One of the biggest mistakes for vertical SaaS companies when it comes to payments is taking on too much.
Too much risk and compliance responsibility, too much technical complexity, or too many features that add more confusion than value.
In this episode, Becky Kopplin interviews Joshua Silver about exactly what SaaS companies must prioritize in a high-value embedded payments offering... and which shiny objects just cause problems.
They covered:
- Why adoption is the ultimate payments KPI (focus on this if you want to drive massive revenue with embedded payments).
- A counterintuitive merchant onboarding flow to avoid unexpected funding holds, additional verification requests, and service interruptions.
- How a cluttered checkout experience with too many choices can lead to decision paralysis and abandoned carts.
- The trendy pricing strategy that hurts adoption and margin, and why a simple pricing model wins every single time.
- What software companies can learn from Uber to make embedded payments an obvious “yes”.
The Payments Strategy Show is brought to you by Rainforest, embedded payments purpose-built for vertical SaaS.
Grow revenue with the only payfac-as-a-service provider optimized to help you drive more payments volume at higher margins, without risk or compliance headaches.
Learn more: https://rainforestpay.com
Connect with us on LinkedIn: https://linkedin.com/company/rainforestpay
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to another episode of the Payment Strategy
Show.
I'm Becky Coplin, vp ofPayments at Rainforest.
We are an embedded paymentsprovider purpose-built for
vertical SaaS companies to helpyou drive more processing volume
at higher margins while makingyour products stickier.
And if you've listened to thepodcast before, you might be
wondering where's Joshua.
(00:20):
And he's right here with us.
We decided to trade placestoday and let Joshua answer some
questions from the hot seat.
Joshua, thanks for playingalong.
Speaker 2 (00:29):
Of course, happy to do it.
Speaker 1 (00:31):
So let's start with an easy one.
Tell us about your background.
How did you get into payments?
Speaker 2 (00:37):
So I got into payments.
Almost 20 years ago and, almostby accident, I was the
co-founder of PatientCo, whichwas a healthcare health tech
startup that ended up turninginto a healthcare payments
company.
We originally started in themid-2000s and helped primarily
(00:57):
large health systems with all oftheir patient billing
technology, and since a big partof that is not just the
invoicing and the billing butalso the payments, we quickly
realized that we needed totransform into a payments
company and fast forward.
Over a number of years, weended up becoming one of the
first vertical Payfaxfacilitators in the healthcare
(01:18):
space.
We had built a really robustengine that handled all
different types of payments,whether it was check online,
call center, ach, credit card.
This was all long before manyof the APIs and things like that
existed, and so we kind ofstumbled into it, and by the
time we exited that business in2021, it turned out that the
(01:41):
majority of our revenue wasactually from payments instead
of technology.
Speaker 1 (01:45):
Yeah, and I've seen that a lot too, but so much has
changed, as you know, since youstarted that, so kind of maybe
take us back and take a stepdeeper into the payments piece
of that.
What was it like buildingpayments 15 years ago without
all the APIs and, like you said,like a step deeper in there.
Speaker 2 (02:03):
Yeah, we had to do a lot ourselves.
There weren't really real-timeAPIs for anything related to
payments and so we were buildingraw files, ach files that we
would send to our bank on veryspecific batch settlement
timelines.
We had to do integrations intoa lot of the legacy processors
for card processing.
There really wasn't thedeveloper experience that exists
(02:25):
today, and so you wereoftentimes trading
specifications over you knowWord documents that were
oftentimes dated.
Very few people kind ofunderstood the flows because
almost nobody had built it fromthe ground up like we had.
So you know, on the one hand, ittook us a really long time to
build all of our paymentstechnology at PatientCo because
(02:46):
we had to do it all ourselves.
On the other hand, you know nowin hindsight, 10, 15 plus years
later, it turned out it wasactually a blessing because it
really taught me and the teamhow to build robust payments
technology and how this stuffactually works under the covers.
But what I find today is a lotof times people who are
(03:06):
implementing payments don'treally understand intuitively
how things work under the covers.
Everything's been abstractedaway and simplified, which is
really great when you're aconsumer of it, trying to just
use it, but when you're tryingto troubleshoot, when you're
trying to figure out why thingsaren't working, when you're
trying to innovate, if you don'thave that intuitive
understanding of really what'sgoing on, it's really hard to do
(03:29):
, and so that's served us wellover the last number of years.
Speaker 1 (03:34):
Yeah, I totally recognize that because that was
my experience to doing paymentsthat long ago was all the
different vendors, all thedifferent, you know, trying to
mostly trying to verify whathappened to the payment because
you aren't getting that realtime verification.
And so he's been a lot of timekind of trying to connect the
dots Totally.
Remember, remember doing that,a lot of painful memories, right
(03:56):
, but learned a lot as well.
So, with that in mind, let'stake you know that was the past
and look at the future.
If you were to do it all overagain with all the modern
technology, like what would youdo differently if you built a
SaaS, a vertical SaaS companytoday?
Speaker 2 (04:10):
Well, certainly I wouldn't build as close to the
metal, so to speak, as we usedto.
Right, there are so manycompanies that have layers that
make things easy and simpletoday, whether it's the pricing,
the technology.
Sometimes I talk to foundersand executive teams that are
saying, hey, we want to go be apayfac ourselves, or we want to
go build this piece oftechnology, and I would just
(04:33):
tell them the world has changed.
There's almost no reason to dothat today, unless you're doing
tens of billions of dollars, inwhich case maybe you can bring
some of it in-house for someefficiencies.
For the most part, you're muchbetter served just using some
vendor out of the box, and so Ithink the challenge has evolved
(04:53):
into instead of it being so hardto build.
Now you need to think aboutthings like portability.
Is your data going to beportable?
Are you able to move yourmerchants?
Are you going to get theservice levels that you need?
Also, there's a lot more thingsyou can do.
Today, there are providers thatoffer ACH and credit card
payments on the same stack.
It used to all be separate, andyou had to do two separate
(05:16):
integrations and two onboardingsand two billings and two
reports.
Now it's all together.
You have things like Plab, youhave Buy Now, pay Later, you
have all of these differentalternative payment forms, and
so there's also a whole newworld of possibilities, of what
you can implement, and so it'sreally a matter of figuring out
how to pick which pieces aregoing to move the needle.
(05:39):
You don't have to necessarilyhave every single feature in
every single business.
In some verticals, it may makesense to add Plaid, because
you're really optimizing forbankroll payments.
In other industries, you knowcredit card and debit card
acceptance is really going to bekey, not to mention all the
mobile options, card presentoptions.
So, almost now that thechallenge is there's too much to
(06:00):
choose from and you don't wantto bite off more than you can
chew I definitely recommendstarting small.
Pick a few things you think aregoing to move the needle, make
sure you're getting the adoption.
Then you can start to layer inall the other features that may
make it a better paymentsexperience for your clients.
Speaker 1 (06:21):
I couldn't agree more .
I mean running into the sameboat.
In fact, you know, kind of theway you and I met was as
consultants which is what youdid after Patient Co and I'll
ask you another question aboutthat but definitely advising
platforms on what to do.
There was definitely this pushto like go be a payback and go
do all the things.
And you realize, you know, do acouple things really well and
(06:42):
own your data and own yourcustomers and you can build from
there and you can get stuck inkind of this perfect scenario
you're building and don't goanywhere.
But speaking of and kind ofthinking about your consultant
days I know we've already sharedsome stories, but let's share
some with some other folks buttoo but what was the most
surprising situation youencountered when you were
(07:03):
consulting?
Speaker 2 (07:04):
Yeah, you know, there's certainly a lot of
material to choose from.
Speaker 1 (07:08):
Right.
Speaker 2 (07:09):
You know, as a consultant who had been in the
space for a long time, I wasoften brought the more complex
problems right.
If you just needed someone tohelp you negotiate pricing on a
contract, a lot of consultantsthat could help you do that
Really.
Where my firm specialized wasmore complex problems, and so
there's a couple examples I'llprovide.
I was on the fraud side.
(07:29):
I got called in urgently fromanother CEO in my network saying
, hey, we've got a big problemwith fraud and I said, okay,
well, how big are we talking?
And she said, well, it's up forsix figures today and it's
getting worse by the day.
It says that's a big problem.
And it turned out that they hadsome fraudsters that figured out
(07:50):
that they had some weaknessesin their system and they weren't
doing all the checks that theyneeded to when they were
onboarding merchants and runningtransactions and they were just
burning through accounts leftand right very quickly, kind of,
with losses mounting.
And I think the worst part ofit, you know and I'll never
(08:12):
forget kind of the look on herface in the situation she was
telling me about, when shedidn't realize that they were
actually on the hook for it, youknow, it turns out they had
been working with a paymentsvendor that wasn't really
transparent about who owned therisk, and when everything's
going well, you don't thinkabout it and then all of a
sudden there's losses and sothey've got a payment vendor
calling and saying hey, if youwant to keep processing, we need
a big reserve amount because wewant to make sure you're good
(08:33):
for it.
So I'd say that you know,anytime there was fraud, fraud
is always challenging because Ifind that vertical SaaS
companies don't typically do agreat job with knowing how to
manage fraud.
It's just building software andmanaging fraud on an operations
basis Just two very differentskill sets.
So that's one.
(08:54):
I think another was a fullyregistered payment facilitator
working with a top five or sixbank Pretty good scale and they
called me in because they werehaving lots of challenges with
reconciliation and they had allthe funds flowing through some
different accounts at the banksand instead of doing what you
(09:14):
really should do and certainlywhat we did at PatientCo and
what we've now done atRainforest, which is make sure
you're balancing your accountsto the penny every day, they
weren't exactly doing that, andso a variance of a couple
thousand dollars starts onemonth and then it balloons into
10,000 and tens of thousandsanother month and by the time
they called me in because theywere having trouble fixing it
(09:35):
themselves, there was already adeficit of almost a half a
million dollars.
So they basically were sayingthey had more customer money
than they had cash in the bankand they were trying to figure
out where it went.
We hear about these stories inthe news today about FBO
accounts and synapse and othersnot keeping track of ledgers.
They're far from the first onesto have that problem and those
(09:57):
are always really toughsituations because to try to go
back through hundreds ofthousands or even millions of
transactions over a very longtime period to start figuring
out where those differences areis really really time consuming,
really expensive and takes areally specialized skill set.
I definitely, based on thoseexperiences, recommend that SaaS
(10:17):
companies stay out of moneymovement, leave reconciliation
challenges to the professionalsand really, for the most part,
stay out of the risk game.
There's so many companies todaythat will handle risk and fraud
monitoring and compliance foryou and not for a very
significant cost.
It's a very cost-effectiveoption and it's definitely one
that I think most SaaS companiesshould take.
Speaker 1 (10:40):
I think what's toughest about those scenarios
specifically is oftentimessenior leadership and investors
didn't know that they had thatkind of risk on the table, and
not just they didn't know, theyhad liability, they didn't
understand from the FBOperspective and those kinds of
things, and so they're facing ascenario that they just were
flat out not anticipating, whichis tough.
(11:00):
While we're on the subject ofmistakes, when you think about
payment provider selection whichis a lot of what we helped
customers do or clients do whenwe were consulting what's the
mistakes they make on that sidein terms of implementation and
go-to-market when they'rethinking about payment provider
selection?
Speaker 2 (11:20):
Yeah, it's a good question.
I think one of the bigchallenges or mistakes that
people make is not getting theplanning right.
I think a lot of people thinksign the contract, make sure the
pricing's right and then go anddo the implementation and
you're done.
That's really just thebeginning right.
You've actually got to get thevolume migrated over, you need
(11:41):
to get the merchants using itand you need to have a high
attach rate, and then you needto make sure that the merchants
are running the majority oftheir payments through you, and
I've seen in a lot of industrieswhere maybe checks was the main
payment method, people struggleto get that paper check to
digital conversion.
Certainly, that was somethingthat we spent a lot of time with
(12:03):
at PatientCo.
As you might imagine,healthcare is one of the slower
moving verticals for digitaladoption, and so we spent
millions of dollars and manyyears trying to figure out how
do you get patients to stoprequesting a paper statement and
to use an electronic billwhether it's a text message or
an email, the e-bill and thenthey would still mail a check
(12:26):
and they'd print out the bill attheir home printer and then
mail it in.
You know, there's kind of thatconsumer behavior that you need
to consider on terms of howconsumers are going to choose.
So when you're doing thatplanning, it's really important
to think through how are yougoing to get the merchants, how
are you going to get theconsumer or the payer behavior
to change, and putting that intoa plan.
And that goes into how younegotiate your pricing, because
(12:48):
there may be minimums involved,there may be certain overhead
fees that you need tocontemplate as well as, from a
technical perspective, you needto decide which pieces of the
implementation to do.
We talked earlier, becky, aboutthe different features and
choosing which ones to startwith as kind of your phase one
or your MVP, and which ones youcan maybe add later, and that I
(13:10):
think is all really importantfor the go-to-market.
And then I think the final pieceon go-to-market, besides doing
a really good job planning,making sure that the product set
is right, is Making sure youhave cross-functional buy-in,
because this is something that'snot just product and technology
, it's not just finance, but italso probably involves
(13:31):
operations.
It may involve sales andmarketing, it might involve
customer service or customersuccess.
Those types of functionsassemble that team early on so
that they have been broughtalong for the process instead of
just getting assigned tasks atthe end.
A lot of times you may have ahead of payments that is running
(13:53):
a project and gets to the veryend and says, okay, I need you
to do these five things in salesand I need you to make sure
you're selling this to everymerchant.
And that's just really toughwhen you haven't been brought
along for that journey.
So I think thatcross-functional collaboration
is a huge, huge missing piece.
Speaker 1 (14:09):
Yeah, I think most folks think about payments as
being a technology play or atechnology task, and I agree, I
think that's where it starts,but I think it kind of happens
and needs to happen throughoutthe organization and think about
all the different moving partsthere in order for it to be
successful.
So, totally agree, I think oneof the things that folks don't
(14:30):
think about in terms of thatgo-to-market or launch strategy
is thinking about onboarding,and I know there's kind of a
debate in onboarding right Likeprogressive onboarding,
optimistic onboarding, stagedonboarding there's kind of a lot
of phrases folks use todescribe the scenario of do you
fully validate the merchant onthe front end or do you do it in
(14:52):
pieces as you go?
I know you've posted a littleon LinkedIn about this, but can
you maybe dig in there a littlebit and tell us your thoughts
about progressive or optimisticonboarding and why you think
it's problematic?
Speaker 2 (15:05):
Yeah, it definitely is a hot button topic.
You know, I think some paymentproviders out there really
saying that real-time onboardingis absolutely critical, and
what I've seen is generally thatpeople who need real-time
onboarding instantly are thefraudsters.
They're the ones who typicallycare about it most, right, you
know, normal merchants don'tkind of get out of bed and say I
(15:27):
need to take my payment thisvery second.
Having a few hours delay oreven a night not typically a big
deal in most use cases and sowhen you look at the level of
importance of that versusgetting their core product
design right, I think theonboarding piece is one that the
people kind of overrate, asthis is critical when it just
(15:47):
typically isn't as important.
The other thing that peopleforget is it can actually create
a lot of dissatisfaction.
When you are onboarded, youthink you're good to go, and
then the payments provider comesback later and says wait, we
need all this additionalinformation.
And it can actually be kind ofjarring, because the average
small business owner doesn'treally understand what's going
(16:08):
on behind the scenes and whatall these compliance and
regulatory requirements are, andso they might actually think
they did something wrong andit's like well, wait, why are
you asking me for all thisinformation?
Did I do something wrong?
Is there a problem?
I generally find it's best toget the administrative piece
done up front, get it out of theway, make sure you have smooth
sailing afterwards and you'regood to go, versus creating that
(16:30):
negative experience, especiallyafter it's going.
I've heard some argue.
Well, it's much easier to getmerchants to give you their
information maybe their tax IDor certain other demographic
information once you're holdingtheir money, because then they
have an incentive to give it toyou.
And I've been a small businessowner myself, I've been a big
(16:52):
business owner myself, andneither of those situations do I
ever want someone holding myrevenue hostage for me to give
them information.
I think it just creates areally negative feeling and
incentive versus workingtogether.
And so I'm a big proponent ofmake onboarding as frictionless
as possible, make it super easy,but get it done out of the way
(17:12):
early on.
Don't kind of come back withdeath at a thousand cuts, asking
for piece of information afterpiece of information after piece
of information.
Speaker 1 (17:20):
I've also seen I'm curious if you've seen it as
well where this kind of stagedonboarding also leads to like
transaction holds or risk holdsin kind of an increased way.
Is that your experience as well?
Speaker 2 (17:33):
Yeah, absolutely.
I think a lot of bigger paymentproviders today will let you
take your first X thousanddollars of payments or X
hundreds of dollars of paymentswithout much information, and
then, all of a sudden, you getyour first $5,000 or $10,000
payment and everything justshuts down.
They need more information,they need backup about why
(17:55):
you're taking the payment, theyneed your demographic
information, and so again, youhave the joy, as a business
owner, of getting this revenue.
You've actually got someone toadopt your new payment system
and then you've got this jarringhold that's put on it as well
as this information that's beingrequested.
So definitely, I've seen thatquite a bit.
Speaker 1 (18:14):
Yeah, and I think some of the most difficult calls
to take from merchants are oneswhere their money is being held
hostage or unexpectedlydeclined or held.
So definitely a difficultsituation.
But let's move to something alittle more friendly, a little
more fun.
There's a lot of popularpayment features out there that
look really appealing on thefront end but are actually
pretty problematic, and I knowwe've both seen a handful of
(18:36):
these.
But I'm curious kind of yourthoughts, like what comes to
mind when you think about thesesurface appealing payment
features that aren't as good asthey look.
Speaker 2 (18:45):
Yeah, I mean.
One that immediately comes tomind is interchange plus billing
for merchants.
So interchange, just for anyonewho may not know, is basically
the wholesale costs that Visaand MasterCard set for different
types of card payments, and adebit card payment is generally
cheaper than a high-end businessrewards card and so on and so
forth.
There's really two models.
(19:06):
One is a flat rate where youmay be paying 2.9% and 30 cents.
Another would be where you'repaying interchange plus X basis
points and Y cents, and I oftenhear from platforms that they
want to offer interchange pluspricing because they think they
need it, and while that doesoffer some additional
(19:28):
transparency to the merchant, italso creates a really tough
challenge for the platform asthey want to increase
monetization and revenue becausethey really don't have many
levers to pull.
They really only have two.
Typically it's number of basispoints and a number of cents.
That's the markup, and so whenthey do things like interchange
(19:49):
optimization, which is actuallydriving costs down, the platform
doesn't get to benefit fromthat at all.
Also, a lot of times merchantsare really confused by
interchange plus pricing because, instead of knowing that you
have certainty of every paymentI take is going to be 2.9% and
30 cents, and the math is reallyeasy.
You might end up with a billthat has dozens or even a
(20:09):
hundred different interchangecategories and, as a small
business owner, you have no ideawhat qualified and
non-qualified and platinumrewards cards and Visa Infinite
and all these differentcategories are.
Nor should you need to, becauseultimately, at the end of the
day, you really care most aboutyour overall cost of acceptance.
(20:29):
And so how you get to thatoverall cost of acceptance
number I recommend to make assimple as possible for merchants
, because that way the merchanthas certainty of what they're
paying.
The platform has the rightincentives to help optimize that
experience.
So that's one, I think, whereyou know there certainly is a
lot of complexity that can beadded.
I don't know that the benefit'sworth it.
(20:52):
I've also seen, you know,situations where people add so
many different options to thecheckout tab that it looks like
a Chinese menu.
You know you have PayPal and allthe different card brands and
Zelle and Venmo and Venmo and 55different digital wallets, and
you actually end up reallyhurting your checkout rate when
(21:16):
you do that, because consumersdon't know how to deal with it
paralysis and instead of justmaking the payment and being
done with it.
They're forced to choose amongall these different options, and
I've seen this especially insome airlines, for example,
where they just have so manyoptions that they think they're
(21:36):
helping consumers but in realitymost of them aren't used very
often.
And when you look at the numberof carts that are abandoned
meaning people were about to payand then they just left the
site versus the incrementalpayment acceptance you're going
to get by all these long-tailpayment methods, it's generally
not worth it, and so, bigbeliever on my side of trying to
(21:59):
optimize for the masses,certainly look at some more
innovative payment capabilities.
Not saying don't innovate, butremember, at the end of the day,
payments should be easy.
I give the example all the timeof Uber.
It's as simple as closing thedoor and your payments made.
That's the experience that Iwould encourage vertical SaaS
(22:20):
companies to try to achieve.
Speaker 1 (22:22):
Yeah, totally with you.
Simple is better is a mantra Ialways use in those scenarios as
well.
Great Well, let's wrap this upwith one final question.
And love to hear your thoughts.
If you had to distill kind ofall of your experience and
learnings was kind of a bigquestion into one piece of
payments advice for SaaS leaders, like how would you distill
that?
Speaker 2 (22:43):
That's hard.
There's a lot to pack into one,but what I would focus on is
really the value.
Payments oftentimes is lookedat as a revenue stream.
It can help with clientretention, makes it stickier a
lot of things like that.
But look at it from the pointof view of the merchant and
(23:03):
potentially even the payer, theconsumer or business that's
making the payment.
Merchant and potentially eventhe payer the consumer or
business that's making thepayment.
What's the real value for them?
Are you making their liveseasier?
Are you making it have lessfriction?
Are you improving thereconciliation and posting
capabilities?
Are you making it a fasterexperience?
If, at the end of the day, youare able to achieve a lot of
value for both the payer and themerchant, everything else tends
(23:27):
to work itself out.
You can always figure out therisk, you can always figure out
portability, you can alwaysfigure out great vendors, but if
you can't get that valueequation right for the merchant
and for the payer, it kind ofdoesn't matter, because you're
not going to get the adoption.
Speaker 1 (23:42):
Yeah, could not agree more.
Anyways, thank you so much forplaying along with us today and
sitting in the hot seat.
Appreciate all of that you'veoffered here today, and it's
just been a great time talkingwith you.
So thank you.
Speaker 2 (23:54):
Absolutely.
Welcome to another episode of the Payment Strategy
Show.
I'm Becky Coplin, vp ofPayments at Rainforest.
We are an embedded paymentsprovider purpose-built for
vertical SaaS companies to helpyou drive more processing volume
at higher margins while makingyour products stickier.
And if you've listened to thepodcast before, you might be
wondering where's Joshua.
(00:20):
And he's right here with us.
We decided to trade placestoday and let Joshua answer some
questions from the hot seat.
Joshua, thanks for playingalong.
Speaker 2 (00:29):
Of course, happy to do it.
Speaker 1 (00:31):
So let's start with an easy one.
Tell us about your background.
How did you get into payments?
Speaker 2 (00:37):
So I got into payments.
Almost 20 years ago and, almostby accident, I was the
co-founder of PatientCo, whichwas a healthcare health tech
startup that ended up turninginto a healthcare payments
company.
We originally started in themid-2000s and helped primarily
(00:57):
large health systems with all oftheir patient billing
technology, and since a big partof that is not just the
invoicing and the billing butalso the payments, we quickly
realized that we needed totransform into a payments
company and fast forward.
Over a number of years, weended up becoming one of the
first vertical Payfaxfacilitators in the healthcare
(01:18):
space.
We had built a really robustengine that handled all
different types of payments,whether it was check online,
call center, ach, credit card.
This was all long before manyof the APIs and things like that
existed, and so we kind ofstumbled into it, and by the
time we exited that business in2021, it turned out that the
(01:41):
majority of our revenue wasactually from payments instead
of technology.
Speaker 1 (01:45):
Yeah, and I've seen that a lot too, but so much has
changed, as you know, since youstarted that, so kind of maybe
take us back and take a stepdeeper into the payments piece
of that.
What was it like buildingpayments 15 years ago without
all the APIs and, like you said,like a step deeper in there.
Speaker 2 (02:03):
Yeah, we had to do a lot ourselves.
There weren't really real-timeAPIs for anything related to
payments and so we were buildingraw files, ach files that we
would send to our bank on veryspecific batch settlement
timelines.
We had to do integrations intoa lot of the legacy processors
for card processing.
There really wasn't thedeveloper experience that exists
(02:25):
today, and so you wereoftentimes trading
specifications over you knowWord documents that were
oftentimes dated.
Very few people kind ofunderstood the flows because
almost nobody had built it fromthe ground up like we had.
So you know, on the one hand, ittook us a really long time to
build all of our paymentstechnology at PatientCo because
(02:46):
we had to do it all ourselves.
On the other hand, you know nowin hindsight, 10, 15 plus years
later, it turned out it wasactually a blessing because it
really taught me and the teamhow to build robust payments
technology and how this stuffactually works under the covers.
But what I find today is a lotof times people who are
(03:06):
implementing payments don'treally understand intuitively
how things work under the covers.
Everything's been abstractedaway and simplified, which is
really great when you're aconsumer of it, trying to just
use it, but when you're tryingto troubleshoot, when you're
trying to figure out why thingsaren't working, when you're
trying to innovate, if you don'thave that intuitive
understanding of really what'sgoing on, it's really hard to do
(03:29):
, and so that's served us wellover the last number of years.
Speaker 1 (03:34):
Yeah, I totally recognize that because that was
my experience to doing paymentsthat long ago was all the
different vendors, all thedifferent, you know, trying to
mostly trying to verify whathappened to the payment because
you aren't getting that realtime verification.
And so he's been a lot of timekind of trying to connect the
dots Totally.
Remember, remember doing that,a lot of painful memories, right
(03:56):
, but learned a lot as well.
So, with that in mind, let'stake you know that was the past
and look at the future.
If you were to do it all overagain with all the modern
technology, like what would youdo differently if you built a
SaaS, a vertical SaaS companytoday?
Speaker 2 (04:10):
Well, certainly I wouldn't build as close to the
metal, so to speak, as we usedto.
Right, there are so manycompanies that have layers that
make things easy and simpletoday, whether it's the pricing,
the technology.
Sometimes I talk to foundersand executive teams that are
saying, hey, we want to go be apayfac ourselves, or we want to
go build this piece oftechnology, and I would just
(04:33):
tell them the world has changed.
There's almost no reason to dothat today, unless you're doing
tens of billions of dollars, inwhich case maybe you can bring
some of it in-house for someefficiencies.
For the most part, you're muchbetter served just using some
vendor out of the box, and so Ithink the challenge has evolved
(04:53):
into instead of it being so hardto build.
Now you need to think aboutthings like portability.
Is your data going to beportable?
Are you able to move yourmerchants?
Are you going to get theservice levels that you need?
Also, there's a lot more thingsyou can do.
Today, there are providers thatoffer ACH and credit card
payments on the same stack.
It used to all be separate, andyou had to do two separate
(05:16):
integrations and two onboardingsand two billings and two
reports.
Now it's all together.
You have things like Plab, youhave Buy Now, pay Later, you
have all of these differentalternative payment forms, and
so there's also a whole newworld of possibilities, of what
you can implement, and so it'sreally a matter of figuring out
how to pick which pieces aregoing to move the needle.
(05:39):
You don't have to necessarilyhave every single feature in
every single business.
In some verticals, it may makesense to add Plaid, because
you're really optimizing forbankroll payments.
In other industries, you knowcredit card and debit card
acceptance is really going to bekey, not to mention all the
mobile options, card presentoptions.
So, almost now that thechallenge is there's too much to
(06:00):
choose from and you don't wantto bite off more than you can
chew I definitely recommendstarting small.
Pick a few things you think aregoing to move the needle, make
sure you're getting the adoption.
Then you can start to layer inall the other features that may
make it a better paymentsexperience for your clients.
Speaker 1 (06:21):
I couldn't agree more .
I mean running into the sameboat.
In fact, you know, kind of theway you and I met was as
consultants which is what youdid after Patient Co and I'll
ask you another question aboutthat but definitely advising
platforms on what to do.
There was definitely this pushto like go be a payback and go
do all the things.
And you realize, you know, do acouple things really well and
(06:42):
own your data and own yourcustomers and you can build from
there and you can get stuck inkind of this perfect scenario
you're building and don't goanywhere.
But speaking of and kind ofthinking about your consultant
days I know we've already sharedsome stories, but let's share
some with some other folks buttoo but what was the most
surprising situation youencountered when you were
(07:03):
consulting?
Speaker 2 (07:04):
Yeah, you know, there's certainly a lot of
material to choose from.
Speaker 1 (07:08):
Right.
Speaker 2 (07:09):
You know, as a consultant who had been in the
space for a long time, I wasoften brought the more complex
problems right.
If you just needed someone tohelp you negotiate pricing on a
contract, a lot of consultantsthat could help you do that
Really.
Where my firm specialized wasmore complex problems, and so
there's a couple examples I'llprovide.
I was on the fraud side.
(07:29):
I got called in urgently fromanother CEO in my network saying
, hey, we've got a big problemwith fraud and I said, okay,
well, how big are we talking?
And she said, well, it's up forsix figures today and it's
getting worse by the day.
It says that's a big problem.
And it turned out that they hadsome fraudsters that figured out
(07:50):
that they had some weaknessesin their system and they weren't
doing all the checks that theyneeded to when they were
onboarding merchants and runningtransactions and they were just
burning through accounts leftand right very quickly, kind of,
with losses mounting.
And I think the worst part ofit, you know and I'll never
(08:12):
forget kind of the look on herface in the situation she was
telling me about, when shedidn't realize that they were
actually on the hook for it, youknow, it turns out they had
been working with a paymentsvendor that wasn't really
transparent about who owned therisk, and when everything's
going well, you don't thinkabout it and then all of a
sudden there's losses and sothey've got a payment vendor
calling and saying hey, if youwant to keep processing, we need
a big reserve amount because wewant to make sure you're good
(08:33):
for it.
So I'd say that you know,anytime there was fraud, fraud
is always challenging because Ifind that vertical SaaS
companies don't typically do agreat job with knowing how to
manage fraud.
It's just building software andmanaging fraud on an operations
basis Just two very differentskill sets.
So that's one.
(08:54):
I think another was a fullyregistered payment facilitator
working with a top five or sixbank Pretty good scale and they
called me in because they werehaving lots of challenges with
reconciliation and they had allthe funds flowing through some
different accounts at the banksand instead of doing what you
(09:14):
really should do and certainlywhat we did at PatientCo and
what we've now done atRainforest, which is make sure
you're balancing your accountsto the penny every day, they
weren't exactly doing that, andso a variance of a couple
thousand dollars starts onemonth and then it balloons into
10,000 and tens of thousandsanother month and by the time
they called me in because theywere having trouble fixing it
(09:35):
themselves, there was already adeficit of almost a half a
million dollars.
So they basically were sayingthey had more customer money
than they had cash in the bankand they were trying to figure
out where it went.
We hear about these stories inthe news today about FBO
accounts and synapse and othersnot keeping track of ledgers.
They're far from the first onesto have that problem and those
(09:57):
are always really toughsituations because to try to go
back through hundreds ofthousands or even millions of
transactions over a very longtime period to start figuring
out where those differences areis really really time consuming,
really expensive and takes areally specialized skill set.
I definitely, based on thoseexperiences, recommend that SaaS
(10:17):
companies stay out of moneymovement, leave reconciliation
challenges to the professionalsand really, for the most part,
stay out of the risk game.
There's so many companies todaythat will handle risk and fraud
monitoring and compliance foryou and not for a very
significant cost.
It's a very cost-effectiveoption and it's definitely one
that I think most SaaS companiesshould take.
Speaker 1 (10:40):
I think what's toughest about those scenarios
specifically is oftentimessenior leadership and investors
didn't know that they had thatkind of risk on the table, and
not just they didn't know, theyhad liability, they didn't
understand from the FBOperspective and those kinds of
things, and so they're facing ascenario that they just were
flat out not anticipating, whichis tough.
(11:00):
While we're on the subject ofmistakes, when you think about
payment provider selection whichis a lot of what we helped
customers do or clients do whenwe were consulting what's the
mistakes they make on that sidein terms of implementation and
go-to-market when they'rethinking about payment provider
selection?
Speaker 2 (11:20):
Yeah, it's a good question.
I think one of the bigchallenges or mistakes that
people make is not getting theplanning right.
I think a lot of people thinksign the contract, make sure the
pricing's right and then go anddo the implementation and
you're done.
That's really just thebeginning right.
You've actually got to get thevolume migrated over, you need
(11:41):
to get the merchants using itand you need to have a high
attach rate, and then you needto make sure that the merchants
are running the majority oftheir payments through you, and
I've seen in a lot of industrieswhere maybe checks was the main
payment method, people struggleto get that paper check to
digital conversion.
Certainly, that was somethingthat we spent a lot of time with
(12:03):
at PatientCo.
As you might imagine,healthcare is one of the slower
moving verticals for digitaladoption, and so we spent
millions of dollars and manyyears trying to figure out how
do you get patients to stoprequesting a paper statement and
to use an electronic billwhether it's a text message or
an email, the e-bill and thenthey would still mail a check
(12:26):
and they'd print out the bill attheir home printer and then
mail it in.
You know, there's kind of thatconsumer behavior that you need
to consider on terms of howconsumers are going to choose.
So when you're doing thatplanning, it's really important
to think through how are yougoing to get the merchants, how
are you going to get theconsumer or the payer behavior
to change, and putting that intoa plan.
And that goes into how younegotiate your pricing, because
(12:48):
there may be minimums involved,there may be certain overhead
fees that you need tocontemplate as well as, from a
technical perspective, you needto decide which pieces of the
implementation to do.
We talked earlier, becky, aboutthe different features and
choosing which ones to startwith as kind of your phase one
or your MVP, and which ones youcan maybe add later, and that I
(13:10):
think is all really importantfor the go-to-market.
And then I think the final pieceon go-to-market, besides doing
a really good job planning,making sure that the product set
is right, is Making sure youhave cross-functional buy-in,
because this is something that'snot just product and technology
, it's not just finance, but italso probably involves
(13:31):
operations.
It may involve sales andmarketing, it might involve
customer service or customersuccess.
Those types of functionsassemble that team early on so
that they have been broughtalong for the process instead of
just getting assigned tasks atthe end.
A lot of times you may have ahead of payments that is running
(13:53):
a project and gets to the veryend and says, okay, I need you
to do these five things in salesand I need you to make sure
you're selling this to everymerchant.
And that's just really toughwhen you haven't been brought
along for that journey.
So I think thatcross-functional collaboration
is a huge, huge missing piece.
Speaker 1 (14:09):
Yeah, I think most folks think about payments as
being a technology play or atechnology task, and I agree, I
think that's where it starts,but I think it kind of happens
and needs to happen throughoutthe organization and think about
all the different moving partsthere in order for it to be
successful.
So, totally agree, I think oneof the things that folks don't
(14:30):
think about in terms of thatgo-to-market or launch strategy
is thinking about onboarding,and I know there's kind of a
debate in onboarding right Likeprogressive onboarding,
optimistic onboarding, stagedonboarding there's kind of a lot
of phrases folks use todescribe the scenario of do you
fully validate the merchant onthe front end or do you do it in
(14:52):
pieces as you go?
I know you've posted a littleon LinkedIn about this, but can
you maybe dig in there a littlebit and tell us your thoughts
about progressive or optimisticonboarding and why you think
it's problematic?
Speaker 2 (15:05):
Yeah, it definitely is a hot button topic.
You know, I think some paymentproviders out there really
saying that real-time onboardingis absolutely critical, and
what I've seen is generally thatpeople who need real-time
onboarding instantly are thefraudsters.
They're the ones who typicallycare about it most, right, you
know, normal merchants don'tkind of get out of bed and say I
(15:27):
need to take my payment thisvery second.
Having a few hours delay oreven a night not typically a big
deal in most use cases and sowhen you look at the level of
importance of that versusgetting their core product
design right, I think theonboarding piece is one that the
people kind of overrate, asthis is critical when it just
(15:47):
typically isn't as important.
The other thing that peopleforget is it can actually create
a lot of dissatisfaction.
When you are onboarded, youthink you're good to go, and
then the payments provider comesback later and says wait, we
need all this additionalinformation.
And it can actually be kind ofjarring, because the average
small business owner doesn'treally understand what's going
(16:08):
on behind the scenes and whatall these compliance and
regulatory requirements are, andso they might actually think
they did something wrong andit's like well, wait, why are
you asking me for all thisinformation?
Did I do something wrong?
Is there a problem?
I generally find it's best toget the administrative piece
done up front, get it out of theway, make sure you have smooth
sailing afterwards and you'regood to go, versus creating that
(16:30):
negative experience, especiallyafter it's going.
I've heard some argue.
Well, it's much easier to getmerchants to give you their
information maybe their tax IDor certain other demographic
information once you're holdingtheir money, because then they
have an incentive to give it toyou.
And I've been a small businessowner myself, I've been a big
(16:52):
business owner myself, andneither of those situations do I
ever want someone holding myrevenue hostage for me to give
them information.
I think it just creates areally negative feeling and
incentive versus workingtogether.
And so I'm a big proponent ofmake onboarding as frictionless
as possible, make it super easy,but get it done out of the way
(17:12):
early on.
Don't kind of come back withdeath at a thousand cuts, asking
for piece of information afterpiece of information after piece
of information.
Speaker 1 (17:20):
I've also seen I'm curious if you've seen it as
well where this kind of stagedonboarding also leads to like
transaction holds or risk holdsin kind of an increased way.
Is that your experience as well?
Speaker 2 (17:33):
Yeah, absolutely.
I think a lot of bigger paymentproviders today will let you
take your first X thousanddollars of payments or X
hundreds of dollars of paymentswithout much information, and
then, all of a sudden, you getyour first $5,000 or $10,000
payment and everything justshuts down.
They need more information,they need backup about why
(17:55):
you're taking the payment, theyneed your demographic
information, and so again, youhave the joy, as a business
owner, of getting this revenue.
You've actually got someone toadopt your new payment system
and then you've got this jarringhold that's put on it as well
as this information that's beingrequested.
So definitely, I've seen thatquite a bit.
Speaker 1 (18:14):
Yeah, and I think some of the most difficult calls
to take from merchants are oneswhere their money is being held
hostage or unexpectedlydeclined or held.
So definitely a difficultsituation.
But let's move to something alittle more friendly, a little
more fun.
There's a lot of popularpayment features out there that
look really appealing on thefront end but are actually
pretty problematic, and I knowwe've both seen a handful of
(18:36):
these.
But I'm curious kind of yourthoughts, like what comes to
mind when you think about thesesurface appealing payment
features that aren't as good asthey look.
Speaker 2 (18:45):
Yeah, I mean.
One that immediately comes tomind is interchange plus billing
for merchants.
So interchange, just for anyonewho may not know, is basically
the wholesale costs that Visaand MasterCard set for different
types of card payments, and adebit card payment is generally
cheaper than a high-end businessrewards card and so on and so
forth.
There's really two models.
(19:06):
One is a flat rate where youmay be paying 2.9% and 30 cents.
Another would be where you'repaying interchange plus X basis
points and Y cents, and I oftenhear from platforms that they
want to offer interchange pluspricing because they think they
need it, and while that doesoffer some additional
(19:28):
transparency to the merchant, italso creates a really tough
challenge for the platform asthey want to increase
monetization and revenue becausethey really don't have many
levers to pull.
They really only have two.
Typically it's number of basispoints and a number of cents.
That's the markup, and so whenthey do things like interchange
(19:49):
optimization, which is actuallydriving costs down, the platform
doesn't get to benefit fromthat at all.
Also, a lot of times merchantsare really confused by
interchange plus pricing because, instead of knowing that you
have certainty of every paymentI take is going to be 2.9% and
30 cents, and the math is reallyeasy.
You might end up with a billthat has dozens or even a
(20:09):
hundred different interchangecategories and, as a small
business owner, you have no ideawhat qualified and
non-qualified and platinumrewards cards and Visa Infinite
and all these differentcategories are.
Nor should you need to, becauseultimately, at the end of the
day, you really care most aboutyour overall cost of acceptance.
(20:29):
And so how you get to thatoverall cost of acceptance
number I recommend to make assimple as possible for merchants
, because that way the merchanthas certainty of what they're
paying.
The platform has the rightincentives to help optimize that
experience.
So that's one, I think, whereyou know there certainly is a
lot of complexity that can beadded.
I don't know that the benefit'sworth it.
(20:52):
I've also seen, you know,situations where people add so
many different options to thecheckout tab that it looks like
a Chinese menu.
You know you have PayPal and allthe different card brands and
Zelle and Venmo and Venmo and 55different digital wallets, and
you actually end up reallyhurting your checkout rate when
(21:16):
you do that, because consumersdon't know how to deal with it
paralysis and instead of justmaking the payment and being
done with it.
They're forced to choose amongall these different options, and
I've seen this especially insome airlines, for example,
where they just have so manyoptions that they think they're
(21:36):
helping consumers but in realitymost of them aren't used very
often.
And when you look at the numberof carts that are abandoned
meaning people were about to payand then they just left the
site versus the incrementalpayment acceptance you're going
to get by all these long-tailpayment methods, it's generally
not worth it, and so, bigbeliever on my side of trying to
(21:59):
optimize for the masses,certainly look at some more
innovative payment capabilities.
Not saying don't innovate, butremember, at the end of the day,
payments should be easy.
I give the example all the timeof Uber.
It's as simple as closing thedoor and your payments made.
That's the experience that Iwould encourage vertical SaaS
(22:20):
companies to try to achieve.
Speaker 1 (22:22):
Yeah, totally with you.
Simple is better is a mantra Ialways use in those scenarios as
well.
Great Well, let's wrap this upwith one final question.
And love to hear your thoughts.
If you had to distill kind ofall of your experience and
learnings was kind of a bigquestion into one piece of
payments advice for SaaS leaders, like how would you distill
that?
Speaker 2 (22:43):
That's hard.
There's a lot to pack into one,but what I would focus on is
really the value.
Payments oftentimes is lookedat as a revenue stream.
It can help with clientretention, makes it stickier a
lot of things like that.
But look at it from the pointof view of the merchant and
(23:03):
potentially even the payer, theconsumer or business that's
making the payment.
Merchant and potentially eventhe payer the consumer or
business that's making thepayment.
What's the real value for them?
Are you making their liveseasier?
Are you making it have lessfriction?
Are you improving thereconciliation and posting
capabilities?
Are you making it a fasterexperience?
If, at the end of the day, youare able to achieve a lot of
value for both the payer and themerchant, everything else tends
(23:27):
to work itself out.
You can always figure out therisk, you can always figure out
portability, you can alwaysfigure out great vendors, but if
you can't get that valueequation right for the merchant
and for the payer, it kind ofdoesn't matter, because you're
not going to get the adoption.
Speaker 1 (23:42):
Yeah, could not agree more.
Anyways, thank you so much forplaying along with us today and
sitting in the hot seat.
Appreciate all of that you'veoffered here today, and it's
just been a great time talkingwith you.
So thank you.
Speaker 2 (23:54):
Absolutely.
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