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Joshua: Hey everybody, and welcome to another episode of the Payment Strategy Show. I’m Joshua Silver, founder and CEO of Rainforest. We help software platforms embed payment processing to improve profitability and improve customer retention. I’m here today with our guest, Ali Mast from Parachute Advisory. She has been in payments for many years. I know she’s got a ton of wisdom to share with us. Ali, to get us started, tell us a little bit about your background. How did you first get into payments?
Ali: Sure. First, Joshua, thank you for having me.
I will say my journey into payments was probably a little different than most, although like most, I didn’t wake up one morning thinking, you know what, I’d really like to get tangled into interchange discounts for a living. But here we are. I actually started in software. So I think you see a lot of people that go from payments to software. I started the other way around. So I worked in a number of companies that were both horizontal and vertical in nature, running their revenues, sales and growth functions and learned about payments like many software professionals. We looked at payments as an add on to our core product and rolled out embedded financial opportunities, issuing, acquiring as an additional revenue stream. And as I did that, I got all of the bumps and bruises that typical software folks get. And about five years ago, I decided to take the jump and move to the other side of the table, working for a company that focused very much on payments for software companies and provided a toolset into that industry I already knew really well, and ultimately became a payment company ourselves. So I really got to know the acquiring side of the business by helping at let’s call it 40 to 50 software companies embed payments and learned by drinking from the fire hose of acquiring acronyms and partners and processes. And I’m by no means a payments expert, but I like to consider myself kind of a payments and SaaS intersection expert.
Joshua: Yeah, you’re right. I think a lot of guests I have went the other way. So it’s kind of interesting starting from the software perspective. Now, fast forward. So you worked for a payments provider for a while. How did you get Parachute started and what do you focus on?
Ali: Parachute was really the the motivation of my own experiences.
I’d say almost to be kitschy, Parachute was about dropping in to rescue these SaaS companies or ISVs, as many payments companies call them, from the payments chaos, but also about helping and dropping in the payments companies from the SaaS chaos. Because really, depending on the side of the table you’re sitting on, it could be viewed both ways. And I realized after years of having these conversations that payments companies and SaaS companies were speaking very different languages. And I felt very equipped to help translate those languages and bridge that gap.
Now, I don’t know about you and the space you’re in, but after years of rolling out these embedded payments and vertical SaaS, it was like Groundhog’s Day, like the same mistakes on repeat.
Software companies want payments revenue, but don’t understand the complexity, compliance, underwriting, risk, pricing, margins.
And payments companies want to work with software companies because they see that opportunity, they see that need, but don’t understand how to help them actually go to market and execute in this payment space. So Parachute was kind of born under that thesis, like how can I bridge that gap and help both sides achieve their goals at an accelerated rate with less of the bumps and the bruises that I’m still recovering from.
Joshua: Yeah, I love that. I had a recent LinkedIn post where I talked about why you may need a payments consultant. And I think that concept of bridging the gap between the payments companies and the software companies is so true. And it’s really hard when one side is talking only from their perspective and using their lingo and their language and vice versa. So to have that person in the middle parachute in, make that rescue. I love that. That’s great. So over the last number of years, how would you say that the industry has changed both the SaaS side of it as well as the payment side? Because you’ve been on both and on both sides of the table. So what were some of the biggest changes you’ve noticed?
Ali: Well, on the software side, I’d say SaaS isn’t just about selling software or ARR anymore. It’s really about the entire business workflow. And depending on your industry, that’s a number of things, but very much so payments.
10, 15 years ago, payments was a bolt-on and that was in my early stage software experience. And now it’s almost in many cases a requirement and the foundation of how software companies grow revenue per user and valuation.
On the payment side of things, I’d say even five years ago, everything is rapidly progressing. Five years ago, I think you and I even had a conversation of when to become a payment facilitator and own your own payments. And what was the right stage in your payments journey to do that? I don’t know if you’d agree, but five years ago, we’d have a very different answer than today.
Joshua: I think that’s right. I mean, look at how much the landscape has changed with banks, compliance. I mean, I think it’s harder than ever to run a true payments company or a payfac just because of all the regulatory changes, the increased compliance, a lot of failures that have happened out there, both on the bank side, the payfac side, providers. So yeah, I totally agree that I think the whole market has really reshaped how I think about the definitions of when you should be a payfac, when you should not, payfac-as-a-service, those types of things.
Ali: I’m sure also a big inspiration for Rainforest. It’s changed in many ways because the Rainforests of the world have come out with these offerings, which, in my world, I call these 2.0 providers or even you can say 3.0 providers, which are really tech friendly, payfac as a service, payfac in a box, whatever you want to call it. But in 2022, building that program from the ground up was one of the only options and now it’s not. And the margins are slightly closer and the risk is much lower to go with other partners. I have some clients that come to me, now it’s various stages in their payments, complexity and journey, but I like to take on some of their early stage ones just to help them avoid some of the pitfalls, even though they don’t all have the GPV or the volume that is very appealing to partners. I have clients that are building software that is based off payments monetization. So instead of adding payments to their software, they’re building a software to solve payments needs in the market, backed by companies like Rainforest.
And so it’s almost like years ago, Toast, Shopify, Mindbody, all of these names, you know really well that don’t just allow payments, they own them and in many ways are now considered payments companies, have shifted the market in a bit to start with payments versus adding payments later.
And I think just on both SaaS and payments, that’s heavily recognized. And again, part of the reason why I do what I do.
Joshua: Yeah, we’ve seen a lot of clients that come to us that specifically started their company just so they could capture the payments revenue. And that was that, you know, that is the core essence of the company now. It’s that payments monetization versus the SaaS fees. So what a dramatic shift. You know, you mentioned helping folks to avoid the pitfalls. What are some of the pitfalls that you see? What are some of the mistakes that you see most commonly made by your clients and just other software providers?
Ali: Yeah, I think it’s across the board depending on their stage and payments. But there’s some general, I’d say, pitfalls that are pretty common.
And first off, I’ll mention the mindset shift that we talked about in that payments is not just a feature. It’s a profit center. It’s a core of the identity in the software execution. And like any high margin products that you have, that requires a strategy. And it requires a close eye on execution.
And so the more common mistakes that we see is in basics like pricing and packaging.
In misunderstanding how to charge for payments. Don’t just pass through costs. You want to own the potential margin that you have.
I actually think I read an article from you guys recently that I agree with. It resounding me is that start high and you can always go lower. You can’t go the other way around. Right. And then the other thing with pricing and packaging and I’ll mention a few others is just get to know your interchange. It is a very complicated concept and it is foreign to many. What was even to me five years ago. Now I’m researching interchange daily and reading statements and it’s like a passion project of mine to understand it better and to optimize it and work with partners that really help my clients understand that in the long term.
And the other pitfall that’s really common and I would imagine you see this as well is just the merchant or customer experience.
If you don’t make it easy for your customers to adopt. They’re not going to adopt it. Or if you’re trying to come into a space where your customers have an existing payments program, you’ve got to come up with a migration strategy. They’re not just going to jump off of their existing payments provider without a reason or a process or support and you have to help them with that and make it really easy.
And I’d say treating net new the same as your existing customer base. Again, depending on where you are in your payments journey is just as important. So having an activation strategy and your customer success and making sure there’s adoption is totally foreign in SaaS when it’s a predictable SaaS fee that you can claim in advance. It’s just so different than payments revenue and payments usage. So generally that merchant experience, the sales and go to market strategy, it lasts kind of on the go to market if your team doesn’t understand how to talk payments, they’re not going to be able to sell it. So there’s got to be some alignment in the selling muscle.
Joshua: Right. You mentioned several times the merchant experience in your opinion, what makes a great merchant experience and what makes a very poor merchant experience kind of compare and contrast, you know, both sides of that spectrum for us.
Ali: Yeah, I mean I think it’s being very seamless feeling like it’s a part of the product and not a completely separate experience and also giving them visibility giving them step by step help and making sure it’s just really easy on the visibility point though the seamless merchant experience. I think it’s equally important that the software company have visibility as the merchant. And by that I mean I have a lot of clients that come to me. I’ve a client in the health care software space. They have medical practices that do card present, card not present, and offer let’s call it like a CRM like experience for their medical practices.
They had three referral models in place when they came to me and had no idea with any of them where their customers were with underwriting or if they were declined, why, and what they could do to help. And so I just think that visibility and control of the merchant experience will help making the merchant feel like it’s just a part of their day-to-day use of your platform, really important.
Joshua: Any other things that you’ve seen that are big no-no’s that you’re like this is just a disastrous merchant experience besides the visibility and the things you mentioned?
Ali: I mean, you know, I think when the partner that you work with doesn’t understand your vertical, it could really slow things down and it depends on the level of risk that you take. But I would say risk and compliance being a big factor as well. Make sure you understand what you are compliant for or what you are required to do to be compliant and what your partner is and don’t let it slow down the merchant experience. Make sure your vertical is taken into consideration and the risk tolerance of your vertical.
Treating healthcare the same as B2B, kind of different.
Joshua: Yeah, it doesn’t make a lot of sense. Obviously, it’s going to depend quite a bit on vertical, but for a mid-market software company, maybe they’re doing a hundred million in card processing a year. What do you typically recommend from a risk position? And do you think that software company should be taking risks? Should they put that on the partner hybrid? What are some of the things you’ve seen and any generalized advice that you can give?
Ali: Yeah, I agree. It very much depends on the vertical. That said, in five years ago, I might say if you’re growing to 500 million in GPV in the next 12 months, let’s start taking it on. Now, I don’t actually see that as the path. I think there are so many options out there that will either share in the risk or take on the risk on your behalf. And of course, there’s a price tag that comes along with that. I know Rainforest is enough to be dangerous. I think you have offerings that allow customers to take on a variety of levels of risk. At that size, it does not make sense, from my point of view, to take it in-house. It’s too much of a burden for your resources. It ends up being a very risky compliance challenge to take on. The CFOs aren’t too happy about that. And so with those two-daughter providers, why not outsource it? And if you do grow at that rapid rate, and maybe it’s 1 billion, 1.5 billion in the next year to 24 months, you can always slowly take that on.
Joshua: That makes sense. I think that’s really sage advice.
Let’s pivot a little bit.
In all the years I’ve known you, one of the conversations I’ve enjoyed most is really on the go-to-market and adoption side. I know that’s something that you’re particularly passionate about and have been beating that drum for a long time of software platforms only going to make money on payments once you get that adoption.
What are some of the best practices for go-to-market? How do you help software companies sell payments when they’re used to selling software? Payments are so different. Any tips you can share?
Ali: So, so different. I mean, you wouldn’t treat your core SaaS product like a side hustle, so why do that with payments?
I think it depends on the client and the vertical, but the best practices are motivating your salespeople. Make sure they’re incentivized by payments monetization revenue, not just SaaS revenue. Educate your salespeople. Make sure they know how to speak payments. They know the right questions to ask. Make sure they understand what I mentioned earlier, how to migrate a client existing or new off their existing payments provider. Oh, that’s going to impact them and how you can reduce that impact to them so that they have a pain-free experience.
I would say the biggest challenge and go-to-market, and I’m so curious if you see this as well, and if you would agree, is customer success.
In SaaS, customer success is a little more of account management. You add products, you want to upsell. Maybe you have transactional revenue that you want to manage and get them into new commitment levels, but customer success and payments is absolutely paramount to ongoing revenue and success, and I think it is so overlooked.
Joshua: Yeah, certainly what we’ve seen is the more you can merge the payments and the core offering together, so it’s almost like a check the box to sign up. It’s just part of the offering as opposed to selling it separately. We often have the saying, “The best way to sell payments is not to talk about payments. So talk about that value that you’re delivering, right? Dollars going into a bank account based on the services that that merchant is providing. That’s much more compelling than let’s talk about payments. So I couldn’t agree more. We’re seeing across the board many of our customers start to roll out incentive programs, not just for account execs, the AEs, but also for customer success because they are, in many cases, the tip of the spear. They’re the ones talking to those merchants, those clients each and every day. And so having good alignment between the revenue org and the success org, and sometimes, I think best case, they actually may be the same org, but having that alignment is really important.
Any KPIs or specific metrics or what does best in class look like from adoption perspective and just generally monitoring performance of payments programs as it relates to adoption?
Ali: Yeah, and I think to your earlier point, nobody likes the word “mandating,” but including payments can really, of course, increase your attach rate and success. And if you’re not doing it, your competitors are.
Joshua: Absolutely.
Ali: In education, for example, there’s all of these great platforms out there. You can manage tuition payments. You can manage your enrollment, right? And then you have Blackbud, and they’re mandating payments. And if you don’t want to lose your payments revenue, you got to do something similar, right? On the KPI point, I think it also depends on the stage in your journey. Early stage, there’s things like revenue share, buy rate, cost per transaction. You should be hyper aware of when you’re negotiating a contract, but later, it’s your payments attach rate percentage. And I think it used to be considered that 10 to 20 percent of attach rate is really successful. Now, depending on how you go to market and what your market opportunity is, I think you should be much higher than that. Not everybody is going to be Toast and Mindbody. Not everybody is going to make more revenue from payments than SaaS. You have to have a realistic view of your industry, but it’s shifted. And then making sure you understand your take rate. So what is the revenue generated per transaction that you process? Also different than the way you’re viewing your recurring revenue. Your GPV. There’s like a million acronyms in payments. It drives me crazy. I actually have a glossary and an enablement training session that I go through with my software customers on all of the terminology.
And I think we should do it for payments folks, too, because SaaS terminology and KPIs are equally as important to all. LTV, CAC, EBITDA. And so all of these are really important KPIs. And depending on your stage of growth, I think you should have heightened awareness of each of them. Depending on if you’re a VC backed, PE backed, you’ll also have heightened awareness and goals around each of them.
Joshua: That makes total sense.
If you could give SaaS leaders one or two pieces of advice about driving revenue, driving enterprise value, what are the most important takeaways? Just the top one or two?
Ali: I mean, own your payment strategy. Don’t just assume that the easiest partner is the right partner or the big name or this referral that you have a treasury relationship with or some sort of other relationship. Own that strategy. It’s not a business model decision. I’m sorry, it’s a business model decision, not just a tech integration. So just owning it.
I’d say if SaaS companies don’t get intentional about payments, someone else will be making money off of your customers. So owning that strategy is absolutely the most important advice that I would give SaaS companies.
Joshua: Yeah, I love that takeaway. If you’re not providing those services, they’re going to get them from somewhere else, whether it’s just a third party provider that’s trying to get a bigger share of wallet or direct competitor that just has that integration already done out of the box. That makes a lot of sense to me. One follow up question on that, I often have a debate with folks about where in the organization should payment sit? Should it be product function? Is it a revenue function? Is it something else entirely? Across all the clients you’ve worked with and SaaS companies you’ve seen, any thoughts on where it’s best to have that role sit or even cross-functionally how that should work?
Ali: Yeah, I would say all of the above cross-functional is important. You have to have the buy-in of product, you have to have the buy-in of finance, you have to have the buy-in of go-to-market and revenue growth. Actually, one of the most common engagements that I do with my software customers is this what I call a fractional GM of payments. It is really hard to find somebody that understands owning a P&L and understands having this payments product experience where you can get the roadmap aligned with the go-to-market. And so oftentimes I come in to do that and build the program, build the go-to-market, build the enablement, and then bring in somebody that may be lesser experienced in actual payments or even SaaS depending on the company, but can take over and lead it and own that cross-functionally. Because I believe if you don’t have cross-functional alignment, you will not be successful, especially when you then get to the point where you have to report to the board and you have a PE backed visibility. Somebody needs to be able to own that. So I guess my answer to your question, and we could probably go back and debate this for hours, is answer D all of the above.
Joshua: Fair enough. We’ll let that be the closing word. Thank you so much for joining me today, Ali. How can people best reach you if they want to follow up or have questions?
Ali: Sure. And thanks for having me. This is fun. You can reach me at Ali at parachuteadvisory.com, or just hop onto the website and go to parachuteadvisory.com. I tend to be very active on LinkedIn, so you’ll find me there as well.
Joshua: Very good. Well, thanks so much for the time. It was a blast. We’ll talk soon. Thanks, everyone.
Ali: Thanks for having me.
