Embedded Payments Explained: Why SaaS Companies Are Becoming Payment Companies in 2026

A quiet revolution is reshaping both the software and payments industries simultaneously. Software companies are becoming payment companies — and payment companies are scrambling to power them. It is called embedded payments, and it is the single biggest structural shift in payment processing since the rise of e-commerce. If you are a SaaS founder, platform operator, or software company serving businesses, understanding embedded payments is not optional in 2026. It is the difference between leaving millions in revenue on the table and capturing it.

Embedded payments means integrating payment processing directly into a software platform so that the platform's users (typically businesses) can accept payments without signing up for a separate merchant account or payment processor. The payments are embedded in the software — invisible infrastructure rather than a standalone service. The software company earns revenue on every transaction its users process, turning payment processing from a cost center into a profit center.

The numbers tell the story of why this matters. Shopify generated $2.4 billion in payment revenue in 2025 through Shopify Payments, its embedded payment solution — accounting for nearly 40 percent of the company's total revenue. Toast, the restaurant technology platform, processes over $40 billion in annualized payment volume and earns more from payment processing than from its software subscriptions. ServiceTitan, which serves home and commercial service businesses, launched embedded payments and now monetizes payment volume across its contractor customer base. Mindbody, the wellness and fitness platform, earns payment processing revenue from thousands of gyms, salons, and spas using its scheduling software.

The model works because software companies have something payment processors have always struggled to achieve: deep, sticky relationships with their merchant customers. A restaurant using Toast for its POS system, online ordering, kitchen display, and payroll is deeply embedded in the Toast ecosystem. Switching costs are high. When Toast also processes that restaurant's payments, the relationship becomes even stickier, and Toast captures an additional revenue stream on every transaction — typically 10 to 40 basis points (0.10 to 0.40 percent) per transaction on top of the underlying processing cost.

There are three primary models for software companies to monetize payments: referral, payment facilitation (PayFac), and full ISO registration. Each represents a different level of complexity, control, and revenue potential.

The referral model is the simplest. The software company partners with a payment processor or ISO and refers its users for merchant accounts. When a user signs up and processes transactions, the software company earns a revenue share — typically 20 to 50 percent of the processor's markup on interchange. There is minimal regulatory burden, no underwriting responsibility, and limited risk. The trade-off is lower revenue per transaction and less control over the payment experience. This model is ideal for SaaS companies just beginning to explore payment monetization.

The payment facilitation (PayFac) model is where the real revenue is. As a payment facilitator, the software company becomes the master merchant with a processor like Worldpay, Fiserv, or Adyen, and sub-merchants (the software's users) process transactions under the PayFac's merchant account. The PayFac handles onboarding, underwriting, funding, and compliance for its sub-merchants. In return, the PayFac earns a larger share of the payment processing margin — typically 40 to 80 basis points per transaction, compared to 10 to 30 basis points in a referral model.

Becoming a PayFac is not trivial. It requires registration with the card networks (Visa and Mastercard both have PayFac programs), partnership with a sponsoring processor, implementation of KYC (Know Your Customer) and AML (Anti-Money Laundering) compliance processes, responsibility for sub-merchant underwriting and monitoring, and liability for chargebacks and fraud on sub-merchant accounts. The upfront investment can be significant — $200,000 to $500,000 or more to build the infrastructure and achieve compliance — and ongoing operational costs include compliance staff, fraud monitoring, and reserve requirements.

The third option — full ISO (Independent Sales Organization) registration — provides the highest level of control and revenue but requires the most infrastructure. An ISO registers with the card networks, partners with a sponsoring bank, and operates its own merchant portfolio. Very few software companies pursue full ISO registration; it is typically reserved for companies whose primary business is payment processing rather than software.

For most SaaS companies, the practical choice is between the referral model (lower effort, lower revenue) and the PayFac model (higher effort, much higher revenue). The decision depends on your user base size, average transaction volume per user, available capital for infrastructure investment, and appetite for regulatory complexity. A SaaS platform with 500 users processing $5 million per month in total volume can generate meaningful revenue from a referral model. A platform with 10,000 users processing $500 million per month has a compelling case for PayFac.

The PayFac-as-a-Service model has emerged to lower the barrier. Companies like Stripe Connect, Adyen for Platforms, and PayPal for Marketplaces offer turnkey infrastructure that lets software companies act as payment facilitators without building the full compliance and underwriting stack themselves. The platform provider handles the regulated activities (KYC, AML, card network compliance, funding), and the software company handles the user experience and earns a share of the processing revenue. This middle path captures more revenue than a simple referral but requires less investment than building a full PayFac operation.

The competitive dynamics are shifting rapidly. Software companies that do not offer embedded payments are increasingly at a disadvantage against competitors that do. When a restaurant evaluates Toast (which includes payments) versus a competing POS system that requires a separate processor, Toast's integrated experience wins — even if the competing system's software is technically superior. Payments have become a competitive moat for vertical SaaS companies, and founders who ignore this trend risk being outcompeted by platforms that capture the full economic stack.

Beyond revenue, embedded payments give software companies access to valuable transaction data. When you process your users' payments, you see exactly how much each business earns, their transaction patterns, seasonal trends, average ticket sizes, and payment method preferences. This data can inform product development, pricing decisions, churn prediction models, and even lending products (several vertical SaaS companies now offer merchant cash advances powered by their payment data). The data flywheel created by embedded payments is a strategic asset that compounds over time.

For SaaS founders considering embedded payments, the practical first steps are straightforward. Start by understanding your users' current payment setup — who processes their payments today, what they pay, and what pain points they experience. If your users are on Square, Stripe, or other flat-rate processors, there is almost certainly an opportunity to offer better pricing through an embedded solution. Second, evaluate potential processing partners. Optec's ISV partnership program is designed specifically for software companies that want to monetize payments — we handle the processing infrastructure, compliance, underwriting, and funding while you control the user experience and earn revenue share on every transaction.

Third, build a realistic revenue model. Estimate your total payment volume (number of users multiplied by average monthly processing volume per user), apply the expected margin per transaction (varies by model and processor), and project revenue growth as your user base scales. For many SaaS companies, payment processing revenue can eventually exceed software subscription revenue — a powerful economic incentive to integrate payments sooner rather than later.

The embedded payments trend is not slowing down. Every major vertical SaaS category — restaurants, healthcare, fitness, field services, property management, automotive — now has at least one dominant player that has integrated payments. For SaaS companies that have not yet made the move, the window to capture this revenue is narrowing as users become accustomed to integrated payment experiences. Contact Optec at /contact to learn about our ISV and software partnership program — we help SaaS companies launch embedded payments with minimal upfront investment and maximum revenue potential.