How to unlock up to 80% of more revenue with payments
Software runs the world
Software-as-a-Service (SaaS) solutions continue to be amongst the fastest-growing companies in the world. They are attractive platforms for merchants and businesses to leverage operations into the digital world thereby creating meaningful efficiency and cost savings.
In recent years we have seen a massive push and funding towards so-called vertical SaaS companies which are focusing on specific problems in specific industries. Think for example of Treatwell, which helps barber shops and beauty salons to run their daily business by creating dedicated websites and automating scheduling. Or vivenue, which allows events and venues to manage, market and analyze ticket sales. There is a big opportunity for software to penetrate many industries that haven't traditionally been served correctly by generalistic software.
With growing competition in recent years, more and more SaaS companies have started to look for a competitive edge in their positioning. The market in certain industries is often not big enough to support countless unicorns so there is a big need to find new revenue models as the core product of SaaS does not always yield the returns to match the funding. In the end, it all comes down to a race of who is able to capture merchants and businesses faster - as well as creating a better offering.
With plenty of options, merchants and business owners do now have a choice and are increasingly in demand for easier to manage and more unified one-stop-shop experiences. These users prefer the convenience of using so-called superapps where important day-to-day functionalities are combined in one solution, rather than accessing standalone services from different providers.
Apps like Uber or PayPal have expanded way beyond their initial offering and have added services like chat, shopping, payments, debt financing or card issuing to ensure and foster their success in a highly competitive market.
Which brings us to the relevant question:
How can founders, CEOs and product managers of SaaS businesses do the same?
The answer is simple, payments.
Big tech players are jumping on embedded finance
Big platform players like Shopify or Toast and marketplaces like Zalando or Otto have already embraced a new trend which many of us know under the term embedded finance. From Shopify's Capital product, which essentially hands out credit to its merchants, to Toast (and Otto, Zalando) offering its own payments acceptance.
Payments is often the first function platforms target when thinking about implementing embedded finance.
Just think about the last time you took an Uber. Payments are often so tightly embedded within a software workflow that we often forget the technology is even there.
And since margin on owning payments is often exceeding 90%, it is also a very profitable function to embed. Toast for example started as a point-of-sale hardware platform, but they expanded into a payfac offering to process payments for its diners and restaurants. Today, Toast is generating around 80% of its revenue just from payments processed.
Another good example is MindBody, which provides a full service SaaS, booking, and payments platform for the health and wellness industry (e.g. gyms). Just by incorporating payment processing functionality into their product, they were able to increase their market size by over 40%. Numbers which matter, when your market is in the billions.
Payments bring high margin revenue and a better CX
Just by offering payments processing, we see that SaaS companies can add a massive high margin revenue stream on top of their SaaS revenue and thereby create massive opportunities for themselves.
These opportunities are achievable without increasing the customer acquisition costs as the success of embedded payments comes with its ability to give merchants access to services as a by-product of the software that they already use. Businesses are already on the platform and don’t need to be sold for another time.
Additionally, platforms can also think of cross-subsidizing their offerings, because of high margin payments revenue. Think of the example of how Google is subsidizing their products with ad revenues. Payments revenue can be used to decrease the price of the original product, achieving market penetration and allowing platforms to grow faster.
But there is more than revenue to it.
All of the experiences related to your platform essentially become a part of your brand. Take for example a bad homepage or a bad checkout process, which customers and merchants will associate with your brand and not the responsible third party. Being dependent on the experience of third party providers may create friction as customers are pushed through countless redirects, lacking trust or just a bad implementation.
On the other hand, by embedding payments, SaaS companies can create a more streamlined customer experience through deeper integrated payment processes, customized merchant onboarding, unified dashboards or tools and one fewer vendor to care of. The entire experience feels like coming from “one hand” thereby boosting trust and conversion.
More revenue is just one integration away
With proper implementation, embedded payments can improve customer experience and help to ensure meaningful differentiation. Businesses and merchants are encouraged to stay longer on the platform, consume more of your services and essentially get “locked-in” into your product offering.
Together with added revenue potential, SaaS companies can outgrow their competition without increasing their acquisition costs.
And the best part. The revenue is already there, it just needs to get unlocked.
