Examining the Payments Maturity Curve: How to Choose An Integrated Payments Model

From referrals to an integrated API to full payment facilitation, it can feel like a steep slope to incorporate payments in any way with a SaaS platform. In reality, many vertical SaaS platforms take a gradual path to mature their payments sophistication and knowledge. We call it the Payments Maturity Curve, which consists of five stages: referral partnerships, ISOs, payment APIs, managed PayFac, and full PayFac. Choosing the right model, or deciding when the right time is to step into the next level of payments can fuel your platform’s growth.

Stax Green Icon

Join the Payments-Led Growth Movement

Sign up to keep up-to-date with the latest trends in payments, vertical SaaS, and technology from industry experts.

Quick Recap: What is a Payment Integration?

Payments integration involves the ability of software companies to integrate and productize payment processing within their platforms. This integration offers a seamless payments experience for businesses and brings added value to their software users. There are different options available for integrating payments, both from a technological and vendor selection standpoint.

Integrated Payment Benefits

Integrated payments contribute to the growth and success of all software companies. The valuable benefits far outweigh the risk and effort they may require, especially when you choose a model that works best for your stage of payments maturity.

  1. Increase customer lifetime value with a stickier product feature. By adding payments to your ecosystem, you are providing another essential tool for businesses, enhancing customer loyalty and increasing annual contract value.
  2. Improve user experience and engagement. Your software can and should be the one-stop for your customers’ needs. Without payments as a product feature, users struggle with disparate systems, resulting in higher user churn.
  3. Grow with a sustainable source of revenue. Monetizing transactions taken through your payments feature can boost the bottom line and increase the overall enterprise value of your company.

Learn More

Integrated Payments Partner Vs. Becoming a PayFac

Why would software companies choose to work with an integrated payments partner rather than developing their own payment system? It comes down to risk, capital, and time.

Developing an in-house payment system entails substantial risks, requires significant upfront and ongoing capital, and demands a longer time to market. In contrast, integrating payments through a third-party vendor provides a quicker time to market, lower risk, and a significant return on investment.

Identifying Each Stage of Payments MaturityPayments Maturity Curve

The Payments Maturity Curve consists of five stages: Referrals, ISO Relationship, Payment APIs, Managed PayFac, and Stax as a full PayFac. There are pros and cons of each phase, and it is typical to approach payments in a “crawl, walk, run” scenario.

Referral Partnerships

The first stage, Referral Partnerships, allows software companies to refer their customers to a third-party payments vendor. This option is low risk and low maintenance for the software company. However, it may lead to a lack of control and insight into the customer journey, as the payments company takes over customer support. Referral partnerships also offer limited technology options and revenue potential for the software company.

ISO Relationships

The next stage, ISO Relationship, is similar to referral partnerships but often involves working with independent sales organizations (ISOs). Software companies rely on ISOs as resellers or referral agents for payment services. However, ISOs may have a limited technology stack, and software companies may face challenges in integrating with third-party middleware gateways.

Payment APIs

Moving up the maturity curve, the third stage is Payment APIs. This option provides more control and customization for software companies. With payment APIs, software companies can integrate payment processing directly into their platforms, offering a seamless and tailored experience for their users. However, it requires more development effort and resources from the software company.

Payment API companies are also strictly that, putting technology first. Your dev team may appreciate the thorough documentation and straightforward integration. However, without a strategy to support the launch and post-launch of your payments feature, the ROI could fall flat.

Managed PayFacs

The fourth stage, Managed PayFac (also known as PayFac-in-a-Box, PayFac as a Service, etc.), allows software companies to own their payments without becoming a payment facilitator. This option offers greater control, improved revenue opportunities, and a seamless user experience. However, it involves more regulatory requirements, additional responsibilities, and increased complexity compared to previous stages.

Full PayFacs

The final step in the Payments Maturity Curve is the full PayFac. Some software organizations have taken every step along the curve, becoming their own payment facilitator and taking all of the operations in-house. The benefit of this is being able to cut out all of the middlemen and third-party vendors that also monetize on transactions. This allows you to take in more of the potential revenue. However, there is a rather large investment in dollars and time. To quickly summarize all it takes to become a payment facilitator, you need to:

  • Get a bank sponsorship
  • Secure a settlement engine
  • Build automated enrollment systems
  • Implement payment processing technology
  • Oversee risk management
  • Build comprehensive reporting and collect insights

Payments-Led Growth With Stax

With all of the burden and responsibility that comes with being a PayFac, some organizations that have made their way up the Payments Maturity Curve even decide to take a step back. At Stax, we’ve formed partnerships with software companies that are at a fork-in-the-road decision to move back to being a managed PayFac, so they can focus on their software again without the strain of resources on payments.

Stax is a comprehensive payments solution that provides software companies with a complete payments infrastructure. With the Payments-Led Growth framework, Stax offers advanced features, customization options, and generous revenue-sharing partnerships, allowing software companies to fully leverage payments as a strategic growth driver.

We believe that in order for vertical SaaS companies to accelerate growth, you need the fundamental and intangible pillars of Payments Expertise, Flexible Technology, and Adoption Expertise.

Learn more about Stax Connect and find out how you can quickly get started on monetizing payments today. We will be happy to answer any questions you have and help you leverage the best all-in-one software payment processing solution for your needs.