A Complete Guide to Pricing and Monetizing Embedded Payments in SaaS

As SaaS platforms seek innovative ways to generate revenue and offer comprehensive, frictionless experiences for users, embedded payments have risen to the forefront. The capability to embed payments directly within a platform’s environment can transform a SaaS company’s revenue model, customer loyalty, and overall value proposition by enhancing user experience and driving revenue growth. However, implementing an embedded payments strategy is a complex task that goes beyond simply integrating a payment API. From pricing strategy to compliance, embedded payments require a well-considered approach.

This guide will take SaaS companies through every essential aspect of embedded payments, from understanding their full potential to managing complex pricing calculations. At each stage, Swipesum emerges as a strategic partner, handling not only the payments implementation but also the critical elements of ongoing support, cost-comparison analysis, and compliance oversight.

What Are Embedded Payment Solutions?

Embedded payments enable a SaaS company to integrate payment processing directly into its platform, allowing it to earn revenue from transactions while offering its users the ability to sign up for merchant services and have their customers complete transactions smoothly within the application, without needing to navigate to external sites or systems. This level of integration keeps everyone within one platform, improved revenues and product experience, and fosters trust as users are spared the hassle of switching between sites or apps.

Embedded financial solutions enhance customer experiences by integrating financial functionalities into platforms, including payment processing and additional financial services. These solutions facilitate efficient workflows and direct transaction processes within SaaS products, significantly benefiting both customer satisfaction and revenue generation.

Embedded payments can be considered part of the larger embedded finance ecosystem, which includes solutions such as business accounts, expense management tools, and lending products. Together, these services have transformed not only how payments are processed but how SaaS platforms engage with their users. A seamless transaction experience can turn a functional tool into a business’s critical partner, offering more than just software.

Across various industries, SaaS companies are using embedded payments to enhance customer experiences and drive revenue. In the fitness industry, for example, Mindbody relies on embedded payments to support fitness studios, which account for over half of its total revenue. Shopify, another SaaS success story, makes 74% of its revenue through embedded payments integrated with its merchant solutions. Clio, a leading legal tech platform, doubled its annual recurring revenue from $100 million to $200 million by leveraging embedded payments alongside other innovations like AI.

The numbers tell the story: embedded payments not only boost revenue but also solidify the role of SaaS platforms as all-in-one business solutions. According to Bain & Company, embedded finance, which includes payments, insurance, and lending, represented $2.6 trillion in U.S. transactions in 2021 and is projected to reach $7 trillion by 2026.

These examples demonstrate why SaaS platforms can no longer rely solely on subscription revenue. Embedded payments offer both a new revenue stream and a deeper, more profitable connection to customers. And Swipesum offers end-to-end support, from integration to post-launch management, ensuring that companies can fully leverage the power of embedded payments.

Definition and Explanation of Embedded Payments

Embedded payments refer to the seamless integration of payment processing technology directly into a software platform or application. This integration allows users to complete transactions without ever leaving the platform, creating a unified and streamlined user experience. By embedding payment processing capabilities, businesses can simplify the payment process, reduce friction, and enhance customer satisfaction.

The rise of embedded payments is driven by the increasing demand for seamless and integrated customer experiences. In today’s fast-paced digital world, customers expect convenience and efficiency in every interaction. Embedded payments meet these expectations by enabling businesses to offer a frictionless payment experience that keeps customers engaged and satisfied. This approach not only improves the user experience but also drives higher conversion rates and increases revenue.

Examples of Embedded Payments in SaaS

Embedded payments have become a cornerstone in various SaaS industries, providing a seamless and efficient payment experience that enhances customer satisfaction and drives business growth. Here are some notable examples:

• E-commerce Platforms: Platforms like Shopify integrate embedded payments to allow customers to complete transactions without leaving the site. This reduces cart abandonment rates and boosts conversion rates, providing a smooth and uninterrupted shopping experience.
• Accounting Software: Solutions like QuickBooks use embedded payments to enable businesses to accept payments directly from customers and automate accounts receivable reconciliation. This streamlines financial operations and improves cash flow management.
• Online Marketplaces: Platforms such as Etsy and eBay utilize embedded payments to facilitate transactions between buyers and sellers. This integration ensures a seamless experience for both parties, enhancing trust and satisfaction.
• Ride-Hailing and Food Delivery Apps: Apps like Uber and DoorDash incorporate embedded payments to allow users to pay for services without leaving the app. This convenience enhances the overall user experience, making the payment process quick and hassle-free.

These examples demonstrate the versatility and effectiveness of embedded payments in various SaaS applications, highlighting their role in driving customer satisfaction and business success.

Pricing Strategies for Embedded Payments

Pricing embedded payments effectively requires an understanding of both market competition and internal cost structures. Selecting the right embedded payments provider based on industry expertise and customer reviews is crucial for ensuring a seamless integration and optimal performance. Most SaaS companies will need to decide between two primary approaches: top-down and bottom-up.

Top-Down Pricing

A top-down pricing approach is determined by assessing competitor benchmarks, customer willingness to pay, and perceived value. This strategy focuses on the maximum price customers are willing to pay for embedded payments while still finding value in the platform’s core offerings. For example, a legal tech platform offering integrated payments, case management, and invoicing may have a price ceiling higher than a basic SaaS tool.

A payment facilitator (or PayFac) supports the payment infrastructure, manages the onboarding process, and maintains relationships with clients, allowing platforms to handle transactions in-house with significant considerations around security and compliance.

In determining a price ceiling, factors like industry, competition, and customer experience play an essential role. A vertical-specific platform with little competition can generally sustain a higher price. However, for more crowded markets, platforms may need to lower their rates or emphasize unique value-add features to stand out.

Bottom-Up Pricing

Bottom-up pricing is about calculating the minimum profitable price based on the platform’s costs. This strategy takes into account the passthrough fees, provider fees, and the SaaS company’s internal expenses. A bottom-up approach ensures that every embedded payment transaction remains profitable. Embedded payment services play a crucial role in simplifying payment acceptance for businesses, making it easier for them to manage transactions efficiently.

1. Interchange and DFA Costs: These are some of the largest expenses in embedded payments, determined by factors such as card type, transaction size, and processing method.
2. Provider Fees: These fees include a revenue share, buy-rate, and any additional per-item costs from the payment provider. Partnering with a cost-efficient provider is essential, and Swipesum works with SaaS companies to identify optimal providers for these critical aspects.
3. Internal Support Costs: Handling customer inquiries, maintaining accurate payment data, and ensuring reliable reconciliation come with their own costs. The most effective embedded payments solutions streamline these processes, keeping support costs low.

In many cases, SaaS companies mark up embedded payments by 30-60 basis points. Smaller companies might start with a lower markup to drive adoption, while larger or niche platforms can afford to go higher, sometimes marking up to 100 basis points if their solution is comprehensive and industry-specific. Swipesum guides SaaS platforms through these pricing options, providing strategies that align with their revenue goals.

Revenue Recognition Models and Payment Processing Fees

Revenue recognition depends on whether the platform uses a net revenue or gross revenue model:

• Net Revenue Model: This model recognizes only residual revenue after passthrough and provider fees, offering high profit margins but a lower total revenue figure.
• Gross Revenue Model: This model includes the full processing fee from the merchant as revenue but has a lower profit margin due to cost exposure. This approach is often favored for platforms needing more flexibility in revenue reporting.

Each model has its advantages, and Swipesum advises SaaS platforms on the best revenue recognition model based on their financial goals and growth stage.

Setting the Advertised Price

For SaaS companies aiming to scale their embedded payments offerings, setting the advertised price requires more than just analyzing internal costs. Here are several considerations:

Avoiding Price Matching

Attempting to undercut competitors based on price alone can limit a platform’s revenue potential and value perception. Instead, SaaS platforms should highlight the benefits that embedded payments bring beyond price savings, such as data-driven insights, streamlined user experiences, and built-in customer support.

Driving Adoption Before Margins

Early on, it’s essential to prioritize adoption over margins. A lower markup can attract users to adopt embedded payments within the platform, creating a user base that becomes familiar with and reliant on the service. Once adoption is high, the platform can then consider optimizing margins.

Tiered Pricing Options

SaaS platforms serving a diverse range of business types or volumes can consider offering tiered pricing to provide lower fees for enterprise or high-volume clients. Additionally, platforms can pass on certain fees, such as chargebacks, to incentivize better transaction practices or bundle them into a higher tier.

Implementing Embedded Payments with Swipesum

For SaaS companies, navigating the complexities of embedded payments on their own can be overwhelming. Swipesum offers tailored embedded payment solutions, managing every step of the process—from initial pricing and provider selection to full customer support. With Swipesum as a partner, SaaS companies gain access to:

• Strategic Guidance: Swipesum helps determine optimal pricing structures and markups to maximize revenue.
• Full-Service Support: Our team handles all inquiries, from payment reconciliation to compliance management, allowing SaaS platforms to focus on growth.
• Data-Driven Insights: Swipesum’s analytics enable platforms to turn transaction data into actionable insights, supporting cross-selling and upselling efforts.

Future Opportunities and Challenges

Embedded payments are rapidly evolving, and SaaS companies that adopt them early can stay ahead of trends and capitalize on future innovations. Real-time payments, AI-based fraud prevention, and blockchain technology are just some of the advancements expected to shape the payments landscape in the coming years. Platforms that integrate these technologies can stay competitive, attracting customers who demand secure, fast, and convenient payment solutions.

Conclusion: Why Embedded Payments Matter for SaaS Platforms

Embedded payments have transformed the SaaS landscape, unlocking new revenue streams, enhancing user satisfaction, and creating deeper engagement. However, effective implementation requires a keen understanding of pricing, revenue recognition, and cost management.

Swipesum is the strategic partner SaaS companies need to make embedded payments work at scale. From helping with complex pricing proposals to supporting merchants with industry-specific knowledge, Swipesum provides end-to-end solutions that simplify embedded payments and drive lasting success. Contact Swipesum today to learn how our team can help your platform harness the power of embedded payments. Book a consultation now.