Adding Payments to your SaaS Product: A Tactical Playbook

Gosh, people are so greedy these days. All they ask me lately is:

Well, today we’ve got the playbook for you.

Here’s what we’ll cover:

Let’s dive in so that you can let your NDR ripppp and delight your customers by offering that swipey swipey.

Before we get into “how much” we need to investigate “why me?”

Not every company should get into payments. There are a ton of bad candidates in the B2B SaaS world who don’t have a realistic shot of being in the payments flow and adding value.

For example, if you're a data analytics platform and your customer is a data analyst, then it's not likely they're going to be processing a payment. There's no point trying to insert yourself in a process that’s not taking place.

Your first clue is when there is actually a payment somewhere in the value chain. Good examples include:

Basically anywhere there is a point of sale machine on the receptionists desk, and you are providing a software somewhere in that process.

If you’ve gotten relatively comfortable with the use case, it’s then imperative to start with the customer journey and the customer experience. This sounds obvious, yet many companies start with their position as the company, and how great it will be for them, instead of how and when the customer will interact with it.

You need to literally walk through a map of the customer journey and ask where the payment occurs, and if you are in a position to win that strategic high ground.

In all likelihood, there's a variety of ways that they're doing it. And most of them are probably going to be quite inefficient if they're doing it outside of your platform, which is where they go to run their business anyway.

As an example, Andrew Mosawi, who’s started and exited a number of companies in the payments space, noticed an opportunity in the non profit arena:

So follow the money in a real way. How do your customers process transactions:

And then using that, reverse engineer whether or not your solution has the right to own that transaction, and whether or not you’re in those flow of funds. Once you've done that, then you can start to sketch out the monetization model and TAM.

Payment margins can range from 25 bps (0.25%) to 100 bps (1%), with most landing in the 80–90 bps range. Where you fall depends on three things:

If you're okay taking the risk and bringing everything on yourself, which includes managing customer service, doing the underwriting, and absorbing the fraud, you can get the upper end of that. But it takes resources.

Higher volumes improve your negotiating power with networks like Mastercard and Visa, letting you take a bigger cut.

And finally, not all industries are created equal when it comes to the payments margin up for grabs.

Sectors like transportation and restaurants have high-frequency, lower-ticket transactions where fees are a small share of the sale, often bundled with valuable software. Merchants face high switching costs, allowing take rates over 2% in some cases.

On the other end, low-frequency, high-ticket categories like real estate or automotive operate on thin margins, treat payments as a commodity, and can negotiate down to 0.5% or less. This elasticity explains why transportation can see net take rates nearly 3x financial services, and why expensive automotive parts are a fraction of restaurants.

Well, I can guarantee you it won’t be 100%.

Many founders are bummed out when they discover their payment attach rate is closer to 25% than 50%. And you don’t get there over night.

In reality, you can expect, on a good year, to get 40% of your customers onboard. But keep in mind - not all customers are of equivalent value. If you can get your top 40% volume customers on board, that’s incredibly powerful. It’s the classic 80 / 20 rule.

From talking to Andrew, he works with companies where payments are making up 30% to 40% of their overall revenue this year (and growing). All of them are software providers; none of them started with payments as a module. So it's incredibly lucrative.

Customers are proven to stick around longer, and to increase overall wallet share, when you do payments correctly.

It plays out in both gross dollar retention and net dollar retention rates.

In many ways, payments embed growth into your business model.

In the words of Tony Boor, who runs a SaaS + payments company for the non profit and donor space, payments also provide the tangible benefit of better customer data:

Peter Benevides, CFO of Olo, who runs a company who builds software with embedded payments for the franchised restaurant space, said something similar. Essentially, restaurant chains are willing to pay a premium payments rate in return for the data efficiencies they unlock by better knowing their customers

This helps restaurants with cart conversions, as it saves “guests” information without forcing them to login. It also allows them to better target them with offers down the road, and personalize the experience.

And here’s where it really gets valuable: the payments data allowed the restaurants to better think through site expansion and menu design. To that point, online payments data is helping the restaurants make better decisions not just on the stuff going through the Olo platform online, but their entire business.

There’s a subtle yet important distinction between payment processors and embedded payments, the latter of which this piece focuses on.

Embedded payments are when the ability to pay is baked directly into the software you’re already using to run your business. So instead of using a separate card reader or toggling over to a different payment tool, the transaction happens seamlessly inside the app.

Let’s say you run a plumbing business. If you're using something like ServiceTitan, you can quote the job, schedule it, complete it, and take payment, all in the same workflow. The customer can tap a button and pay right there. No one’s pulling out a card reader, no one’s copying numbers into a clunky terminal.

Compare that to the old-school way: a receptionist has a physical card reader on the front desk. It’s disconnected from the actual work being done, which makes the payment process feel more transactional, less integrated.

That’s why you’re seeing more vertical SaaS companies get into payments. It’s not just about software anymore. It’s about owning the whole flow.

From talking to Andrew, the embedded nature plays out in customer retention rates and average lifetimes. In his experience, payment processors last under 2 years. This compares poorly to embedded payment providers who last an estimated 7 to 8 years.

And from there, you can add even more fintech modules.

If you think of embedded payments as your training wheels, you can go further and faster from here.

Once you’ve earned the right in payments (you’re processing their transactions, they’re receiving settlements from you), you can think about embedding financials like lending or insurance.

From talking to Andrew, many of the same companies that you can use for white labeling payment integrations and payments processing also offer capital lending solutions. And it’s much easier to onboard and integrate. The underwriting process is pretty light, since you have already proven the ability to be in the payments flow.

According to Andrew:

It's a very logical option, especially if you're in the SMB space and you’re working with customers that need working capital for whatever reason.

Logical expansion areas from embedded payments:

An example of the latter, from Andrew:

To his point, most SMBs are running payroll. So if they're in a practice management solution, like a chiropractor, then why wouldn't they use that same system again to run payroll?

Not all of these solutions are right for everyone, but they're incredibly valuable depending on the customer need.

Tony Boor, CFO of Blackbaud explained going from embedded payments to financial services:

There’s a layer cake strategy within embedded financial services. And it allows you to spread your risk around and diversify the business.

The canonical example is Toast. Financial services make up more than 80% of their total revenue, with hardware and software rounding out the other 20%.

Blackbaud, which provides software and payments processing for the non profit industry, now counts on payments for approaching 1/3 of it’s revenues.

And ServiceTitan positions payments as an embedded functionality within their SaaS product for trades workers.

Payments are a good additive piece of business to have. It’s a nice royalty stream to any business who can get in it. Now it comes with a lot of risks. You have KYC. You need to do all the OFAC screening. You have to act like you’re a bank. You’ve got a lot of stuff you have to do to keep everyone compliant and deal with anti money laundering. There are a lot of headaches that come with that. But if you can figure out how to make it work properly, it’s a very good business.

We’ve covered a ton! In closing, your first question should NOT be “what payments processor should we use?”

Stripe vs Adyen is like the last thing you should put your brain power into when you are starting out.

First figure out if you are uniquely qualified to add value to the customer journey by providing payments. From there, the rest of the questions fall into place.

Wishing you low fraud rates on payments,

CJ