This is post two of a multi-post series with Ershad Jamil, former Chief Growth Officer at ServiceTitan. Ershad shares his experience in launching embedded payments for ServiceTitan to guide similar Vertical SaaS companies.
No matter what add-on offering you’re considering launching for your Vertical SaaS company, it’s always worth evaluating whether to buy, build, or partner. Given my experience launching payments for ServiceTitan and the rapid growth of the embedded payments model, I strongly suggest that you evaluate working with a partner. Here’s my guidance on how to select the best embedded payments partner for your new offering.
Settling the Buy vs. Build vs. Partner debate
In 2015 at ServiceTitan, we started with a hypothesis – offering embedded payments would improve our customers’ experience and create significant revenue growth for the company. As you can imagine with this hypothesis – our business development and product teams were driving the exploration. We diligently evaluated the landscape – including a review of 30+ potential partners. We spoke with industry experts and their peers.
Why invest in such thorough research?
The answer is simple – and likely similar to your own. We were not payments experts. From engineering to business operations, we did not have the DNA of a financial technology company (FinTech). Many developers and operators at large FinTech’s know financial operations, compliance issues and risks. They have experience with accounting, banking, payroll, issuing, and more. On the other hand, your Vertical SaaS team has experience with integrations or vertical specific details (home contractors for ServiceTitan, restaurants for Toast, or fitness and wellness for MindBody).
Understanding the differences in team expertise helped me quickly rule out the idea of building a payments solution in-house, from scratch. It would be both timely and costly to hire a team with this financial expertise and build a squad. Not to mention, it would be rather daunting to take on underwriting, chargebacks, and other risks commonly associated with payments.
The benefit of investing in researching the payments landscape is that you’ll also learn there’s not an existing payments solution custom built for your vertical and use case.
At ServiceTitan, it took us about 4 months to complete our discovery and evaluation work on the best approach to add an embedded payments offering. We signed with a partner to build embedded payments. Here’s how we picked the right partner – and my tips to help you pick the best partner from the beginning.
Start off on the right foot – how to choose a embedded payments partner
Ten years ago, there were three main categories of embedded payments partners to consider:
- Referral / Agent – Partner with a third-party payment provider to handle payments moving through your platform. In return, the SaaS organization earns a commission or share of transaction fees without managing the payment infrastructure itself.
- Independent Selling Organization (ISO) – Serves as a middleman, referring SaaS customers to a payment provider and earning a commission for each sign-up, acting as a sales channel without handling transactions directly.
- Payment Facilitator (PayFac) – Full control and revenue potential, but requires significant upfront investment, comes with administrative burden, and ongoing operational costs.
Without fail, I’ve seen many Vertical SaaS companies start with one partnership approach, and change it as their business grows. The end result can be your customers on 2 or 3 varying platforms and many hidden costs in maintaining and switching.
While it may seem like Referral partnerships are a great way to start until you can take on the fees and annual costs associated with a PayFac, what’s most important is to be very intentional about the embedded payments offering you want to build. From day one of your partnership evaluation, think through what you will charge customers, what rates you want to negotiate, etc. Embedded payments is a new business line. It’s worth thinking through it as its own P&L – including how it will continue to be built and supported over time.
I’m excited about how the partnership models have evolved over the last decade. There is a fourth and usually better option for Vertical SaaS companies – it’s a hybrid agent/ISO partnership. With this approach, you partner with a FinTech company that specifically caters to vertical software. These companies allow you to sell embedded payments directly, onboard customers with help (digital onboarding tools) and continue to innovate and build new features to expand the embedded payments solution.
This approach lets you set flexible pricing models for your customers and maximize your revenue. In addition, this model gives you more influence over the customer experience.
Regardless of the approach you select, it’s important to always review the terms and conditions with your existing partners. In the world of payments, there are cases in which you might not be able to migrate your customers off of your partner platform, when you choose to evolve.
What are the key criteria for evaluating an embedded payments/FinTech partner?
There are options out there for these types of partners and the following should be considered when making your selection:
Technology
- Does the partner continue to innovate and build new solutions for credit card / ACH / check acceptance and other financial technology capabilities like payables?
- What visibility is provided into uptime?
- Does the partner have powerful RESTful APIs, embedded components, and an overall technology suite to build and enhance the integration?
Support
- How accessible and transparent is the support team (well written documentation, external slack channel, live chat, ticketing system)?
- What kind of implementation services are offered?
- Does the partner offer an ongoing consultative approach from integration to go-to market, to ongoing support and additional fintech program?
Operations
- How does your FinTech partner help you manage required documentation during the onboarding phase on behalf of your end customers?
- Does the partner take on the risk and underwriting for the merchant to allow the VSaaS to focus on what they do best?
- Does the partner offer good buy rates so the VSaaS solution can offer a pricing to their customers where they still make good basis point take rates?
Experience & Certifications
- What is the background of the founders and C-Suite?
- Are there strong VSaaS references to showcase that they know what they are doing?
- Would the partner be willing to include a customer reference who had an issue and reached resolution?
- Is your primary point of contact willing to introduce more team members to deepen the relationship and navigate implementation?
When I was at ServiceTitan, we had a spreadsheet with our criteria and we scored and ranked partners against that criteria. But, at the end of the day, it came down to the relationship. I asked, which partner went the extra mile? Invested in understanding us? Showed up consistently and collectively?
I knew we selected the right partner when we had created a mutual vision for the future. We sold the potential of ServiceTitan’s growth to the partner – and negotiated buy rates for where we were going (knowing that volume is key). When the growth works both ways, then it’s the right partner.
Don’t just go with the default – the partner from your previous company, a known big name, a recommendation from a peer at a different kind of company than your VSaaS. It’s a very nuanced and important decision to select a payments partner. Invest the time and stakeholders to make the selection with the biggest potential growth impact.
What I know now, that I wish I knew then…
I thought selecting the payments partner model and payment partner was the toughest challenge. I wish I had known how hard it would be to convince early customers that we were the right solution for them! We should have spent more time talking to customers and asking for a soft agreement to use the offering – before even launching our alpha embedded payments offering. We spent a lot of time going 1×1 (without the right materials in place). It definitely took longer to get to that beta and full product offering with this approach.
My final recommendation for you is to go deep with your customers and their merchants. Get soft commitments and have references ready for when you launch your embedded payments!