Controversial title, but it ain’t wrong.
Quick history lesson.
A decade ago merchants were sourcing software separately from payment processing.
Somewhere in the late 2000’s a handful of software companies realized that they were doing all the hard work for relative crumbs, i.e. software requires a ton of R&D, product market fit iteration, and support infrastructure while payments requires, well, basically nothing.
And every merchant must accept cards, so the merchant had to have payments while the software vendors had to constantly earn the merchant’s business.
And payments is like 99% margin, especially relative to software.
This often meant that payments providers were earning way more revenue than the software providers for the same merchant.
So these software companies started studying how they might make payments a lucrative line of business.
In came embedded payments.
A whole industry blossomed around helping software companies embed payments into their solutions.
Some software companies became payfacs, some became ISOs, and others just grabbed an API from Stripe.
(Some are so greedy that merchants are now paying 3-4x more for bundled payments and software than they were paying separately for payments and software, but this is a story for another article.)
As the embedded payments industry has started to mature, it’s clear that many of the enablers who are supposed to be helping software companies are still conventional payments bros.
You can take the payments bro out of payments but you can’t take the payments out of the payments bro.
We’re seeing software companies align with payments enablers that are just bad for their businesses, frankly.
Except the software companies are unaware.
Because they never knew payment bros were a thing.
In software, you get paid more by delivering more value.
In payments, you get paid more by taking advantage of unsuspecting customers.
Morals: it’s a blind spot we software entrepreneurs have.
To make the story tangible, enter Doug Levy, founder CEO of TapGoods, a rental software company.
Doug looked into payments years ago and connected with Infinicept. He got educated on the space, and ultimately used Ziosk’s payfac for his payments prior to the Till acquisition.
“We first used Stripe first like everyone else because it was so simple. Turns out you can’t make money on Stripe, and they own the customer relationship,” shared Doug.
When the Till acquisition happened Doug decided to reevaluate his payment options.
I shopped a lot. I looked at payfac, I looked at Payfac-as-a-Service. They all said that we as the software company would own the customer relationship, but that’s not how they acted: they acted more like ISOs.
Doug Levy
In looking through the contracts, Doug saw alarming clauses time and time again.
It was clear in the agreements that there was no merchant portability, so if we thought our customers started being treated unfairly, we were stuck. Many of the contracts had terms that were years beyond our own cancellation period, meaning that if we canceled the contract with the embedding partner, they could still process for our merchants for up to three years. Fundamentally the relationship wasn’t between us and the payments partner at all, but rather between the payments company and our merchants.
Doug Levy
Doug looked at all the popular embedding solutions – Tilled, Payrix, Finix – and wasn’t sold.
Owning the merchant relationship should be a non-negotiable term for a software company. Of course, pricing has to be strong, features solid, and support responsive, but I don’t think many software companies understand the first part.
Doug Levy
Tilled’s CEO said that they “offer all of their partners the ability to move their merchants anytime they want. Merchants sign a non-exclusive 3 year term with no termination fee. They can leave anytime.”
Tilled notwithstanding, we agree with Doug’s point.
Coming from software, most executives just don’t understand how ruthless payment companies are.
If you’re concerned about anything in the agreement, shoot us a note and we’ll give it a look to make sure it’s fair.
For Doug, he turned back to a trusted source.
“When we were leaving Till, I reconnected with Infinicept and saw LaunchPay.
Since payments was going to be critical to TapGoods, Doug had to thread the needle between the big, bureaucratic payments company and flimsy startup.
“We felt that Launchpay was the best of the options. We got to own the customer relationships and outsource the components we didn’t want to build.”
Doug even recorded a podcast about his experience.
Infinicept wrote about Launchpay for those who want specifics, but what’s clear to us – and what attracted Doug – was Lauchpay’s adherence to the Embedded Payments Bill of Rights, something we have personally supported.
We talked with Todd Ablowitz, cofounder of Infinicept to share Launchpay’s positioning.
We believe payments is the right of the software company. Unfortunately, too many payments companies are sycophants of the people creating the value.
For years we said we didn’t want to be a payments company and just wanted to help companies understand payments. Customers would tell us it was hard to be a payments company even though we’d try to show them it wasn’t. We felt this was a lot of fear-mongering by legacy payments companies.
Todd Ablowitz
Enough customers told Infinicept that they needed a turnkey embedded payments solution that Inficiept started building their PayFac Launchpay around the Embedded Payments Bill of Rights. Infinicept still offers companies a path to full payfac if they want it, but they can otherwise get going relatively immediately with Launchpay.
So many software companies simply wanted an easy button, so we curated the best technology without preventing choice or future growth. Every Launchpay client has the option to become a full PayFac at the time and place of their choosing.
Todd Ablowitz
Launchpay is currently on Fiserv with one sponsor bank and a few more banks and processors coming onboard now. Fiserv North supports massive retailers like Walmart and Shell, and likely has more integrations to software companies, gateways, and devices than any other payments platform.
Launchpay has been focused on strong economics for software companies, but it’s not everything for everyone.
“We’re working very hard to extend our reputation as the ethical partner for software companies to Launchpay, beyond just our software and consulting. We’re not pushing Fiserv as the only available option and have other processors we’re working to integrate.”
Fiserv does give Launchpay a strong card present offering, and software companies could always plug in a gateway of choice. Todd calls it ‘Bring your own Gateway’.
Todd tells us they’re onboarding merchants instantly with automated underwriting, and if an application is kicked out for human review they review it same-day.
We do wonder if some of the payments companies with their own payfac enablement solutions – think Worldpay and Payrix – will play ball.
Of course many software companies have already signed with less-than-ethical payments embedders and won’t learn of their mistakes until it’s too late.
It’s a ticking time bomb, really.
So don’t be a software company that creates a payments liability for your shareholders: do your homework before reaching for what looks easiest.
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