, you’re just going to delight more often than your competitors will who aren’t doing that.

Luke: Daniel, if I’m the customer and I tell you what needs to be built, and then you go tell Mark that, and then Mark goes and tells five different engineers that, what does the end product look like? Probably not what… And then, there’s somewhere in there that needs to distill that customer from 95 other customers.

The old way of doing things, even though we thought it was right, is not a good way.

Daniel: So it’s not just the time to value, but it’s also the articulation of the problem.

Luke: Totally

Daniel: Unless your process is so sophisticated, which you could argue that even if it was sophisticated, you’re still gonna lose things in translation.

And it is often so classic that it is all about whether you’re solving the right problem more than actually solving a problem or the problem in itself. And so, yeah, I think that’s very compelling. Anything you wanna add into this, Mark?

Mark: The thought I had, it was along similar lines and I wasn’t thinking of it from restructuring the org, but I think that’s a really key component of what I’m gonna say. In my head, I was thinking we have to retrain our people in a way to think outcome-based. ‘Cause when I was an entrepreneur and created a vertical SaaS company, I was trying to develop a tool to make somebody’s job easier. AI offers a different kind of solution. It says, “Hey, this is the outcome I want. Go build it.” I tell the machine to go build the outcome I want. So it’s a little bit different kind of way of thinking about it, and we have to get our people to start thinking that way within the organization.

And then it makes sense to what Luke’s saying, like you’d have to lay out your org in a way that supports that kind of thinking because that’s really, to me, what AI really offers, Is I don’t have to think about how do I save you 10 keystrokes on entering a payroll? I have to say, “I want this to be the most efficient way of entering payroll,” and let it determine. And over time, there’s already this concept of singularity, where people think the AI’s gonna correct itself quicker than the people can. And who knows, right?

I don’t know if that’s gonna happen or will happen, but it’s certainly moving quick enough to maybe happen. I might get to see it.

Daniel: Yeah, it’s a good point. I heard a soundbite from Tip Top Ventures with Nick Tippon the other day, and he was talking about how we’ve really moved from basic AI, what he called 1.0, 2.0, and 3.0, where 1.0 was kind of using AI to do some research. 2.0, and Nick, don’t get on me if I butcher this a little bit, but 2.0 was like, if improving your processes and really creating these streamlined workflows within your software that are really driven through AI.

And this 3.0 threshold, I think that is upon us now is how can you almost take an outcome that potentially people within your company are delivering and allow the software to deliver that outcome instead of people. And I think what it does is it allows them to free up to do more. It doesn’t mean eliminating positions, but it allows individuals within customers of the vertical SaaS to think bigger about what they can do with their resources. I love some of those thoughts behind, well, you gotta have an org chart as a vertical SaaS company that will support your ability to think how can I build this 3.0 value proposition for your customers? Which kind of really leads us into what do you think the next capability that we will value the most with vertical SaaS companies will be, in your opinion, Luke?

Luke: It’s all running towards agentic. I know that’s a word that a lot of people are just throwing around. How I define agentic is the ability to basically ask your AI to do something, and it actually does that. Just to think about vertical SaaS pre-AI, to a certain degree, these were just kind of databases with some workflow layers on top that were industry specific.

That’s all they were. They weren’t intelligent. They weren’t smart. They required somebody to follow the correct process, put in the correct data in the right fields, all of that. Agentic is really enabling us to talk to something and have it take action, and do these things on our behalf.

And you can add human in the loop. You can add people checking the work and ensuring that it’s done appropriately. But the sky is the limit on how big of a market that is because you go from a vertical software company tapping into a software budget, which at the highest end is 10% of a company’s revenue.

And in most cases, it’s like half a percent to a percent, maybe 2%. And you tap into payroll spend. So all of a sudden the payroll market in terms of what people actually make from a labor basis is, I think it’s 100x bigger. It might even be larger than your SaaS budget.

People are going to immediately jump to, “Oh my gosh, well, then it’s gonna take my job.” But the better way to think about it, I think at least now, is outcome doesn’t have to be a full employee’s day-to-day, right? Outcome can be one thing that they’re doing. And so the best companies I’m seeing right now are really automating this administrative back office-y type work that AI is getting really good at.

Then that’s freeing those folks up to go spend time with customers, to go sell more. To go do the customer facing like human activities that are critical. That’s my answer is like this move to agentic can be enormous, and every industry is going to need a system that has agentic capabilities.

And the more agentic capabilities that you have, you’re gonna create incredible moats, moats like we haven’t ever seen before because it’s not gonna be just about ripping out a system. It’s gonna be ripping out an entire work layer.

Daniel: That you’ve been training and working with and beginning to trust. I think once you get to the point where you give those agents those closed box of systems, a set of instructions, and then they deliver and you start to trust that, I think that’s when it becomes powerful.

We’re talking about investments in the way that you think about your org structure and how you think about what value you’re trying to build as investments that are gonna compound over time.

And when you start to build an org chart that allows you to move fast with good problem articulation and closed feedback loops systems that are gonna allow you to deliver value and continue to build upon that using agentic commerce and agents in general. When you step back and you compare that against all the prioritization topics, one of the areas you mentioned earlier is this, how does all of these AI pieces intersect with embedded payments?

And, Mark, you’ve spent so much time traversing this topic with vertical SaaS companies. We obviously understand the value of the revenue opportunity. When does embedded payments really stop becoming a feature and really start becoming a part of the platform strategy for a vertical SaaS company?

Mark: I think when they start bringing the right people to the table is a big part of it. If you think about a software company, and if I own a vertical SaaS company and I have a problem, I’m gonna walk in the room and I’m gonna have the engineering lead in there, the product lead in there, maybe a support lead in there.

In our business, we’re gonna have the risk lead in there, we’re gonna have the product lead in there, we’re gonna have the development lead in there, we’re gonna have the admin lead in there, maybe an HR lead. When you start thinking of it and saying, “I wanna bring the payments lead in,” in a vertical SaaS company, I think you’re at a point where you’re now prioritizing payments in a way that it’s part of your workflow.

And when you start talking about agentic and those types of things, what you’re really talking about is workflow. It’s how can I automate certain workflows in a way that I trust them over time. The human gives an instruction to a machine, and the machine executes it on a regular basis, performing in a regular fashion. You need somebody who’s the sponsor of that. And maybe it’s not even payments, maybe it’s agentic workflow. You bring a person in the management team who’s really responsible for looking at everything you talk about in a way where you look at will agentic commerce or agentic workflow, improve the organization in a way or help solve a problem in a way where we can automate this piece of the business versus it becoming another chore that someone has to do.

Daniel: Yeah.

Mark: Again, the old school way was I build a tool to make your job easier, but you still have a job. You still have to interact with it, versus I give the machine instructions to go do it.

Daniel: Yeah.

Mark: Sorry, I didn’t mean to cut you off.

Daniel: No, go ahead.

Mark: I think that’s kind of the next level.

When I see companies that are really taking it to the next level, they’ve typically got somebody who’s in charge of the payments piece, because that may be the only piece that they’ve embedded at this point, but they’re gonna try to grow that into embed other products like Luke said, I love the way you said that.

You said it was the gateway drug. Payment’s the gateway drug. And then you got all these other embedded everything. Just start thinking about it that way. It’s infrastructure. If you listen to Stripe and you go to Stripe Sessions, this is exactly what they’re talking about.

They’re trying to be infrastructure for infrastructure.

Daniel: Luke, you mentioned earlier about Toast capturing so much of its revenue from payments. Do you feel like there’s a right time for a vertical SaaS company to really start to build up a knowledge and a focus on payments? Is there a too early? Have you seen SaaS companies fund some of their SaaS growth payments by having an early focus on it? Or do you think you really have to find that right medium of when you really focus on it?

Luke: Yeah. So, to answer the second question, 100%. I think on the first question, there’s kind of a classic journey that most vertical softwares go down and it’s not always the case, but I think the vast majority of them do go down it, where you start with a single product and then you go multi-product and then you kind of evolve into a platform.

And eventually you kind of become that end-to-end offering for your industry. You don’t wanna do it on the first product in most cases. If some cases that could actually be the case that it’s just a totally no-brainer for you to add it because of what you’re doing.

But I think in most cases the time to add payments is when you’re in the multi-product zone. You don’t have to wait till you’re end-to-end, but when you’re in the multi-product zone, they’re using you for something. Ideally it’s something either pre-transaction or post-transaction. Like I always tell founders, I’m like, “If you can find that early wedge product, that initial product that’s pre-payments or post-payments, that’s a beautiful place to be.”

Because then you naturally add the payments anchor and then that funds your development into an end-to-end system. Some folks start in other places and then they have to kind of work their way through the workflow before they do that. I do think the payments conversation can come up a lot earlier in these AI native businesses that have been started post-ChatGPT because if you’re coming out with like an industry specific GPT like I talked about at the beginning of our conversation, you can tap into payments so quickly.

Because the user is using you for like a whole host of things. That conversation is only getting earlier in my view and it’s such an incredible lever but it’s only a lever when somebody trusts you pre and post-transaction.

Daniel: Yeah, that’s interesting. I would tend to say that lines up with our experience as well. When you’re not having to worry about, will my product be adopted in the market and do I have a true value prop wedge or am I heading towards having a nice moat? When you don’t have that consuming you daily, a good indication that payments might be an opportunity for you, to your point, fund your next round if you can really leverage it. Would you say that there are misconceptions sometimes founders make when it comes to payments? Like are there some maybe where founders think of payments in the wrong way?

Luke: Yeah, for sure. I think software founders for the longest time just weren’t educated on payments, right? It’s a relatively new thing and a new lever. Really since Toast IPO’d I think is when everyone started waking up to what they could be doing with it.

The inverse of that is I think a lot of companies launch payments because their VC or their investor is telling them it’s a great lever. And it is, but it has to be just like back to the bevel toaster and all our discussion around product management.

In the right context it is in most cases in verticals a great move. But you have to be very diligent in how and when and why and where. And I think people are either just uneducated about it and not taking advantage of it, which is kinda one bucket.

And then the second bucket is, “Hey, I’m just doing it because I was told to do it and I’m not totally thinking through where this fits in the right way.”

Daniel: That’s right. It’s an item on a checklist that I’m being expected to deliver rather than an elegant dance that’s taking me to the next level.

Luke: Yeah, and it’s nailing the pre-transaction and the post. If you can nail those two things from a product offering, you have surrounded yourself around payments. And to give a real example, in the trade school space, like we nailed the pre-transaction, and then we nailed the post-transaction.

So pre-transaction was enrollment for us. Post-transaction was attendance, like first day of class attendance. And so we had solutions for those two things, and our end market was using a horizontal payments tool. We already had the student information and the data and, and the first day of class, the schedule, the setup.

And so they were like, “Yeah, it’d be a no-brainer for us to do this with you, ’cause I gotta go enter all that information in a broad industry agnostic tool.”

Daniel: Yeah, and then it comes back to workflows. You’re taking another cog in the wheel of a workflow to get a student all the way from an enrolled student to a student who is attending class and we’re keeping records on. You’re just making another way to bridge between those two and avoid having to go in other places.

Luke: Yeah. And by the way, we launched payments when we just had the post-transaction piece, actually before we had the pre, just as an example. They said, “Hey, yeah, that’s awesome. You already have their schedule and their attendance. Let’s do it there.”

Daniel: Yeah. That’s interesting. So when you’re attaching to the post or the pre-transaction, that’s when things become a much smoother path to edging the customer way to get the payments involved. What about you, Mark? What are some misconceptions you think founders have about embedded payments?

Mark: I think listening to Luke speak, I would agree with what he was saying. One of the thoughts that I have is you stop thinking about it as a feature and start thinking of payments as a product, that’s probably the time to do it.

Because many of these founders will go into, again, influenced by their financial sponsor. They’re saying, “You gotta go, you gotta do it.” And then they just think it’s a feature you turn on and off. But the problem is you have to know how to sell it, you have to know how to support it, you have to know how to create good workflows, you gotta make it an easy kind of thing for them to sign up for.

So it’s really more product than feature in my opinion. And you have to build all that process around it. And I think it’s that mentality, right? Is it when someone tells you to go into it, the owner can’t think of it as, “Well, it’s just a feature I’m gonna turn on and off and flag.”

It’s not that simple. Many times people think that it can be that simple. It can just be a feature. And so if you think of it as a product, you tend to have better success.

Daniel: Yeah, as I talk to operators within SaaS companies, I think that is a resonating point that I often find is the more they unlock the value of payments, the more they realize it’s almost like a mini business within their business. And it does come with, I don’t wanna say complexities, but it comes with things that aren’t necessarily second nature to the vertical and the customer they’re serving.

It’s really a whole set of information on its own. I think this is why, when you do have a leader within your SaaS company that’s dedicated to this, it really unlocks the value much more efficiently. It’s also why we at Xplor Pay have spent so much time building infrastructure within our process for vertical SaaS companies to have someone to help them through all of these learnings.

Like you mentioned, how to sell payments, understanding how to read a payment statement to know how to price, looking at interchange as a lever of optimization so that you can lower your cost for your customers. Using payments as a differentiator within your value prop to really drive that payment attach. These are all things that are second nature for us as we think about vertical SaaS, because we’re launching payment strategies with SaaS companies every day. But, a vertical SaaS company who’s doing it for the first time, or doing it as, as an obligation, may not realize the opportunity, while it is large, it does come with an execution that can be clunky, if not well thought through. I think that resonates with both of your points. Luke, one of the things that we’re curious to hear from you is when you talk about payments to investors or when you hear about investors… Sorry, founders. When you’re talking to founders, and when you hear from founders, “Hey, I just did an embedded payment experience,” or hearing that they’re driving a payment strategy, what are some of the things they come to you with that they’re like, “Man, this is a lot harder than I thought,” or, “Man, wish I had known this coming into this,” or, “Wow, I’m really surprised at this”?

Luke: Yeah. I think payments is a little bit of a black box, or has been at least over the last 10 to 20 years. Most folks coming to me are initially expressing frustration with the payment statement they get, it’s a whole exercise to learn and understand what that is telling you.

I think there’s always a little bit of a frustration around that initially. And companies like you guys, everyone who’s really dissecting that and helping make it easy for the founder to understand is a leg up. I think that’s incredibly helpful.

That’s point A. I think point B is, a lot of founders will do it and they just don’t understand the levers. They don’t understand the growth levers. I think they’ve been sold a little bit of a bag of tricks where they’re like, “Hey, I just turn on payments,” and all of a sudden, like the money printer roars.

There’s a lot of levers in payments, be it surcharging, cash discount, interchange optimization that you mentioned. And having a partner that can really coach the vertical software founder through those, and help design it in a way that is going to be, you know, the best possible scenario for that customer, and that it makes sense for that industry, right?

Because in one industry, surcharge might make sense, in another cash discounting, in another one, neither of them work. I think just founders understanding all the levers is really, really important that they can be pulling. It just goes back to building your product. You gotta think about it like it’s a product, there’s a lot more that goes into it than with Stripe. You click a button, but it’s a black box underneath it and you have no idea how your economics look.

Daniel: Let’s go with one more question, then we’ll move to wrap up here. We’ll start with you, Mark. Five years from now, every successful vertical SaaS platform will… what?

Mark: …will have some form of agentic motion, agentic workflow.

Daniel: Alright, Luke, five years from now, every successful vertical SaaS platform will…

Luke: I’m gonna take Mark’s stance, but I’ll be a little bit more controversial. We’ll have AI woven throughout or we’ll die.

Daniel: Oh, there you go. Let’s not be definitely existential with our controversy around how AI will change the game. I love it. Alright, just a couple of rapid-fire questions to end with, and I appreciate both of your insights. No right or wrong answers here.

Just love your perspective. With you, Luke, what’s one thing founders are worrying about today that won’t matter in three years?

Luke: It’s a good question. I think a lot of founders are worried about the outcomes being significant. Like, “Hey, I lifted revenue,” or, when I think of outcomes, I’m like, “I gotta build a product that lifts revenue or lifts retention or that maintains compliance.” I think in five years we’re not gonna totally think it…

Like, we will, but it’s gonna be more so an outcome is simply like, I generated a document or I generated a PowerPoint that was sufficient or I generated an image that was sufficient. I think in five years, our view of outcomes will be not us having to build a product that does something so significant but is more micro tasks that lead to.

Daniel: Hmm. So it’s less the big thing and more the things that compound over time.

Luke: We did a big thing, yeah,

Daniel: …over top of that valuable in itself. And so founders are too worried about the big thing and not enough worried about really just clawing away at value. Love that. What do you think, Mark? What are founders worrying about today that won’t really matter as much in three years?

Mark: This is gonna probably go against the popular thinking, but I think a lot of people out there, founders specifically in the vertical space, that you need to be the system of record, and that’s the kind of system that’s gonna survive. I actually have a little different thought process. I actually think workflow control is gonna be the way.

Because if you have the better workflows, it’s gonna be less important that you own the customer record. You’re seeing this with even Stripe’s position. They’re willing to not be the acquirer, but still manage where the transaction flows. Like, be the guardian almost, and just be the transporter.

If you can control the workflows and you have the best workflows, I think that’s gonna put you in pretty good position. We’ve seen this in what I’ll call point systems. They might only do one thing, like patient engagement, and don’t really own the customer record or the patient record.

But what they’re able to do is control the workflow better because it’s the natural way that the business would work. Someone walks in and hands the card to the person at the front desk, that person is using the engagement system. I take the card, and take a payment. So I’m controlling the workflow because I’m gonna get the share of wallet.

So we’re starting to see that more and more, at least in the payment space…

Daniel: Yeah

Mark: …that’ll probably start extending other places. I’ve heard all the arguments. I know everyone wants to be the system of record because they feel like if you control the customer, you control it.

But I really see workflows as becoming more and more important.

Daniel: Yeah, ’cause you’re still tapped into the data in the workflow, and I think when you have even both in your organization where you own a great workflow, but you also have system of record, you’re getting a lot of data that makes you more valuable to leverage to build on. Those are great answers. Alright, let’s go opposite of this. What are things founders aren’t worrying about enough that they need to be really focused on? Back to you, Luke.

Luke: It’s the hot topic of the day, I think agentic. I think you get there.

Daniel: What about you, Mark?

Mark: I’m in the same path. Agentic has to do with the education of your people. Somehow you gotta bring your people with you. I don’t think it’s go out and replace your staff and go find a bunch of people that know how to do agentic or AI today. It’s “how do I bring the people that I have into that world.”

Daniel: Those are all great answers. Again, Luke, really appreciate your time. Luke, your, your breadth of experience is a gift for us to listen to. So maybe as we wrap here, what’s one thing you hope the audience remembers from today?

Luke: I think all of this just sums up to just being willing to learn and grow and change and, that’s what life is. I’ve always had a strong view that the people that do that, you know, have an upper leg. And it’s scary. It can be the way I’ve been doing work for a while is different today.

But if you lean into that, I think the sky’s the limit.

Daniel: Yeah. Well said. Well, thank you guys. We do have a webinar coming up I would really point you to continue this discussion. But thanks again, Mark and Luke, and hope everyone has a great day.

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