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Spartak Buniatyan

Maximizing SaaS Revenue Via Payments With Spartak Buniatyan Of PayEngine

Many SaaS companies have integrated payments into their platforms to open up new revenue streams. Maximizing that revenue is something else altogether. Our guest on the show who will be explaining the “how” of revenue maximization is Spartak Buniatyan.

Spartak is the CEO and founder of PayEngine, which is a payments platform designed to help vertical market software vendors maximize their payment revenue, eliminate liability, and reduce complexity.

Payments & Fintech Insights In This Episode

  • Why revenue maximization is so critical for SaaS platforms.
  • How integrated payments can take SaaS platforms to the next level.
  • The story behind PayEngine, and how they help their customers.
  • Spartak’s thoughts on the future of payments and the overall landscape.
  • With so much more!

Featured on the Show

Episode Transcript

Scott: Hey, PayPod listeners, Scott with you. Once again, serving up another great episode where we will be exploring topics in the payments and Fintech world. On today’s show, we’re gonna be dialing in on SaaS companies that have integrated payments into their platforms to generate revenue. The central question I’ll be hoping to answer is how can that payments revenue be maximized? Joining me to answer that and provide other insights on SaaS companies and payments is Spartak Buniatyan. And Spartak is the CEO and founder of PayEngine, which is a payments platform designed to help vertical markets software vendors maximize their payment revenue, eliminate liability, and reduce complexity. These are all really great things and there’s a lot to cover. So let’s jump right on in. Spartak, welcome to the show.

Spartak: Thank you, Scott. Thank you very much for having me here. Really excited to be doing this.

Scott: Absolutely. And thank you for being here. As I said at the top, today, we wanna talk about payments revenue maximization for software companies, but I always like to set the stage with a big question. Before going into the, how? Let’s start with the why? Why is integrating payments and deriving revenue from payments so powerful for SaaS companies?

Spartak: Absolutely. The big why there is really to understand what a lot of the vertical SaaS companies are really struggling with as far as their barriers to entry to market. There’s obviously a lot of competition and whatnot. So really when they consider monetizing from their payments, they’re effectively turning themselves from being a traditional software as a service company, into becoming now what’s called a Fintech company, and this really expands their opportunities where they move from just charging a simple linear monthly fees for their software. In a lot of cases, they’re able to change their entire revenue model, where they can now just be partners with their own customers by upselling them payment services, and in a lot of cases even offer their software for free.

So it really removes the barrier of somebody considering, you know, let’s say a personal trainer that’s considering downloading an app and paying $50 a month on it, can now get that app for free and process their payments through that app. And in turn, what the software vendor can do is recoup even more of a payment, a revenue stream from the payments margin.

Scott: Right. I can see how too, that is such a powerful thing when you’re talking about growth adoption, and then just sort of revolutionizing how the very business makes money, how it brings in revenue, I mean, that’s incredible. So I think you outlined it perfectly, this is why it’s powerful. Let’s say a vertical market software vendor wants to improve their payment stack or increase their revenues, or even maybe just set it up for the first time and kind of do this sort of revolutionary rethinking that we’re talking about. What are some of the challenges they may face, particularly if they don’t have an optimal payments platform to build on?

Spartak: Yeah, payment space is a very complex area. We’ve seen many companies that try to get into this and they bent where they become now a payments type of company where they start augmenting their stuff into a payment solution versus focusing on what they’re great at. And really the challenges are a number in this. Some of it is if you decide to become, what’s called a payment facilitator for your own merchants, it’s a heavy lift of an undertaking. You are effectively assuming the master merchant of record liability on behalf of all of your customers because at this point you’re asking the lower-level banks to say, to grant you the powers to do the underwriting and whatnot. And in turn, you’re guaranteeing them that if something goes wrong, you are gonna be the merchant of record to all your lower-level, acquiring processors, and whatnot.

You need to have a certain volume of payments processing. So it’s a luxury that only larger companies, software vendors are able to afford versus just smaller startups that are starting up. They do have a high-scale idea that they know they can get into the market and catch it by, you know, wildfire, but they can’t just dive into it until they’re at a certain scale, because there’s a lot of costs that prohibit that. There is a lot of compliance, there’s PCI level compliance that depending on your size, it’s a big undertaking that takes months and, you know, just to get it and then continuous maintenance, and a lot of costs. So it’s a number of layers and every layer you’re effectively now changing your strategy from being a vertical software company, which is the first reason you’re in that business for, to now realizing wow, undertaking payments is a bigger undertaking than what I intended to do.

Scott: Right. It’s not this simple, like, yeah, I’ll be a PayFac.

Spartak: That’s right.

Scott: I’ll be a PayFac by Monday, it’s Friday, you know, that’s not how it really works. And it is an undertaking. And I think too, Spartak, you’ve pointed out something that we’ve discussed before on this show. And I think it’s just a general business philosophy, but this idea of being able to focus, focus on what you’re good at. And if you try to go in too many different directions and do things that you maybe don’t have that expertise in as an organization, you can sometimes trip up a little bit. So there’s some challenges with this. Fortunately, PayEngine aims to help SaaS companies with this very thing. What’s the story behind PayEngine, and how can you help companies really maximize their payments revenue perhaps more effectively than ever before?

Spartak: Yeah. Great question. So we’ve been doing payments really for the past 20 plus years since you had your internet, and your online commerce, and whatnot. What we’ve seen happen in the market that’s been interesting is since about 2016 vertical software companies… And, you know, just to put a kind of definition behind the word vertical it’s really industry-specific software vendors, they can be targeting HVAC type of companies, or they can be targeting restaurants and food industry type of companies, can be anything. It could be a, you know, software vendor that just specializes in helping cupcake store managers manage their cupcake store. These vertical software companies started to rise to the scene around 2015, 2016 era, where it became a real stronghold of a business model because they’re dealing with established businesses, and their customers are typically SMBs who in turn need to accept payments from their own customers.

So we’ve been doing this since about 2016 helping companies on their own become PayFacs and become payment processors. And it’s been just so discouraging to see all these companies struggle with getting their payment system up and learning about the industry, learning about the space. And that’s when we really went….pre-COVID era, we kinda went to the drawing board and said, “Okay, we’re helping all these companies embed payments, and they’re all investing, you know, this tremendous amount of resources and financial resources. How can we help optimize this experience where they can keep on focusing on what they’re doing? And we can more provide it to them as a platform?”

Scott: Right. So you guys kinda focused on that. And then when you’re talking about that sort of revenue maximization, can you, I guess, tease that out a bit more? Once you’re working with a software company, what can they do to maximize that revenue more effectively that maybe they weren’t even thinking about?

Spartak: Absolutely. What happens typically is the software vendors would partner up with…you know, as they gain customers who need to accept payments, those customers are traditionally going to retail solutions such as Stripe or Square, where they’re paying their 2.9% and 30 cents per processing to accept payments via credit cards. So what we really do is we help the software vendors tap into those margins. Just by way of example, traditional software, let’s say they have what’s called a take rate on a customer’s revenue. So if a software vendor is charging thousand dollars a month today to one of their small business customers, that’s maybe making $100,000 a month from their HVAC company or their, you know, plumbing company, today their take rate on their customer’s revenue is really 1%.

When once they start offering payment solutions to their SMBs, what they do is they effectively unlock another one, you know, sometimes one and a half percent from the payments revenue. So from the perspective of the software vendor, this is a big needle mover in that it can potentially grow their revenue overnight, 30%, 40%, sometimes even just by 100%, depending on which category they’re in, when measured against the take rate and their existing revenue.

Scott: Exactly. So you’re really tapping into that and this sort of, you know, one of the reasons payments is such a great industry to be in is that you have these residuals, you have that consistent revenue. And then you kinda think too about the fact that you have these vertical software companies that… For example, my wife, she’s a marital and family therapist and her practice has a specific software that is for therapy practices in terms of managing all of this, including the payments and that software company that they work with knows their business better than, you know, anybody. And having that sort of payments ability there, it just makes so much sense. And you can see where there’s such power in that, right?

Spartak: Absolutely. Yeah. The vertical software companies are really becoming the operating system of the businesses. And it’s just such a vast landscape. Literally, any business, small or medium size has a number of vendors competing to serve and to become their operating system, to drive their business. So they effectively are in this prime position to look at the businesses, look at what are the table stakes that those businesses need? Sometimes it’s payments, sometimes it’s loans, sometimes it’s equipment financing, and they’re really just able to tap into these peripheral opportunities and maximize their revenue. That’s why from investors, you’re seeing these insanely high valuations for vertical software companies, because when they look at vertical software companies, they’re not gonna look at how much you’re gonna necessarily going to grow it with, meaning how many customers are you gonna add? But at the same time, how much you’re gonna grow in depth, meaning what other services are you gonna tap into?

Scott: What can you tack on? Yeah, absolutely. So, okay. We’ve really covered the sort of revenue maximization side of things, but I think there’s also, anytime you’re talking about payments…and you were touching on that earlier in terms of maybe some of the challenges. There’s complexity, there’s even liability, and PayEngine helps software companies sort of eliminate this liability and reduce this complexity all-around their payments. Can you expand on how you accomplish that side of things?

Spartak: Absolutely. So you know, I’ll go down the list. Number one is what’s called a Merchant of Record Liability that any vertical software vendor that’s planning to journey into the payment facilitation space needs to be aware of. And what that means really is that now on your books, in your balance sheet, you have to have an asterisk that says you are liable for all of your customers’ payments for the GMV of your customers. That would be the number one thing, because a lot of the software vendors, they don’t really understand how to do the KYC. That’s, you know, know your customers, KYB, know your business, AML, anti-money laundering and do the underwriting. And for them to do this, it’s a tremendous investment from their side in order to now manage the risk of their customers’ portfolios, and their customers in turn, how their customers are dealing with business. That would be number one.

Another one that’s equally important is from a PCI compliance stand. There is a lot of PCI, it’s a very deep and a very involved thing to become a PCI compliance system, especially if you’re going to be touching any credit card information or any personally identifiable data. So that’s another undertaking that a lot of time it goes beyond what, you know, they may be forced to do as far as SOX compliance and other compliance where now PCI just puts another burden on top of their entire technology team. I’d say those are the two big liability tickets.

Scott: You’ve really broken that down well, and then I think there’s another piece of this. So we’ve covered maximizing revenue, we’ve covered liability, and the complexity, and simplifying that tied to that. And I think really there’s this third piece and that’s payments friction because so many of these software companies, they want this frictionless experience for their users. They want things to be seamless, easy, keep them in their ecosystem, all of these types of things, right? There’s been such a push, I think in the payments world to reduce this friction. And I’m curious, what are some of the biggest pain points you’ve seen when it comes to payments for SaaS companies in general, any kind of friction, and how does your platform potentially help reduce that?

Spartak: Yeah, that too, I will breakdown into two categories. One, from the technology perspective, and the second category would be more from the business model perspective. So when you’re a vertical software company and you decide to journey into the payment facilitation space, there’s a certain expectation. There’s certain table stakes that you need to now provide for your customer’s life cycle of accepting payments. That typically includes the onboarding experience, how that’s gonna be done. Then it includes the transacting experience. And then lastly, the monitoring, risk assessments, and also reporting the experience. Because we’ve done this over and over with many vertical software vendors, we’ve identified exactly what those things are, the biggest overlap of what every vertical software company has to do.

And not only do we offer just, you know, give you these volumes of APIs that now you have to figure out what to do and tie into your front-end interface, and build widgets and UIs on top of it, we actually give you fully customizable and embeddable widgets into your own solution that seamlessly integrates with your current software experience, and it handles everything that the expected life cycle of a merchant would need to handle from the onboarding experience to giving you the secure iFrames for handling the payment information, whether it’s credit card or ACH type information to the reporting. And it includes all the different layers for the vertical software vendor themselves, for the merchant themselves, what the merchant will see, and also what the merchant’s customer, in turn, will see whether a payment’s via SMS notifications or emails or something like that. So we really have optimized the entire system as a plug and play that literally within seven days, you could have a payments infrastructure embedded in your software and it will appear as if it’s you, you’re the payment processor.

Scott: Right. And so that really keeps that seamless experience going, right?

Spartak: Yeah, where you don’t need to send stand up another, you know, technology development team to now maintain your payments infrastructure.

Scott: So, you mentioned development teams and that’s a great segue to my next question, which is a bit of a gear shift, but I love looking at the dev side of things because it’s so important. And especially when we are talking about SaaS companies, I mean the development is their lifeblood. Anytime you’re talking about integrations technology software, the elephant in the room is that things can break, there can be challenges with just connecting everything. If we’re trying to enable greater efficiency, inevitably, you’ll have someone who maybe needs help troubleshooting an issue or a developer who’s banging their head against the wall. There can be a lot of frustration that builds up quickly. How does PayEngine approach providing quality support and developer services and resources?

Spartak: Absolutely. By virtue of what we’re doing, we’re a developer company, a very developer-oriented company. So as such in a lot of times, in fact, our own SLA, just SLA in general for the payment space as a service level agreement of our uptime and whatnot is much higher than typically of what our customers need to have for their software. So we’re taking great care to make sure our technology is replicated across many regions and many zones with failover systems and whatnot. And this is something that we pass on to our customers because payments is a vital thing. Every business needs to be able to accept payments. So we pass this on, this benefit off to our customers where they now don’t have to struggle with really standing up a completely resilient system for themselves. But as long as they’ve designed the payment piece, following our guidance, they can automatically piggyback on top of our own SLAs and our own uptime resilience of the system that we’ve built.

The second part of it is just having support. You know, we have a team that’s just focused on developer support. And that is by virtue of being here we have to support many frameworks, many platforms, you know, there’s so many different you know, from React, to Vue.js, to Angular, to on the back-end, you have the NodeJS, and PHP, and Python, and ASP.NET. So if you visit our documentation center, we have working examples of everything. So when we onboard a new customer, a new software vendor, they actually get a full sample working application that for them, then it becomes a job of a copy and paste really and dropping it into their system versus them trying to make sense out of our APIs to implement it.

Scott: Awesome. So really that kind of robust approach to building tools for developers and leaning into that and realizing how important they are. I’m curious as a follow-up what advice you might have for any payments, Fintech, or software businesses out there, taking it on the chin, so to speak in regards to their support and dev resource offerings. How might they improve? What have you seen that maybe you might be able to offer up? “Hey, have you considered trying this approach?”

Spartak: Yeah. Speaking from experience here, I can confidently say number one for them to really look in hindsight and reassess, how much of an investment, both cognitive and financial they’re putting into managing their own payments infrastructure solution, how much of their support goes onto it and whatnot. And also add to that, the business layer of things. Are they taking on the Merchant of Record Liability? How much of a legal burden is it for them to constantly monitor their own risk and monitor how their own merchants are doing, how their own customers are doing? Those numbers really add up, and when you consider what they can point those powers towards and how they can establish more by just focusing on their business and partnering up with somebody that’s hyper-focused on payments in modern-day and era, those are the business models that have proven that works versus just tacking it on themselves. Because before they know it, they’re just gonna be a payments company versus just a great vertical software company.

Scott: Right. Exactly. As we wind down our discussion here, I always like to turn the attention to the future because what’s coming next? That’s one of those big questions. If you could peer into the crystal ball, what do you see in the future for payments and payments integrations for these SaaS companies? What might the landscape look like? You know, long term, say 5 to 10 years?

Spartak: Having come back from Money 2020 Trade Show just recently, there’s a couple of trending things that have caught my attention. So definitely cross border payments and just overall international payments is becoming a big thing. As these vertical software vendors journey out, and they prove to be successful in one market, they quickly look to grow into other markets, whether they start off in the U.S and then wanna expand into EU, and Canada, and other places, and vice versa. So definitely systems that are not just focused on one specific market, but literally can help you focus on more of a global international type of a market. And then kinda tethered to that as you grow into international markets and wiring funds and whatnot, I can’t help but to not touch the subject of cryptocurrencies and how that is probably gonna be the first prevailing area is cross-border payments.

Scott: Oh yeah.

Spartak: In the cryptocurrencies, because the current transferring money internationally currently is just very expensive, it’s very cumbersome. There is no clean way to do it. So I think that’s probably gonna be the main things.

Scott: I couldn’t agree more. And I think, yeah, we’re gonna see more and more of that happening. And we’ve talked about it before on this show about just this increasing globalization and especially when a vertical software company, like the ones we’ve been talking about, once they’ve got their market presence in a place like the U.S, the next question is where do we go from here? And where else can we help businesses we work with reach customers and things like that. Right?

Spartak: Absolutely.

Scott: So keeping that future focus what’s next for PayEngine? Any exciting offerings, projects, partnerships, or otherwise that you can, of course, share Spartak, but what’s coming next?

Spartak: Similar to the stories I said out of the gate, we focused on the U.S. We are definitely, you know, by the end of this year, we’ll be expanded into Canada, we’ll be in EU also, so we’re going internationally. We do have currently multiple ways that we offer to partner up with various software vendors. It could be both as just you know, as a SaaS fee to them where we give them access to effectively interchange rates, VR platform, or if it’s smaller guys that are trying to grow, then we’re happy to consider and offer them RevShare models and RevShare opportunities. At the end of the day, we really only make money when our own customers make money. So our incentives are fully aligned with what our customers can do and how we can help them maximize.

Scott: Love it. All right. We have a segment that we like to end with on each and every show. It’s five questions, rapid-fire. Are you ready?

Spartak: Let’s do it.

Scott: Make a prediction about the future of payments in general that you expect will happen in the next 12 to 24 months? So maybe a bit more short-term.

Spartak: Probably, just more real-time payments, real-time payouts and credit cards going in that direction.

Scott: What’s one cool piece of payment or finance-related technology that you’ve come across recently, but unrelated directly to your company that impressed you?

Spartak: A lot of the tokenization services where it helps, you know, from companies not to touch credit card piece of information, but rather shift that burden to tokenization services.

Scott: I think that stuff is so exciting. And it’s one of those things where when you look at it from a security and privacy standpoint, it’s what you don’t have can’t be stolen.

Spartak: That’s right. Yeah.

Scott: In the next five years, most Americans will make a purchase with either Bitcoin, Apple Pay, some other thing entirely. Which one do you think and why?

Spartak: Probably Apple Pay just based on how pervasive the technology’s going. Bitcoin is too slow to make any real-time transaction and quite frankly costly. So I see Apple Pay and those type of technologies that are embedded onto the person and they don’t have to carry their credit cards or cash.

Scott: What’s one piece of advice you would have for someone considering the payments or financial technology industry as a career?

Spartak: That’s a good one, a few things come to mind. I’d say the biggest one is understanding vertical software companies would probably be a big one. There’s a tremendous opportunity with vertical software companies. And now these things are so complicated that you always have to tap into a layer lower in order to see an opportunity of something where you can do. So I’d give it that.

Scott: Last question here. What’s the best business advice you’ve ever received, and from whom?

Spartak: I must say it’s been from, Will Sue [SP] at Moka Capital. It’s all a numbers game, especially if you know, we’re all trying to do different ventures. So you can’t just get into markets where one or two or three opportunities is gonna define how successful your business is going to be, but you gotta maximize the numbers. And then in those statistics, you start seeing patterns.

Scott: Spartak, thank you so much for joining me on the show today, sharing the PayEngine story, some exciting things going on in the world of, you know, maximizing that payments revenue for these great SaaS companies. Really appreciate it. And if folks wanna find out more about PayEngine and see if maybe you could help them out, where can they do that? Where should they go?

Spartak: So they can visit our website, it’s payengine.co. not com, payengine.co. That would be the best place to visit. They can also email us, hello@payengine.co.

Scott: Awesome. Thanks again.

Spartak: Thank you, Scott.

Industry Spotlight

PayEngine

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PayEngine is the unique payments platform designed to help vertical market software vendors maximize payment revenue, eliminate liability and reduce complexity, and own and improve customer experience. With PayEngine’s platform, software vendors can set their own rates over interchange, control margins and retain the majority of their profits; eliminate MOR liability and dispute management, PCI/data security and compliance issues; and integrate with APIs, drop-in widgets and customizable UI.