Expanding into payments and embedded finance can be a way forward for software-as-a-service (SaaS) startups amid challenging economic conditions, including historically high inflation. By enabling their users to conduct financial transactions, SaaS businesses allow their users to do more with less, while growing and diversifying their own revenue streams.

Successfully integrating and launching embedded payment services takes careful planning and preparation, however – especially with limited resources and funding. Drawing on our experience of working with thousands of startups, as well as some of the largest SaaS platforms in the world, we put together this step-by-step guide for launching and growing a payments business.

Step 1: Clarify your objectives

Running a payments business is very different from offering software-as-a-service. You’ll be introducing new revenue flows and taking on distinct regulatory and technical requirements. To make sure you allocate your resources wisely, an important first step is to set out what you hope to achieve.

We find that objectives typically fall into four main areas:

• Acquiring new users: Payments capabilities can help differentiate the business’s offerings and attract new customers.
  
• Staying competitive: Customers have come to expect built-in payments features on software platforms, and failure to offer them will make it harder for you to compete in the market.
  
• Improving retention: Payments can strengthen relationships with customers. Financial relationships are uniquely sticky – once established, customers are often reluctant to change them.
  
• Creating new revenue streams: Payments features can allow you to monetise your platform in new and innovative ways, including pivoting to new business models.
  

Although you will probably want your payments business to achieve several, if not all, of these goals, it’s a good idea to focus on a main objective at the outset. This will help you focus your resources and meet clearly established performance goals. Once you meet your initial benchmarks, you can scale up your ambitions.

Step 2: Segment your customers

Another good idea in the early stages of your payments business is to identify likely customers. Your payments product will probably be most appealing to a well-defined subset of customers, rather than all of them. Your most receptive customers could, for example, be small business customers struggling with cash flow or large enterprises seeking to streamline their accounting processes.

Here are four common ways to segment customers and how payments products might be tailored to them:

• SMBs and entrepreneurs: Make sign-up easy and offer quick payouts.
  
• Enterprise-scale companies: Give them valuable data and the ability to handle large processing volumes.
  
• Retail sellers: Offer a variety of online and mobile payment methods at the point of sale.
  
• Service providers: Prioritise cash flow, a seamless quote-to-cash cycle, and in-person payments.
  

A good way to determine the customer personas likely to drive adoption of your payments product is to communicate directly with them. Customer surveys and interviews can be a rich source of insights, as can trials of early versions of your product.

Having a good idea of your target market will not only shape the nature of your payment product, but also how you price and market it.

Step 3: Create an effective pricing strategy

There are several options for monetising payments products. Many platforms choose to charge their customers directly for payments. You can mark up the interchange fees charged by processors, banks, and card networks. An example would be charging a flat 2.9% + 30p per card transaction, in addition to the monthly software subscription.

You can also charge your customers directly by making payments part of higher-tier plans, which can still entail charging per-payment fees.

Alternatively, you could avoid charging customers directly for payments and instead make them a value-added part of the software subscription. You can incorporate processing and other costs associated with the payments business into the overall price of the software. You could also enter a revenue-sharing agreement with your payments processor and avoid passing fees on to your customers.

Among leading platforms that work with Stripe, the majority of them, 60%, charge customers directly for payments, while 20% incorporate their cost into the price of the software. Another 20% used payments to alter their business models: They only charge for payments while the software is discounted or offered at no extra cost.

Here are three common pricing models:

• Mark up payments costs: You can charge for payments by marking up per-payment processing costs.
  
• Tiered plans: You can make payments part of differently priced plans, which can include per-payment fees, as well as those for payments-related services, such as chargeback protection.
  
• Revenue share: You can enter a revenue-sharing agreement with your payment facilitator.
  

Here are pricing strategies used by Stripe customers:

• DocuSign offers integrated payments capabilities as part of its higher-tier Business Pro Plan.
  
• Squarespace combines the strategy of gating payments to a particular plan and marking up transactions.
  
• StyleSeat adds fees for advanced payments features such as chargeback protection or instant deposits.
  
• Thinkific offers integrated payments on all pricing plans and adds monetisation via payment-processing fees.
  

There is no one-size-fits-all solution when it comes to your pricing strategy, but your approach should align with your target market and your wider objectives. If you view your payment product primarily as a way to gain new customers, you might want to avoid charging your customers directly. On the other hand, if you’re charging enterprises a premium for payment services, then you’ll want to offer capabilities and support that justify that premium.

Step 4: Build a go-to-market plan

There are a lot of moving parts that go into successfully bringing a payments business to market, from front-end customer experience to back-end revenue reconciliation and taxes. Some SaaS businesses choose to form dedicated payments teams, with representatives in sales, product, and operations, and to create management roles like “head of payments”.

In addition to forming the right team, there are three other important components of a successful go-to-market plan:

• Pursue multichannel and targeted marketing campaigns: The nature of your campaign will depend on whom you’re trying to reach, but it’s a good idea to start with your own channels, such as email lists and social media accounts.
  
• Consider a staged rollout: A staged rollout – involving beta testing with selected groups of customers, for example – can ensure your payments features function as planned.
  
• Assess and revise: Develop clear metrics to measure the success of your payments business. Depending on your objectives, these could include payments volume, monthly active payments users, new sign-ups, and retention.
  

The specific messaging you develop to promote your payment product is an especially important part of your go-to-market strategy. The more you know your customers’ payment priorities, the better you can craft a product messaging that will resonate with them.

Based on our interviews with leading platforms we work with, the right product story includes four elements:

• It focuses on a specific and meaningful customer need.
  
• It explains why your payment solution is truly differentiated to meet that need.
  
• It targets a well-defined subset of customers, rather than trying to accommodate everyone.
  
• It adapts to different industries and business sizes.
  

You can learn more about how leading platforms went about building their payments teams and bringing their products to market in our report.

Step 5: Expand beyond payments

In launching your payments business, you will undoubtedly learn a lot along the way. You can use these lessons – and the trust you’ve gained as a financial partner to your users – to solve other challenges they may face.

A growing number of successful software platforms in recent years – including Shopify, Salesforce, and Xero – have expanded beyond stand-alone payment tools into embedded finance, which includes issuing cards, offering financing, and creating marketplaces.

Card issuing

• Enable cards for expense management
  
• Brand cards with your logo
  

Finances and lending

• Facilitate business loans to your customers
  
• Provide financing options at online checkout
  

Marketplaces

• Use your platform to connect third-party sellers and buyers
  
• Create a market for third-party apps on your platform
  

Embedded finance tools can make your platform more compelling for customers, but they also can have real bottom-line benefits for your business. A study commissioned by Stripe found that businesses that introduced embedded finance saw a more than 300% return on their investments. They were also able to measurably enhance the value of their platforms and streamline their operations.

If you want a clearer picture of how embedded finance enables software platforms to become one-stop shops for their customers, you can watch this video explainer.

Stripe has been the payments partner to hundreds of SaaS startups – from Substack to Shopify – along all stages of their growth. To launch, grow, and accelerate your payments business, download our full guide here or contact our sales team for more information.