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‘Magic Moments’ Hasten the Inevitability of Embedded Online Payments

It was always bound to happen.

The flexibility of a software company is such that it can be many things to many people, offering end consumers or businesses a slew of functions, from content delivery to subscriptions to various ways that make back-end processes more efficient.

In commerce, especially in consumer-facing commerce, software firms can help their corporate clients embed payments into the mix. Call it the B2B version of helping shepherd us fully into the digital age, ready to meet the fickle consumer wherever he or she wants to be met.

Fiserv Head of Software-Led Payments (ISV) Brandon Lloyd and MarketMan CEO Noam Wolf said that embedded payments have never been a question of why. As they told Karen Webster in an interview, embedded payments have simply been a question of when. No surprise: The pandemic has hastened the when, hurrying it into now.

At some point, said Lloyd, there’s always a “magic moment” when an enterprise finds the right spot where payments work for them.

Finding the Magic

Both Lloyd’s and Wolf’s firms (MarketMan serves the restaurant industry) help their own enterprise audiences embed payments among other functions. As they told Webster, there are “win-win” scenarios that come with embedded payments, including longer, more deeply entrenched customer relationships, and top-line torque for both the merchants and the software companies that help them modernize.

The conversation came against a backdrop in which there may be as many as 1 million vertical Software-as-a-Service (SaaS) firms existing within the next half-decade, so there’s likely to be a seismic shift toward embedding payments across all manner of verticals. That bumper crop of new SaaS firms would come just as the connected economy is gathering steam and consumers across the board are buying more online.

In one data point, for example, more than 60% of millennials and bridge millennials are buying more of their groceries online than they did before the pandemic. Within certain other verticals, such as restaurants, the “bring it to me” economy demands that payments be made available when and where they want. Changing consumer habits eventually translate into changes at the firms that cater to them.

I Can Do That?

Many of these company executives did not even know they could be payments companies, the experts told Webster. Awakening to that reality has been a bit of a journey. As Wolf noted, he himself had received an offering to bring payments into his firm’s mix long before realizing that embedded payments, tied into a range of other restaurant management solutions, represented a real revenue opportunity.

As he put it: Sometimes entrepreneurs are focused on building better horses, not on upgrading to cars. In other words, they’re thinking about working with what they have, rather than what they imagine they could have.

“It was about a year and a half ago when we decided that from the product perspective, payments would be a complementary feature,” said Wolf.

Embedded payments are a natural extension of a restaurant bringing its operations online, he said. Using restaurant management software, MarketMan’s clients submit purchase orders to their vendors online. They then receive invoices directly into their marketing systems, and inventory management is done digitally and, in some cases, automatically.

“The natural extension would be to pay your bills [right through the invoice],” he said. “So, we came into the payment space from the perspective of workflow, and then developed a broader vision around that.”

Lloyd noted that Fiserv runs software-led payments for thousands of independent software vendors (ISVs). Increasingly, these smaller firms can and will find use cases to bring payments into their own workflows.

“Just embedding payments does not necessarily lead to adoption,” he remarked.

In fact, Wolf recommended that vendors not “lead” with payments when they are in the midst of conversations about upgrading the enterprise resource planning (ERP) systems of small- to medium-sized businesses (SMBs) and moving away from the operational equivalent of the “swivel chair” as executives toggle between screens and programs to run their businesses.

As companies find the use cases that work for them — essentially finding their own “magic moments” — the vendors serving them will be able to cement relationships that last longer than they might have otherwise. There’s the simple aspect of retention, where embedding more workflow with firms like MarketMan increases frequency of use and familiarity. More people within the company come on board as the client firm continues to interact with the provider. And then, simultaneously, a network effect takes shape.

“The longer-term vision is to actually create a payment network for an industry — in this case, the restaurant vendors, suppliers and distributors,” said Wolf.

The marketplace becomes dense and broad (across supply chains), he said. To put it in some perspective, the software company that monetizes payments (benefiting from a recurring revenue stream) doubles the lifetime value of the customer.

Said Lloyd: The magic moment comes when software vendors show their clients all the ways in which payments can be connected. Some of those payments can be tied to credit, some of them may be debit, and there may also be ACH in the mix (and eventually, maybe cryptocurrency).

In optimizing the portfolio, it’s critical for the ISV to avoid some mistakes, including simply gunning for market share, said Lloyd.

“If I look at a portfolio of customers of a software company, and I see that they’re making a great deal of money, but only on 10% of their customers, I might say we’re probably better off putting an offer in place that gets 70% to 90% adoption at lower economics,” he said, adding that would be a strategic mistake.

Separately, the firms that wholeheartedly embrace the payment facilitator (PayFac) model must be leery of low margins. Simply making a spread of a penny or two per transaction won’t matter if the cost of operating as a PayFac proves onerous.

Looking Ahead

Looking ahead, payments might be considered an additional data point. As Wolf noted to Webster, payments-related info can lead to financing opportunities, as there’s granular insight into how often companies (restaurants, in this case) are paying vendors on time.

“Every merchant account, in effect, is a line of credit,” said Wolf, adding that “the data that is being produced by the software can actually create a more seamless onboarding and risk process.”

The need to offer embedded payments, Wolf said, “is growing rapidly, and it’s becoming a no-brainer. We [as service organizations] don’t need to explain why, but just how fast companies can get up and running.”

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