Embedding Payments into Software Platforms: The Revenue Driver for Long-Term Profitability

By Ralph Dangelmaier, CEO of BlueSnap

For years, software companies have relied solely on either an annual software fee or monthly subscription fee to generate revenue. However, recent earnings reports from some subscription-based companies suggest that while subscriber counts are up, platforms are still not generating the revenue they were expecting to drive growth. This is signaling a need for software companies to find new and innovative ways to drive greater profits and financial returns, and tools like embedded payments can pave way for these opportunities. 

Embedding payments is gaining momentum with software companies looking to integrate new revenue streams into their software platforms. Embedded payments are when payment functionality is built directly within the software platform’s user experience, without the software client needing to add to their tech stack and integrate with another provider to offer payments. For example, Shopify, the ecommerce platform for nearly two million merchants, offers subscription services that cost up to $299 per month. However, this seems hardly enough to justify their $40+ billion market cap. In looking for ways to innovate, Shopify made a strategic decision to bundle payments with their ecommerce platform. The result? In Q1 2022, Shopify processed $22 billion in payments by embedding payments into their platform, adding significant revenue to their bottom line. 

The benefits of embedded payments also go well beyond simply taking a piece of the processing revenue. Embedded payments can provide a clear path to profitability and long-term financial gains by enhancing the user experience, increasing client acquisition and retention and creating technical efficiency. 

Enhanced User Experience 

Software platforms that embed payments create the user experience and can control the payment process from onboarding to reconciliation and reporting. Embedded payments offer a streamlined and convenient experience, eliminating the need for users to switch between different platforms or applications. By adding payment capabilities directly into software platforms, users can make transactions effortlessly without any disruptions. Seamless experiences result in higher conversion rates as users are more likely to follow through with their transaction, leading to increased revenue for software companies. 

Additionally, embedded payments can reduce the risk of checkout abandonment, a common issue faced by online businesses. When a software platform can offer preferred payment types and currencies, buyers are more inclined to complete the payment process within the software platform, eliminating any friction or doubts that may arise during the transition period to an external payment gateway. 

Increased Client Acquisition and Tenure 

Embedding payments into software platforms can unlock a competitive advantage to attract new clients and increase user longevity. Recently, BlueSnap conducted a survey of 300 B2B software executives globally to understand the benefits they experienced from embedding payments. The results found that 48% of software platforms say embedded payments gives them an advantage over the competition. By offering payment solutions, software platform provides more value by providing a frictionless process for payments and helping to eliminate the need for additional payment technology solutions. The data shows that software platforms are experiencing numerous benefits from embedding payments into their software in addition to new revenue. Forty-eight percent of respondents said embedded payments gave them an advantage over their competition, with 35% of software leaders seeing an increase in client tenure and 34% an increase in new client acquisition – making embedded payments a clear tool for attracting new loyal clients, improving retention of current clients and paving a path to long-term profitability. 

Technical Efficiencies 

For software platforms, integrating external payment gateways or creating payment infrastructures from scratch can be time-consuming and costly, requiring extensive development efforts and resources. Maintaining multiple payment gateways and integrations can lead to a tremendous amount of technical debt. However, choosing an embedded payment partner can make the process easier and eliminate the need for lengthy development times and costs. 

With an embedded payments partner software companies can leverage ready-to-use payment modules or software development kits (SDKs) provided by payment service providers. These SDKs come with pre-built interfaces, secure payment processing and compliance with industry standards, saving significant development efforts and costs. 

In the ever-changing landscape of software companies, embedded payments can be the key to unlocking long-term, sustainable revenue. By enhancing the user experience, opening up new monetization opportunities, allowing for adaptability and scalability and providing technical efficiencies, embedded payments offer software platforms a winning formula for increased revenue. 

Embracing embedded payments enables software companies to not only generate additional revenue streams but also gain a competitive edge in the market. As technology continues to advance, software companies that sell payments within their software platform are well-positioned to thrive and drive sustainable growth. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.