Convenience is the MVP these days. That’s why embedded payments are everywhere. From ride-sharing apps to streaming platforms, embedded payment systems allow customers to complete paying for services without ever having to leave the app or website. 

According to a report by Juniper Research, the revenue generated from embedded payments globally was $32 billion in 2023. This number is set to reach $59 billion by 2027. 

As such, the popularity of embedded payments can be partly attributed to online businesses looking to make checkouts easier and more seamless. That’s how PayPal made a huge impact — way back in 1998 — by enabling customers to complete payments on websites using only their email IDs and passwords.

Today, integrated payments are unavoidable. However, they do have certain costs attached to them. In this article, we aim to provide a thorough understanding of embedded payments and their true costs.

What Are Embedded Payments?

In simple terms, embedded payments refer to the integration of payment processing capabilities directly into software applications, devices, or platforms. This integration allows users to conduct transactions seamlessly within the context of their activities. 

When it comes to the software-as-a-service (SaaS) industry, companies have long relied on third-party payment processors to take care of all payment needs of their customers. This can be advantageous for many companies as third-party payment processors can manage software integration and compliance requirements that must be fulfilled when accepting payments. 

However, fees charged by payment processors can be exorbitant and eat away at profits — especially when sales and payment volumes are large. Based on a company’s resources, expertise, and needs, many SaaS providers prefer to become payment facilitators (PayFacs) and develop payment functionalities into their core software instead of patching in payment software from other payment processors.

Users of these software solutions can then manage their business, conduct sales, and accept customer payments in one comprehensive platform instead of having to redirect customers to third-party software. 

Benefits of Embedded Payments for Software Providers and Users

As mentioned earlier, embedded payments come with a host of benefits. Let’s take a look at some of them.

• Frictionless user experience - Embedded payments enable businesses to provide their customers with a smooth payment experience. As there are no integrations with third-party software, embedded payments involve fewer glitches, navigation issues, or payment-related issues. 

• Improved conversion rates - A better checkout process benefits businesses by increasing conversion rates. People are more likely to complete the payment process if it is easy and seamless. 

• Better scalability - Embedding payments into their software gives SaaS companies complete control over their products and payment stacks. Scaling the software to match the company’s expanding needs is easier and with fewer problems. 

• Enhanced security - Security is of the utmost importance with respect to payment transactions. A lot of sensitive data is required to complete payments and with embedded payments, there is a reduced possibility that such information will be leaked. SaaS companies can also easily implement tokenization and advanced encryption technologies into their embedded systems to further enhance security. 

Direct Costs of Embedded Payments

Embedding payments into SaaS applications clearly has numerous benefits not only for SaaS companies but also for their customers. However, there are quite a few direct costs that can add up quickly. Before you decide to offer built-in payment facilities to your customers, understand these costs so you can allocate the right resources and plan correctly.

Transaction fees

Businesses incur transaction fees when they embed payment APIs into their core software. Transaction fees make up most of the direct costs of having an embedded payment system. A portion of each transaction has to be paid out to financial institutions and payment processors. Of course, several factors decide the transaction fee — for example, transaction volume, payment mode, and the fee structure you’ve agreed upon with your payment processor.

For credit card or debit card transactions, the total transaction fee usually includes a fixed fee per transaction and a percentage of each transaction. Other digital payments such as digital wallets will have a completely different fee structure that you must agree upon with your payment processor. ACH or Automated Clearing House transactions have lower transaction fees. Instead of a percentage amount, ACH transfers usually have a low flat rate for each transaction.

Implementation costs

This refers to the initial investment — which can be quite significant — required when embedding payments into an existing software or payments stack. The complexity of the embedded payments component, the existing core software, and the level of customization all decide how hefty the initial implementation costs will be.

A SaaS company can develop the embedded payments system on its own or partner with a provider whose system it can integrate into its existing software. In both cases, the company will have to pay for software development to create a new payment system or to integrate an API with its software. 

Next, there will be additional costs for ensuring the SaaS product is compliant with industry and security regulations such as PCI DSS. The entire application has to be rigorously tested before it can go live, which can add to the implementation cost. Integration testing, unit testing, and user acceptance testing are essential for any embedded payment system.

Finally, the cost of training personnel on how to use the payment functionality and creating user documentation adds to the overall implementation costs.

Maintenance and operational expenses

There will be ongoing costs to ensure the payment system is functional, updated, secure, and easy to use. System updates are required to make sure the software is up to speed with ever-evolving payment technologies. Also, these updates will require dedicated testing and documentation.

As a SaaS provider offering embedded payments to your customers, you will need a customer support team in place. Staffing, developing, and training the team adds to your maintenance costs. The cost of continuous monitoring for security threats, frauds, etc. also adds to operational costs.

Of course, you’ll also have to pay to host the software and maintain servers. Keeping up-to-date with regulations would also add to your operational expenses.

Indirect Costs of Embedded Payments

If you think the direct costs of installing embedding payments are all you have to worry about, think again. There are numerous indirect costs that you need to be aware of.

Expenses from integration challenges

Integrating payment software can be daunting. It requires lots of changes, revisions, testing, etc. Moreover, in the initial stage, there could be a lot of integration issues that need to be resolved. All this can take up a lot of time, money, and effort.

Security and compliance costs

Non-compliance with security regulations such as PCI DSS can lead to hefty fines. To avoid them, you must conduct regular audits, employee training, and vulnerability assessments. You might also need to hire a compliance or security expert to advise your company and make sure all systems are compliant. 

Customer service costs

Rolling out an embedded payment system will increase the demand for customer support. Moreover, in the beginning, customers of your SaaS clients could face payment issues, software glitches, and delays for which you will have to provide customer support. Having a good customer support team can not only help you mitigate issues faster but also increase customer satisfaction and retention rates.

Strategies to Manage and Reduce Costs

To get the most out of embedded payments, you need to manage or reduce the cost of implementing and maintaining them. Let’s look at a few ways you can do so.

• Negotiating better rates with providers - The most obvious and effective way to reduce your costs is to negotiate with your payment providers. Make sure to read their terms thoroughly and leverage your business’ sales and transaction volumes, customer base, etc. to get better deals.

• Leveraging technology to streamline processes - This may cost a bit more initially, but in the long run, it can save you a lot of money and headaches. Using advanced technology to monitor performance and security and adding automation can be a wise investment. Adding such technology to your tech stack can not only reduce manual intervention but also prevent outages and system downtime.

• Regularly reviewing and auditing payment systems - Performance, security, and compliance issues can lead to huge expenses. So you need to conduct regular tests and audits of your software setup. This will help you catch any issues early on and fix them before they escalate. 

• Using a provider like Preczn - Partnering with a specialized provider like Preczn can help manage and reduce embedded payment costs. We offer comprehensive solutions that integrate payment processing, security, and compliance management at competitive rates.

Final Words

Embedded payment systems are revolutionizing digital payments by integrating seamless, secure payment capabilities into software applications. While the benefits of embedding payments into an existing SaaS application are significant, managing costs — both direct and indirect — is crucial. 

To help reduce the cost of building and maintaining embedded payments, you must negotiate with your payment provider for better rates, leverage advanced technology to monitor and automate processes, regularly review your tech stack, and find better providers like Preczn. 

By adopting these approaches, your SaaS business can optimize costs, enhance user experiences, and maintain profitability. Staying informed is also key to leveraging the full potential of embedded systems and staying competitive in the constantly evolving payments economy. Contact us to learn more.