Bain and Co. is projecting embedded payments to represent a bit north of 70% of all payment volume by the end of the decade.
And the reasons – as we’ve said before – are sensical.
They’re not without their inherent challenges, but still, once technology made it possible, it was an inevitability.
Like why would you not have air conditioning in your car if it were an option?
Today, there are two very clear winners in embedded payments:
Stripe, and Adyen.
Stripe is a barbell, meaning that they represent micro merchants and larger enterprise groups (think Shopify).
Adyen has stayed away from SMB and generally doesn’t get involved until there’s more than $100M of potential processing volume. We also think Adyen does a better job with enterprise than Stripe.
In between these two are various players vying to win the mid-market.
Here’s a graphic for how this looks.
Now the issues.
First, the mid-market is tough because the ISVs there can’t afford a head of payments.
Neither Stripe nor Adyen offer this kind of support, either.
Under their models, they assume that the merchant is too small to care and probably only has one option for payments (Stripe in SMB) or that the ISV is large enough to afford their own head of payments (Stripe and Adyen in Enterprise).
Time for a secret:
Most heads of payments don’t even know how payments work.
The same could be said for like 99% of people who work in payments, by the way.
Can’t read a statement.
Don’t know how to sell value.
It’s a long list of disappointments, trust us.
Second, integrating to these payment platforms is a non-trivial amount of work.
We’re talking hundreds of hours of engineering anymore given all the bells and whistles in the payment stacks.
Case in point: there are APIs that are nothing more than abstraction layers on top of Stripe just because developers don’t want to spend time integrating Stripe the way Stripe wants them to integrate.
These providers charge 100+ bps for the abstraction and developers are happy to pay it.
These two issues hamstring every ISV looking to embed payments, but they are particularly poignant in the mid-market where ISVs don’t have the scale to kick tires.
There are some creative solutions.
For starters, sharp ISOs in the mid-market become the de facto heads of payments for their ISVs.
They dedicate learned personnel to penetrate the ISV back book, all on the ISO’s dime.
In broad strokes, this can be justifiable if their sales reps can close the ISV’s merchants in about a third the time it would take them to close their own MIDs.
Here’s that math.
Assume the ISO makes 50 bps on their traditional sale, and that sale takes 30 days.
If the ISO is only going to make 15 bps when they sell the ISV’s merchants, then they need to make that sale happen < 10 days or the ISO’s sales rep is better off just selling their own accounts.
ISVs often struggle with this math.
This is what we see all too often:
The ISV is so busy worrying about getting a “great” deal on payment rev share that they forget they won’t penetrate enough of their own merchants to matter.
A 95% split on a single merchant is trash compared to a 60% split on half your portfolio, especially if you aren’t doing any of the work.
Forward transparently lays out sales-assisted pricing model on their website.
Consultants like TSG help run some of this as well.
A number of groups we know have turned to Brian Abernethy for fractional head of payments with stellar results.
The following hurdle is just as tough.
Those that hunt ISVs know that 80% of them get stuck in the integration phase.
ISV doesn’t have the resources to dedicate to the integration.
They’re saddled with bug fixes.
New feature requests.
Cleaning tech debt.
It’s a thin engineering team for mid-market ISVs.
The larger acquirers will try to expedite the process by writing a check for integration, or sometimes even offer substandard engineering resources to get it done (ChatGPT by some 13-year olds in India).
The solution?
If only there were a way to integrate a software to any processor in minutes.
No more “100 hours to write to Stripe”, or “Three month to write to Adyen”: get going in under an hour.
And frankly, if you’re courting an ISV who’s not moving, you should just call on their merchants, do a direct integration around the ISV, then circle back with the ISV and show them you’re already closing their accounts.
Nothing moves things faster than a little FOMO.
FOMO creates leverage and is a forcing function to getting the ISV through the funnel.
Sometimes you need to take your medicine to feel better.
That this is lost on the payments industry is either hilarious, or sad.
Frankly, we’re not sure.
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