In our most recent webinar, we sat down with Emily Bartels, former SVP of Payments at Mindbody, and Biju Nair, SVP & GM of Payments at Quilt Software, to understand the future of embedded payments. 

Check out a summary of the conversation and link to the recording below.

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Navigating paths to embedded payments 

The paths to offering embedded payments have expanded since Emily and Biju first started working in this space over a decade ago. Software teams now have a few options: they can leverage the referral payments model, partner with a PayFac-as-a-Service solution, or become a registered PayFac. 

The decision ultimately depends on how much control a software platform wants over the customer experience, the economics they are optimizing for, and the operational / risk management responsibilities they are willing to take on.

While every company is different, Biju recommends different models at different stages of business.

Early-stage software company

The referral model is a safe place to start out. Referral partners own most of the complex components of the payments business - onboarding, underwriting, credit monitoring, fraud management - and software companies can get to market quickly. The main downsides are limited economics and lack of control over the customer experience.

Fast-growing software platform

As a company scales, customer experience and economics become more important priorities. By partnering with a PayFac-as-a-Service (PFaaS) player such as Stripe or Adyen, software companies take on more of the operational and risk management responsibilities, and receive a greater cut of payments revenues. Both Mindbody and Quilt leverage this model for their payments products.

Mature business

Once a company has sufficient scale, it should consider becoming a registered PayFac in order to maximize its revenue potential and own the end-to-end customer relationship. While the process for becoming a PayFac may seem daunting, Biju believes PayFac responsibilities are becoming more manageable due to the proliferation of partners throughout the value chain. 

For example, PayFacs can leverage Coris to automate their risk management strategy, freeing up resourcing to focus on other critical parts of the payments business. 

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Lessons from Mindbody

Mindbody was founded in the early 2000s and started to move online in the early 2010s. Software looked very different back then: Stripe, Adyen, and Square weren’t mainstream concepts, and many of Mindbody’s gym & fitness customers were operating on paper and pencil.

In the absence of a strong culture of software adoption, Mindbody had to change customers’ mindset around business management and payments. Emily shared some tips from this experience:

• Educate your customers on the benefits of going digital. Early on, small business customers purchased Mindbody solely for its scheduling feature and were typically accepting cash payments or using a 3rd party for payment processing. Holistic business management was an afterthought. When Mindbody pitched SMB owners, they didn’t just focus on the value proposition of scheduling or payments - they pitched them on the broader benefits that software offered to their business (streamlined operations, time savings, etc.). While this approach required more effort, it developed more valuable customer relationships.
• Train your sales team to discuss embedded payments upfront, not as an add-on. According to Emily, it took the team many iterations to figure out the go-to-market motion for payments. It was easy for sales reps to sell a point solution like scheduling upfront, but the real value (and challenge) was driving cross-product adoption. Eventually, the team shifted from pitching products sequentially and started to discuss key product offerings - like payments - upfront. She recommends software companies think carefully about their end goal - how should customers adopt the software at the end state? - and then make sure the sales messaging reflects that goal. 

While software adoption looks very different these days, there are still many industries operating in a pen and paper fashion that can benefit from these insights.

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How does risk management fit in?

Improper risk management can be a “silent killer” for a software company. It only takes one significant fraud loss or one bad customer dispute experience to impact your bottom line (and your reputation). 

Panelists recommended implementing risk management strategies aligned with a business’s go-to-market motion. For example, a product-led company should develop automated risk management controls and ensure there is a person behind the scenes who is making sure that good merchants are getting onboarded to the platform. Solutions like Coris make it easy for companies to automate the most common risk management strategies.

Sales-led companies should educate their sales team on what “good” and “bad” customers look like. Oftentimes, there are telltale signs of suspicious actors at the qualification and onboarding stage. If sales teams are trained to identify the traits of their ideal customer profile, and conversely common risk signals, they can prevent fraudulent actors from joining the platform and avoid downstream losses.

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The future of embedded payments

Embedded payments have almost become a table stakes expectation in software offerings. How can software companies continue to innovate?

Emily suggests companies brainstorm the other legacy problems they can solve with payments. How do other payment flows in the business work? Is there an opportunity to fix other fragmented payment experiences through software?

While embedded payments are certainly not new, creative fraud schemes continue to pop up in the space. The companies who will remain relevant will be the ones who stay on top of these fraud trends and mitigate risks for their customers. For example, Sift’s recent survey indicates that almost half of Gen Z commits friendly fraud. Software companies’ customers might be victims of this fraud, and platforms should be proactively brainstorming ways to mitigate this new risk.

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Watch the webinar on-demand

Check out the full webinar below, and reach out to Coris if you’d like to learn more about how we automate risk management for software companies like Mindbody.