Embedded Payments: The Strategic Advantage for ISV Growth

Embedded vs. integrated payments

While the terms “embedded payments” and “integrated payments” are sometimes used interchangeably, they aren’t the same.

The term “integrated payments” is a broad definition to describe any payment functionality that is connected to a business’s core software systems. The payment system exchanges data with these systems to improve accuracy, simplify reconciliation and streamline workflows.

But the payment interface might involve a separate window, clearly distinct module or redirection to a third-party gateway or processor. The payer is aware of entering a payment zone and may feel uncertain about the security measures.

Limitations of integrated payments

Integrated payments don’t meet customer expectations for fast, secure payments. Redirecting users—especially less tech-savvy ones—to an unfamiliar checkout page with different branding can feel disjointed and raise security concerns. Payment integrations don’t meet software vendors’ and merchants’ needs, either.

Integrated payments have several drawbacks:

• Transaction fees go to the payment processor—not the ISV : ISVs that partner with a third-party gateway only earn small, fixed referral fees for passing merchants to the processor. The processor keeps most of the high-margin revenue from the payment transaction fees.

• They introduce operational friction : With integrated payments, merchants have two separate relationships—one with the ISV and another with the processor. This means more pain points. Because merchants must complete separate, external application and underwriting processes with the payment processor, onboarding takes longer. Merchants who experience chargebacks or delayed funding contact the ISV, who redirects them to the processor. This fragmented support damages merchant experience and may lead to churn.

• They offer limited control over the payment experience : The ISV can't fully control or customize the payment experience. This means they’re unable to design tailored payment plans, integrate unique billing logic or build real-time, consolidated reporting that fuses payment data with business data.

• They provide less product stickiness : Since the payment processing relationship is external, merchants can more easily switch to another platform and simply migrate their existing processing relationship.

Why embed financial services?

By offering purchase, payment and billing software in one place, ISVs eliminate the hassle of managing multiple vendors and resolving disputes between them. Embedded finance differentiates ISVs from their competitors and overcomes the limitations of integrated payments.

It generates a new revenue stream : Embedding payment processing allows ISVs to tap into transaction fees every time a payment is processed within their software solution. This recurring revenue stream can significantly contribute to the ISV’s overall earnings.

It reduces friction for merchants and end users/payers, increasing retention : Embedded payments deliver the smooth, secure experience today’s consumers expect. Fast, easy payments boost conversion rates, on-time payments and payer satisfaction and retention. Happy merchants who experience the benefits of embedded payments are likely to continue using the ISV’s software platform.

It increases stickiness : The deeper the payment integration, the harder it is for a merchant to switch. When payments are embedded, moving to a new software vendor would mean migrating not just historical business data, but also payment processing accounts, terminal setups and reconciliation workflows.

It gives ISVs control over the merchant experience :

• Onboarding : ISVs can facilitate merchant onboarding by pre-filling information and automating the application process.

• Customized, industry-specific payment functionality : Software vendors can design custom payment features such as recurring billing, split payments and automated late fees that are tailored to their industry.

• Cleaner reporting : Embedded payments dramatically simplify reporting by unifying financial and operational data into a single system, eliminating the need for manual reconciliation and data matching across disparate platforms.

• Simpler support : The ISV handles all payment issues, including chargebacks and funding delays, leading to higher merchant satisfaction.

Build a system from scratch or partner with a service provider?

ISVs can assemble their own payment stack—gateway, acquirer relationships, compliance program, risk models, settlement ops—or partner with a payment service provider that provides the infrastructure and handles risk and compliance.

You must weigh the unique challenges and potential benefits of both options to determine the right path for your specific business needs.

Answer these questions

Your answers to the following questions will help you determine if building or partnering makes the most sense for your business.

Readiness :

• What is the size and maturity of my business?

• Have I explored all my options related to optimizing payments and reducing processing costs?

Costs :

• Am I prepared to cover the additional costs required to build and maintain my own payment processing platform?

• What talent would I need to hire to have the necessary expertise in-house?

Timeline :

• How long will it take to become a payments processor?

• Can I afford to wait that long?

Risks :

• What is my risk tolerance for financial losses and reputational risks?

• Am I comfortable assuming liability as a payment processor?

6 core capabilities your embedded payments partner should have

The right embedded payments partner simplifies the adoption of payment functionality. Here’s what to look for:

• Industry flexibility : Choose a payments solution that can accommodate the specific requirements of different industries, ranging from property management to government and healthcare.

• Rapid onboarding : Look for a partner who gets you up and running in days, not weeks.

• Modularity : You should be able to choose which modules to include in your payment system. Your partner should allow you to embed solutions like recurring payments (autopay), text-to-pay, account verification and automatic updates.

• Built-in payment card industry (PCI) compliance : Select a payments partner that provides Level 1 PCI-compliant infrastructure, including secure firewalls and network configurations, tokenization and encryption of cardholder data.

• Fraud prevention tools : Fight fraud with automated account authentication that validates payment information before processing the payment.

• Responsive customer support : Merchants must have swift, effective help when they encounter payment platform issues. Choose a payments partner who provides quality, consistent and knowledgeable support whenever merchants need it.

Partner with CSG Forte to embed payments easily and quickly

If you’re ready to add embedded payments and don’t want to build a payment stack, CSG Forte’s Payment Facilitation-as-a-Service (PFaaS) partnership option makes it simple and approachable.

You can white label a CSG Forte solution for seamless integration, fast onboarding, reliable payment processing and lowered risk.

Visit CSG Forte or talk to an expert to learn how we can help you boost revenue by embedding payments.