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Joshua: I’m Joshua Silver, founder and CEO of Rainforest. Rainforest is a payments-as-a-service company. We help software companies embed payments into their platform. We help them drive revenue, margin and decrease customer churn. I’m here today with Brian Abernethy who is the founder of Utopaya, a payments consulting firm. I’ve known Brian for many years. I know this is going to be a really great discussion. Brian, thanks for being on the show.
Brian: Joshua, great to connect with you. I appreciate having me on.
Joshua: Well, first to get us kicked off, I’d love to learn a little bit more about your background for our viewers. How did you first get into payments?
Brian: A great, great question. I think one that we have a common answer to is by accident, right? I worked in consumer goods actually straight out of college and moved down here to Charlotte and got a little bit bored of a slow moving business and went back to business school while I was still working full time in hopes of pivoting. And I was very fortunate that there were some folks that had gone through the same program that were working at the time at TSYS were actively recruiting for people who didn’t know anything about payments, hopefully with a teachable mind. And so I was very fortunate to get an opportunity to join TSYS back in 2017. And that’s really where I made my entry into the space.
Joshua: And when you first joined TSYS, what were you more on the sales side, the product side? Tell our viewers a little bit more about where you got started.
Brian: Yeah, so I happened to land in the part of the organization that they would call ISV business development. At the time I didn’t really know what it meant, but obviously I do now. So essentially I was in the SaaS distribution channel of TSYS. And so I happened to have a focus on the healthcare market, which is where obviously where you and I met many years ago.
But did that for several years before taking over the entire team focused on a number of different verticals before we were eventually acquired by Global.
Joshua: Certainly lots of changes in the payments ecosystem over the last number of years. What are some of the biggest trends that you’re seeing?
Brian: Yeah, I would say, obviously I think my point of view is always through our clients, which are vertical software companies, the space that you’re very familiar with. I think that the biggest change that I see is just a growing level of comfort, both from operators, entrepreneurs, and even investors with the thesis of payments being a clear add-on to SaaS. Now, if you looked maybe five, 10 years ago, there were a handful of players that were doing it very well, but as those wins have become more public, and I think there’s more success stories to point to, the entire SaaS ecosystem is getting more comfortable with embedding payments, which is understandable that there was some hesitation. You think about the complexity, the regulation that’s required in order to do this in a compliant manner. But I think the industry has proven that it is very possible and can be an incredible enterprise value lever. And so I would say that there’s a lot more comfort, which translates into SaaS companies saying, well, I’ve gotten maybe a bite of the Apple on payments, and I know that there’s more for me to do here, whether that is from a revenue perspective, a customer experience perspective. And so the overall trend that we see is moving from kind of a hands-off model with respect to payments to bringing it in-house and making it a core piece of your platform.
Joshua: Yeah, for sure. I would agree with you. I mean, if we look at the last number of IPOs, whether it’s ServiceTitan, my previous company I started was called Patientco that went public under the name Waystar. All of these vertical SaaS companies have such a large percentage of their revenue that’s coming from payments. So I would agree with you wholeheartedly that there are more good data reference points out there for entrepreneurs and investors to look at and realize, hey, this is meaningful. We’re going to get a good return on it. So definitely agree with you there.
Tell us a little bit about what inspired you to start Utopaya. You’ve been at multiple payment companies, TSYS and then Global Payments, and then some others in between. Pretty big step to go out on your own and start a consulting firm. Tell us a little bit about your thought process and how it’s going.
Brian: Sure. Yeah, so I think when I look back at the five or so years that I spent working for some relatively large processors and TSYS and Global and Clearent, I had the privilege to oversee hundreds of these different partnerships be formed. And as you can imagine, there were varying degrees of success in terms of outcome. And unfortunately, the majority of the time, the performance of the integrated program that we launched with these SaaS platforms never really reached the heights that both parties would have expected. I would say maybe 10, 15% of the time, would we get anywhere close to the forecast that we built that got everyone excited in the first place? And so trying to diagnose that a little bit as I was trying to improve my own selling led me to the realization that there were a couple of different categories that this fell into. Is the technology aligned? Does the product actually fit for the market that it’s in? Is the value really there? So is there an opportunity to truly command premium price with an embedded payments experience? Do they have the right people and the right commitment to owning payments truly and driving it?
But it was really hard to diagnose that from the outside. What I’m trying to sell to somebody, trying to help them navigate that was a little awkward. And so I had always felt that there was an opportunity for someone to sit alongside these SaaS vendors to help them navigate what we both know is a very complex and confusing industry, especially with such high stakes, with what they can create if they do it right. And so I was fortunate that a little over three years ago, I was approached by a former partner of mine actually while I was at TSYS, who had taken a very large round of funding and the main thesis of this round of funding was you’ve got to figure out payments, right? This particular business owned about 60 vertical SaaS companies at the time. A good chunk of those had payments exposure. But as you’ve seen, there were disparate referral arrangements with every different contract you can imagine by subsidiary.
And so what I was able to do in that situation was help them kind of run a diagnostic. What is the opportunity? Let’s quantify this, understand what the options are, and ultimately they chose to go and build their own in-house payment solution, which is now fully stood up today. But during that process, I realized that it was quite a lot of fun to help a fast moving organization like that with smart people unlock the tremendous opportunity that payments presented within their business. And I realized this is something that I could see myself doing. And so about halfway through that project, I decided to start building the brand behind the scenes, start networking for some other opportunities, and was fortunate to really launch the business in its current state about two and a half, three years ago now.
Joshua: You run a lot of payments RFPs and selection processes as part of your business. What would you say are the top things that software companies miss when they’re running these selection processes?
Brian: This is one of my favorite topics, Joshua. I would say that when you think RFP, especially, again, having been someone who was on the receiving end of those, I’m at the major players, you think, all right, this is just going to come down to dollars and cents. And who’s going to get the lowest bid?
I think there’s probably a perception of that, both on my client side and on the vendors who are responding. But I think that the biggest gap tends to be on the intangibles, on kind of what I’d call the qualitative analysis of these vendors, which is really difficult to put into a spreadsheet when you’re trying to administer an RFP. Why you? And so the process that we like to follow is I think we have a pretty strong conviction that we’re going to get some very competitive commercial bids. We’re going to find vendors that have the ability to support the use case from a product perspective. So once we reach a group of finalists, if you will, I really push the client to spend some time with the leadership team, with the team that they’re going to be working with on a day-to-day basis. Because at the end of the day, payments, to some extent, could be called a commodity. There’s plenty of vendors out there that you theoretically could have a good result with. But in my experience, what really makes or breaks it is the partnership itself. So what happens in the early stages as you stand things up? Is the implementation strong? Is there collaboration between the partner and you? Are they proactively coming to you with roadmap opportunities, with issues that they come up with, with optimization opportunities? And I think having worked with Rainforest many times, I think you guys do a great job of this. But it’s really hard for an ISV, a SaaS vendor, to look at this on a spreadsheet and say, well, it all kind of looks the same. Which one do I pick? And so I really push them to try to get a feel for these people. Do you feel like you matter to them? This is another thing that you should consider is, there are some businesses that want to work with the biggest of big for stability purposes. There are others that would prefer to work with smaller businesses where their account is going to mean a lot more. And so those are all things that we try to capture outside of the nuts and bolts of a spreadsheet that produces a P&L.
Joshua: Yeah. I love that approach. One thing in my business that I talk to, both our prospects, who are looking at Rainforest for payment processing services, but also that I look upstream to any of our vendors that we’re working with, is the midnight call question. When something goes wrong at midnight on a weekend, who do you want to be on the other end of the line? And furthermore, are they actually going to pick up the phone when you need them?
Because so often, issues happen at non-standard hours or at a time that’s inconvenient for one party. And so I think that whether you want to call it executive sponsorship or first call resolution or whatever metric or whatever paradigm you want to use to evaluate the responsiveness of the vendor, I think that’s just key. And I see so many people skim over that because they have great API documentation. The price is cheap. And we hear that a lot from software companies that are just disgruntled with their payments vendor today and payments partner, it’s that the service just isn’t there. The tech may be great, but if the service isn’t there, it doesn’t really matter because the loudest problems happen when there are issues. It’s not when things are going smoothly, then it’s humming along quietly and there’s no issue. So I love that word, kind of this intangibles.
Fast forward through the process a little bit. So you’ve gone out, you’ve helped a software platform run a selection process.
You’re kind of down to the end. You’ve selected a provider. What tips do you have for our viewers on how to navigate negotiation in the contracting phase? Because I’ve seen a lot of deals actually fall apart, a surprising number fall apart at the very end. Sometimes you have a sales rep that says one thing and the contract says something different.
Maybe you thought something was included and it isn’t. Maybe there are hidden fees that emerge at the very end that only show up in the final version of the contract. What have you seen on your end and how can folks navigate that?
Brian: Yeah, so we really try to build this process in, starting with the beginning of the RFP process to make sure that we are understanding exactly what it is that we are asking for. We’re very clear about that during– So hopefully we avoid any crossing of wires with respect to, well, we thought you meant this model and we proposed this other model. So we try to build that in, but I’d say by the end, typically that’s resolved itself. And so what we try to do is put the vendor in the driver’s seat in terms of confirming our assumptions. And so obviously as part of my consulting engagement, there’s a financial model that I helped the customer build. We tried to, this is usually even before committing to an RFP, we’re assessing the viability of payments in general. Well, what does your business look like? How many customers do you have? How quickly you’re growing? How much volume do they process? What’s the average transaction side? Card versus, all those metrics you’d use to build a model. Well, we’ve kind of got our assumptions, but we like to take that then and put it back on the vendor and say, okay, well, under the proposed terms you’ve offered us, what would these portfolio characteristics yield? Work with us, right? And make sure that our models are matching up. That, in my experience, has been a great way to shine a light on any fees that may be hidden, maybe are applying in a way that you didn’t understand or I didn’t understand. So that to me has been a hugely valuable exercise towards the end of these processes. We’ve got ours kind of tucked away and we asked them to produce one of their own and then we compare them. And that should shine a light on any disparities that could be there.
But beyond that, I would say that there are, one of the advantages that there is to working with a firm like Utopaya who has experience doing this is there are certain non-commercial kind of levers that you can pull, right? So this would be non-solicitation rights, portability, data ownership, exclusivity, all those types of things that I think we’ve got a good understanding of what certain vendors are or aren’t willing to negotiate. And so we try and kind of speed that up just in what we’ve seen in the past, but great, great question.
Joshua: Let’s double click on that. You know, in terms of non-solicitation and data migration rights, I personally think that’s gonna be one of the biggest focal points over the next number of years as more and more volume moves from traditional payments to embedded payments models, software companies are gonna start caring about it in ways that they didn’t before. What are you seeing in the market, across all the different providers that you work with? Where is the market kind of landing today and what would you say best in class today?
Brian: Yeah, absolutely. So I see this going the way of what exclusivity probably was five years ago, where it was pretty common and now it’s almost unheard of. I think that portability rights and non-solicitations will likely continue to trend in that direction.
I think when you look at some examples of clients that we’ve worked with, the reason that they have such a hard time accepting this now is the reason that they’re even looking for a new vendor is something’s not working, right? And so they’re in a situation right now, they’ve spent a lot of time and money and opportunity costs building the portfolio they’ve got with their current vendor that they’re now stuck with for X amount of time. And they’re never gonna sign up to put themselves in that same situation if unfortunately this new vendor didn’t work either. And so it is becoming very common to push back pretty hard on that. You know, there are some vendors out there, Rainforest included, that I think do a best in class job of putting this right front and center saying, “Hey, at any time, if we’re not meeting, the test that you expect of us, then you’re welcome to leave.” And that puts a lot of reassurance back on the ISV on the SaaS platform because at any time, you guys have to show up and win their business. And if you’re not doing that, if something goes wrong, they have the opportunity to walk away. And I think that that sort of commitment of what that implies of what you’re going to do for them over the long term is incredibly valuable. And so I absolutely see the street continuing to trend that way. And I would not be surprised to see that stuff disappear entirely in the next handful of years.
Joshua: Yeah, do you think there’ll still be some holdouts with some of the legacy acquirers on that? Or do you think there’ll be enough market pressure that everyone ends up caving over the next few years?
Brian: Yeah, you know, I think there’s certainly gonna be some healthy push and tug. I would say there will always be a part of the market where the SaaS business just simply is not savvy enough or doesn’t realize that they even could negotiate this. And so of course, in those situations, which is probably the long tail of the industry, if we’re being honest, where there’s a majority of them will never have expertise or advice on what to do here. So I think that they’ll remain, but the larger, more savvy, potentially investor-backed businesses who know what they’re looking for and know what to expect here, I would anticipate pushing back really hard on this. I think it also ties to the presence of private investment in the vertical SaaS space in general, right? I’ve seen a dramatic acceleration in deal flow over the past two quarters, from what we see in early 2024. And the more that these businesses are bought and sold between growth equity, private equity firms, the more eyeballs get on payments, right? And every time one of those transitions happens, you could probably guess that the acquirer of the business thinks they can do it better, right? And so they’re going to plug them into whatever payments thesis they’ve got. It’s really important from an enterprise value perspective that the SaaS business be able to very easily from a technology, from a legal commercial perspective, pivot from their current model to whatever their new vendors, the new owner wants to do. So very, very, very important. And I think we’ll continue to become more important.
Joshua: Yeah, certainly with the M&A trends continuing to increase, especially this year, we see from our seat, even some of our clients who have been acquired come back to us and tell us that portability and the fact that we’ll export all their data actually helped them get a higher valuation on their payments book of business because they knew it was immediately portable. And certainly that’s a growing challenge for us if companies leave us. However, we’ve actually seen most of the companies and clients that have been acquired end up staying with us even afterwards, but they know that they have that portability. So I do agree with you that that’s gonna be kind of front and center going forward.
So Brian, you obviously in your career have worked with so many different software companies, both on the provider side, now as a consultant helping with strategy. You mentioned earlier on that only 10 to 15% of the time did a lot of the ISVs and SaaS companies hit their forecasts. We’ve seen maybe similar numbers directionally, but a small percentage hit the aspirational goals. Some are more successful than others. What do you think makes folks successful versus not? What really is the difference between a company that performs and doesn’t perform with regard to volume and adoption and traction?
Brian: Yeah, this is a wonderful question and one that I love to debate. I think that the way that I always think about this is who is really owning the payments experience? And I think a lot of this has to do with the focus that you place on value to your end customer. And so if you keep value to the small business in mind, the end customer of your software product, if that is your North Star, then I think that allows you to reverse engineer a winning payment strategy from a lot of different facets. First and foremost, building a technology solution that provides tangible benefit to these businesses and allows them to run more efficiently, gives you the ability to capture more margin and drive premium prices, which of course, at the end of the day is going to be, that’s the revenue that you’re gonna be valued on.
But that can only really take place if there’s true ownership of the payments experience within the business. I see this all the time where they might have a SaaS, there’s a SaaS business that may have a payments thesis, they’ve got a product, but no one really owns it internally. It’s something that they sell, it’s kind of an add-on feature. Maybe it’s a cross sell that the customer success team does after they’re boarded. The ones that I see doing a job, I almost attribute this to a mindset shift where they think of payments as part of their platform. This is a core piece of this, almost that you’d be silly not to use it because look how valuable it is. And I try to coach my clients to reframe how they’re thinking about payments, where a lot of times when a business is coming to you as a vertical SaaS solution, they’re looking to streamline, they’re looking to streamline their operations, they want to run more efficiently. If payments is additive to that value proposition, why would you leave it out of your overall sales process? And so when you look at the ivory tower of who’s done very well with this, your toasts and your Shopify’s, not exactly an opt-in situation there, is it? It’s very much an opt-out and even a penalty if you opt out. Of course that takes a lot of skill and conviction to be able to operate in that manner. I think you can take that approach with a little bit less teeth.
So when I see my clients do very, very well, that’s it, it’s a mindset shift of, this is an opt-out versus an opt-in and that tends to bleed its way through the organization. Of course you’ve got to tie sales compensation and some other KPIs to this, but at the end of the day, if you have someone who owns the payments P&L and is committed to driving it and you have a valuable product that can drive the price, that’s a winning combination in my book.
Joshua: Yeah, I was asking the same question to someone else the other day and they kind of brought up the notion of elevating the head of payments role to an executive role versus typically historically it’s either been buried in finance or in technology or in product because it is so cross-functional. They were commenting that they’re seeing that role have a seat at the exec level table, whether it’s a chief product officer or head of payments, but really a cross-functional P&L owner, as you mentioned.
Brian: Absolutely, absolutely. And it’s such a common problem that we actually launched a fractional or interim version of a GM of payments for this reason, because a lot of times, these are not, it’s not a head count to add, right? And so you could easily convince yourself, well, I don’t quite have the volume yet, I don’t know if I can afford that, but I would argue if you don’t go, if you don’t put that person in place, you never will have the volume. And so you’re sort of stuck in this spin cycle where maybe you can’t get to the next level. And so what that service ventures to do is to spend three, six, nine months getting you prepared, laying the framework for someone to come in and then put their own stamp on it, but moving it in the right direction where it makes sense to backfill us with a full-time employee who owns payments.
Joshua: That’s a great offering. Who is kind of the ideal customer for that offering, Brian? How much volume do they have or what stage of payments would make the most sense?
Brian: Yeah, so I would say that that’s where someone is probably getting into owning more of payments for the first time. I think a good example would be, hey, I’ve traditionally been kind of a referral partner with a legacy processor, and now we’re gonna start working with Rainforest, for instance. Okay, well, there’s all these new things that we now have to own that we don’t really know how to own. How do I set my team up to sell this? How do I price it? How do I compensate my team for selling a deal? What are the KPIs? What cadence should we be reviewing these KPIs? How do I enhance my value proposition? How do I lay out my product user interface to optimize interchange? There’s so many different things you could go through here. And so it’s probably someone who has made a move and is committed to growing their payments business and owning it, but isn’t quite at the stage where they can justify making an executive level higher. So that can obviously vary in terms of volume. I would say probably somewhere in the $100m plus range where if we were to be successful with the interim project, you could easily justify then putting multiple headcount against it and continuing to grow.
Joshua: Makes total sense. As we start to wrap up here, Brian, if you could distill everything you’ve learned about payments and give SaaS leaders just one piece of advice about driving revenue and enterprise value with embedded payments, what would the most important nugget of wisdom be?
Brian: So I wanna go back to the focus on value because I really believe that keeping that at the top of the way you think about this, this entire payments ecosystem will lead you to success long-term. I think value produces results over the long haul. And I think that a SaaS business I work with often would feel that way about their own core product, right? That it’s valuable and that it justifies its price. And maybe they’re even underpricing their core product. But over time, that ownership of payments and the focus on value will differentiate you. And I think that that plays out in a few different ways. One of them, for instance, is I wouldn’t be super caught up in your take rate or the dollars and cents revenue early on in your journey. I would focus on building a product that is a no-brainer for customer standpoint for adoption adoption, get s many of your customers using your payments module as possible, and then tweaking it over time to improve the value prop and drive more margin. So I think that one of the drawbacks of having so much product and investment in the space is that there is a narrow time horizon to yield certain take rate results and revenue results. But I encourage, especially if the timing works out from what the investment structure looks like and the whole period, I’ve encouraged clients very strongly to just build the right thing, focus on value, get your customers to start using it. And once they start using it, they’ll be willing to pay a premium because they’ll see how efficient it’s made their business.
Joshua: I love that. We’ll let that be the closing thought, Brian, all about value, building a great product. Don’t let the dollars and cents get in the way of building a great product, build a great product and they will come. Brian, thank you so much for joining us. Really appreciate it. If our viewers wanted to connect with you, what’s the best way to get in touch?
Brian: Yeah, absolutely. Please feel free to follow me and send a connection on LinkedIn. Follow our page at Utopaya or feel free to reach me at info at utopaya.io.
Joshua: All right, Brian Abernathy with Utopaya payments. Really appreciate the time. Thanks for being with us.
Brian: Thank you, Joshua. I appreciate it.
