Unfortunately, we see a number of payment embedding companies espousing ridiculous things like, “every software company should be a payments company.”
No, they shouldn’t.
This level of schilling is intellectually dishonest.
There are two requirements for software companies to have a bite at the payments apple.
First, are you in the flow of payments?
If you’re not in the flow of funds, you need a really, really compelling reason why you should be.
Let us give you an example of a software company that pulled off a masterclass and inserted themselves – rightfully – into the flow of funds.
This software is the B2B reporting ledger for an industry that’s required to disclose the movement of product to governmental agencies.
These authorities were lacking financial transparency: how do we know we’re collecting the right amount of taxes?
By embedding payments, this software could now report both product and financial movement across the distribution chain.
Massive win.
Most softwares don’t even find themselves in a position to be in the flow of funds. For example, you could be an analytics software.
What commerce is possibly going over your system?
You don’t have a right to the payments.
Second, do you have the strongest natural claim to own payments?
Some software companies have a bite at the apple, but few have the right to own it.
Let’s walk through an example.
Take a retailer. The retailer will usually operate in multiple channels, like in-store and online.
Most often the in-store volume is 90% of their business while the online portion is quite small by comparison.
The online ordering provider might think that they have a claim, or even a right, to the 90% of in-store volume.
This is a fallacy.
The in-store POS is the most important system for this merchant.
They’re handling 9x the volume of the online ordering solution and likely responsible for way, way more than the online ordering solution.
The same can be said about a marketing or loyalty application: you represent an infinitesimal portion of the merchant’s commerce.
No, you have no right to own payments.
This is what always cracked us up about Olo’s belief that they would take Olo Pay and own the entire payments experience.
Any POS of scale could use Adyen, the same payments provider Olo uses, with the exact same features that Olo positions as “groundbreaking”.
The fact that Olo has any card present processing volume shows you precisely why Toast was able to eviscerate the entire restaurant POS market.
Verticalized softwares are generally in a much stronger position to own the payments than are horizontal solutions. The exceptions are specialized horizontal payment solutions.
Software companies need to undertake a bit of research before they get pregnant on the idea that they’re sitting on a free profit stream.
But even then, the odds of a software making payments work is a lot less than you might imagine.
From integrating payments to penetrating the back book, it takes payments know-how to succeed.
If you’re smart enough about payments you can carve yourself at lease some niche because most people – even at larger software companies – are clueless.
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