By Brandon Banks
In recent years, the concept of an integrated system for payments has become more popular as companies strive to better engage customers in meaningful ways and increase revenue. An integrated payment system provides numerous possibilities to increase automation, prevent data breaches, minimize data entry errors, and ensure maximum operational efficiency.
However, it can be difficult to understand exactly what this solution is and why so many software companies are adopting such models. In this blog post we’ll break down everything you need to know about integrated payments so that you can make an informed decision on whether they are right for your business.
Integrated Payments Definition
The term “integrated payments” refers to the seamless combination of payment processing with a company’s software platform or application. Traditionally, processing payments has been a major pain point for merchants, because it requires multiple compatible systems (e.g. point-of-sale system, accounting software, business management software, etc.).
Modern vertical software companies thrive on being user-centric. Seeing the frustration payment processing can cause, many companies have started integrating or embedding payment solutions into their software. A prime example of a software platform that uses an integrated payments system is Shopify.
Shopify provides merchants with an integrated payment solution (known as Shopify Payments) which allows e-commerce store owners to accept and manage online payments directly within the Shopify platform. This simplifies the payment process for both consumers and merchants, reduces the need for a third-party payment gateway, and enhances the overall user experience.
Benefits of Integrated Payments
An integrated payment processing system provides a win-win situation for both the software companies and their customers (i.e. merchants). Merchants are able to provide consumers with a quality customer experience, and software companies can enjoy the financial and strategic benefits of adding payment processing to their platform.
Benefits for Merchants
For merchants, providing a seamless payment experience is crucial in building customer trust and encouraging repeat purchases. In the digital age, consumers expect a quick, easy, and secure transaction process. If the payment process is complicated or time-consuming, it can lead to cart abandonment and lost sales.
Integrated payments create a comprehensive business solution that benefits merchants in the following ways.
Streamlined Operations
An integrated payment solution eliminates the need for manually entering payment data between business systems. This reduces human errors and frees up staff time. It also consolidates financial data in one place, simplifying reporting and making it easier for businesses to provide an omnichannel shopping experience for consumers.
Real-Time Updates
With integrated payment processing, transaction data is updated automatically and posted in real-time. This helps merchants maintain accurate financial records and gives a clear, up-to-date picture of their financial health.
Centralized Data
Integrated payments centralize payment data into a single system, which allows for better tracking of consumer spending habits and patterns. This can provide valuable insights for marketing and sales teams, helping them make data-driven decisions.
Simplified Reconciliation
An integrated solution simplifies the reconciliation process. Since transaction data is automatically linked between corresponding systems (e.g. POS system, the cash flow and accounting system, etc.), it’s easier to match payment and inventory records.
Customer Retention
Integrated payments boost customer loyalty by providing a seamless user experience. Quality payment processes ensure smooth, fast, and secure checkout experience, creating a positive user experience that encourages customers to return.
Benefits for Software Companies
Integrated payment solutions offer a wide variety of benefits for software companies. By providing a more comprehensive business solution, companies can attract new users while strengthening customer loyalty from existing customers. Other benefits include the following.
Increased Revenue
Integrated payment systems often come with a transaction-based fee model. This means that for every transaction processed via their platform, the software company earns a fee. As the volume of credit card transactions increases, so does the revenue. Processing payments provides a reliable stream of recurring income and can contribute significantly to the cash flow and bottom-line.
Competitive Edge
Companies that offer an integrated system for payment processing have a competitive advantage over those that don’t. By offering a consolidated, user-friendly payment processing system, software companies can enhance their value proposition and attract more customers.
Customer Retention
A study by Bain & Company shows that increasing customer retention rates by just 5% can increase profits by more than 25%. By providing a more comprehensive business solution, customers are more likely to continue using your software. This can help increase customer loyalty, create a positive user experience, and build trust with customers, leading to more sales and consistent revenue streams.
Increased Business Valuation
Companies that provide integrated payment solutions have the potential to be highly valuable to investors. This is because they offer increased revenue and strategic advantages. With the ever-growing demand for digital transactions, the market for integrated payment systems is poised for significant growth, making it an attractive investment opportunity for forward-thinking investors.
Implementing Integrated Payments
The implementation of an integrated payment system should be carried out strategically to ensure the maximum benefit. We recommend the following steps.
Establish Your Goals
The biggest mistake software executives make when implementing integrated payment systems is focusing too much on technology and not enough on the strategic goals. They get caught up in the moment and forget to take a step back and think strategically about their company’s future.
Before you start talking to payment processors, it’s important to establish clear objectives.
- What is the long-term vision and goal for your company?
- What is the next stage of growth for your company? How quickly will your company reach the next growth stage?
- What earning potential are you hoping for?
- Can you afford to take on additional operating expenses?
- Are you hoping to be acquired in the near future?
By taking the time to answer these questions, you’ll get a better understanding of what you’re trying to accomplish and how integrated payments can help. This will inform your decision-making process as you evaluate potential partners.
Understand Your Customers
An in-depth understanding of your customers is a crucial, but often overlooked step in implementing integrated payment processing.
Different businesses have different needs. An ecommerce store might benefit from one-click checkouts and saved payment details, while service-based merchants might need subscription or recurring payments management.
You should understand the security requirements in the industries you serve. This includes PCI compliance, 3D Secure, Know Your Customer (KYC), and anti-money laundering (AML) regulations.
Once you have an in-depth understanding of your customers, you will be able to select the right payment provider to partner with.
Choose the Right Integrated Payment Provider
The integrated payment processor you choose to work with can make a significant impact on the effectiveness of your payment solution. You don’t just want to work with a payment provider, you want to find a partner. When researching integrated payments providers, look for the follow attributes:
Support for Multiple Payment Methods
Different industries will have a different preferred payment method (i.e. credit cards, debit cards, digital wallets, ACH payments, etc.). Your payment processor should support a wide range of payment methods to cater to all your customers’ preferences.
Global Reach
If you serve customers across the globe, you need a payment processor that supports multiple currencies and local payment methods. This feature will help you cater to a global audience and expand your business’s reach.
Scalability
Your payment processor should be able to scale with your company. As your business grows, your payment needs will change and increase. Your payment processor should be able to handle this growth without disruptions or significant increases in cost.
Excellent Customer Support
Issues with payment processing can occur at any time and can lead to lost sales and dissatisfied customers. Therefore, it’s essential to choose a payment processor that offers multiple customer support channels, including live chat, email, and phone, to make it easy for your customers to reach out for help.
Seamless Onboarding
A well-implemented onboarding processing should feel like a natural part of your software, not an add-on. It’s essential to ensure that the merchant onboarding process doesn’t disrupt the customer experience.
Ensure Security
In an age of increasing cyber threats, ensuring the security of financial data is crucial. Payment Card Industry Data Security Standard (PCI DSS) compliance is a must for any business that handles credit card payments to protect both merchant and consumer data.
Alternative Options
Instead of finding a payments partner, you could register as a payments company. This will allow you to process payments directly and keep full control of the payment information.
However, it’s important to note that there are many regulations and expenses that can dramatically impact your business operations. We recommend reading the following articles to determine if that’s a path you want to take:
- Building the Optimal Integrated Payment Strategy: Payment Facilitation vs. ISO Registration
- The Pros and Cons of Registering as a Payment Facilitator for Software Companies
- A Software Executive’s Guide to ISO Types and Registration
- The Economics of Payment Facilitator Registration
Develop a Go-to-Market Strategy
Successfully integrating payments into your software involves more than just the technical integration. It requires a well-planned go-to-market strategy to educate your customers about the new feature and highlight its benefits. Use all your communication channels — including emails, social media, and your website — to inform your customers about the benefits of your new integrated payment system.
Incentives are a great way to encourage your customers to try your new payment system. You can offer discounts or exclusive features for merchants who use your new payment process. This strategy not only encourages the use of your new system but also gives your customers a positive experience that can increase their loyalty.
It’s important to monitor its performance and adjust your strategy accordingly. Use your analytics tools to track key metrics like conversion rates, transaction volume, and customer feedback. These insights can help you identify any issues and make necessary adjustments to optimize your payment processes.
Keep Evolving
The payments industry is constantly evolving. Implementing payments into your software is not a one-time task but an ongoing process. You will need to continually monitor and improve your payment process to include new payment methods, improved security measures, and enhanced customer experience tactics.
Use your analytics data and customer feedback to constantly improve your payment services. Regular improvements based on your customers’ needs and preferences will ensure your payment integration remains user-friendly and efficient. This will help you stay ahead of the competition and keep your customers engaged.
Integrated payments processing can be a powerful tool for vertical software companies, driving revenue growth, increasing profitability, and enhancing customer value. However, to realize these benefits, payment systems must be implemented strategically.
It’s crucial to establish your goals, understand the markets you serve, choose the right payment processor, develop a robust go-to-market strategy, and continuously evolve. Implementing integrated payments is not a one-time task but an ongoing process that requires regular updates, and constant improvement.
If you’re ready to get started, or even just need a few more questions answered, contact Nexio for an obligation-free consultation.