Podcasts > Episode 10: Utopaya | What Software Companies Need to Drive Payments Ahead

Episode 10: Utopaya | What Software Companies Need to Drive Payments Ahead


Today, our guest is Brian Abernethy. Brian is the founder of Utopaya, a boutique firm helping vertical SaaS companies with their payments. We discuss the history of integrated and embedded payments, the emergence of PayFac and Payfac as a service, and what software companies really need to drive their payments businesses ahead.


Read the full transcript below.


Episode 10: Utopaya | Software Companies Need This to Drive Payments Ahead


Todd Ablowitz (00:09):

Welcome to “It Pays to Know,” the Infinicept podcast where we dive deeply into unexplored areas of payments, embedded finance and more. My name is Todd Ablowitz. I’m co-founder and Co-CEO of Infinicept, and today, my guest is Brian Abernethy. Brian is the founder of Utopaya, one of my favorite boutique firms helping vertical SaaS companies with their payments. He’s super eloquent in helping so many market players drive their payments forward. Today, we discuss the history of integrated and embedded payments, the emergence of PayFac and Payfac as a service, and what software companies really need to drive their payments businesses ahead. Without further ado, I welcome Brian Abernethy, and I hope you enjoy our conversation as much as we did.


Hey, Brian. Great to see you again. Looking forward to a great conversation. Welcome to “It Pays To Know.”

Brian Abernethy (01:04):

Hey, Todd. It’s a pleasure to be here. I’m excited for the opportunity to talk all things payments with you, as usual.

Todd Ablowitz (01:10):

Let’s start out, everyone wants to hear where our guests come from, and a little bit about the background. I think it’s really cool to hear your founding story.

Brian Abernethy (01:18):

Yeah, absolutely. I am relatively new to the payments industry, I think, compared to some of your other guests. I broke into the industry back in early 2017. I joined TSIS at the time, I was recruited out of Business School, and was tasked with frontline ISV business development, focusing on the healthcare space. Within about a year, I had taken over running that team, so I had about seven or eight business development reps focusing on a number of vertical software markets. I went through the global transaction, so I got to see how all that was going to be structured, and ended up moving with some other former colleagues over to Clearent, where we did quite a bit of the same thing, setting up their ISV biz dev organization, and also some strategies, some marketing, and some product work as well. During my travels over those years, working for some of the bigger processors, I had identified a trend that was a little bit concerning, or frustrating to me.


Very rarely would both parties in an integrated payments relationship ever reach the heights that they had mutually agreed upon at the outset of that partnership. When they shook hands, they both said, “Look at how great this is going to go for us,” and for a myriad of reasons, they never quite got there. I always wondered if there was an opportunity for someone to sit in between those two parties, in between these software vendors and the processors, to hopefully broker better outcomes. In early 2022, I founded Utopaya for that exact purpose. We work with growth stage, investor-backed vertical software companies, to optimize their payment strategy.

Todd Ablowitz (02:49):

That’s amazing. I love that. What were the biggest things you saw that were preventing the success of those programs?

Brian Abernethy (03:00):

I think that there’s probably a few buckets that falls into. I think, first and foremost, the technology can certainly be limiting. That’s almost the first hurdle that you need to clear. Does your processing partner have the appropriate technology stack to solve the problems of your end customer? I think a lot of times, this was the bigger trend that I saw, was that these processors were selling their solutions to these ISVs, but they weren’t thinking with the end customer in mind. What is the challenge that this dentist’s practice or this restaurant or this gym are facing? As a result, maybe they were missing critical features that lessened their value prop. Ultimately, the lack of success always comes back to the lack of adoption, and we’ll get into that in a little bit more detail later. The technology has to work, the financials need to make sense, the partnership needs to be on solid footing from a support perspective, and ultimately, hopefully that creates an opportunity to drive adoption in your customer base.

Todd Ablowitz (03:53):

I couldn’t agree more. I saw, time after time after time, where you’d see a sizable software company with a great product, great relationship with their customers, and they’d be lucky to get 10% take rate on their payments offering. What was the biggest barrier on that take rate? You talked about technology, let’s double click just a little further. Is it the gateway? Is it the onboarding? Is it the customer experience? Maybe it’s multiple things, but let’s go into, what were you seeing on the ground?

Brian Abernethy (04:25):

If you were to maybe switch seats, if you’re the software vendor trying to figure out, why can’t I effectively sell this payment solution, if you were to trade seats with your customer, from their perspective, why should I switch what I’m doing today? Presumably, they are taking payment in some way, shape or form today. What challenges are they facing, and how is your solution bundled within your software going to solve that? Is there some feature that’s going to make it easier for them? For instance, in the healthcare space, is there a way for them to reduce manual labor tied to stuffing paper statements, and the expense of mailing them out? Can we have maybe a text-based invoicing system, or something along those lines?


There’s a number of other examples. For a gym membership management software, do you have a proper account updater? We’ve got, “Card not present,” recurring payments, is that going to make sure that your gym members don’t fall out of the billing cycle, and you don’t lose revenue? From a technology perspective, I think there are specific features that are very relevant to different verticals, and I think sometimes, those software vendors may not know what questions to ask, to make sure that those features are even available. When they get to market, that value prop is now significantly diminished, resulting in lack of adoption within their customer base.

Todd Ablowitz (05:38):

How do you see that relating to the continued emergence of PayFac, and PayFac as a service model? What’s happening with those models relative to the models that you worked in, and led you to want to start Utopaya?

Brian Abernethy (05:53):

Great question. I would say that increasingly, I think that these processors are getting smarter in how they are going to market. They are taking a more vertically-focused approach, and so they are tailoring their feature sets, and communicating to the market in ways that are relevant. I think that’s less of a concern now. I think the bigger concern is, how do you drive that adoption? What’s interesting is that, while it was not invented for this purpose, the payment facilitation idea actually lends itself to really streamlining an onboarding process that fits quite nicely with the value proposition and the customer experience that a software platform strives to deliver in its core product. I know we talked about integrated payments versus embedded payments, but embedding this payment solution within your software, and leveraging some of the features of payment facilitation, or PayFac as a service, to then go into your customer base, and have an easier time driving the adoption by removing some of the barriers of a traditional underwriting and boarding experience.

Todd Ablowitz (06:52):

Let’s double click first on the broad PayFac, PayFac as a service models versus the ISO, merchant-integrated payment models. We’ll use, like you said a moment ago, embedded payments versus integrated payments. I always viewed the bifurcation of having one sticker to call a phone number for technical stuff, and a different sticker to call a phone number for account stuff as being painful and unpleasant, as well as the, “Toss a lead over the fence to another sales bro,” who would go and try and sell that merchant for the ISV. The ISV gets the lead, but then, there’s a payments bro going to sell it. Tell me about where that is these days. I got into this quite a long time ago, and I think you’ve had some really good, on the ground experience and insight on that.

Brian Abernethy (07:51):

Sure. It’s a great point, Todd. I think generally speaking, I would say that the trend within the ISV world, I think the discussion around it tends to be focused on the financials. Everyone’s looking from a real revenue, especially with the incredible investment that’s going on, and all that fun stuff. Actually, when I talk to the operators of these businesses, the founders of these businesses, I think the core desire is honestly, just to control the experience end to end, in a more meaningful way. You just hit on a couple of aspects of that. From day one, it’s, how does this merchant come into our payments ecosystem? Do we own the sales process, where they’re talking to that same sales rep that brought them onto the core software platform? From a servicing perspective, they’re going to one vendor to solve all their problems.


I think you uncovered some really interesting things about what happens when you don’t necessarily control those. Things can get sideways very quickly if you have one of these payment sales bros, I love that, that maybe is a little bit self-serving in how he’s going about pricing something. Maybe that merchant has a bad experience with your payments provider, but unfortunately for you, as the software vendor, that’s part of your world. That’s your problem now, because you have embedded that partner into your platform, and so that now reflects on you. Whether it’s pricing, whether it’s merchant support, whether it’s feature functionality, all of this falls on you, because you’re the one who chose to bring that vendor to your small business.


Again, I go back to this empathy-led thinking of, at the end of the day, all of these vertical SaaS platforms were built to solve problems for small businesses, and they’re the core of the backbone of the economy. The minute that you lose sight of that, I think you’re in dangerous territory, because you’re going to lose sight of… again, we go back to adoption. Why is it that someone’s small business would choose to use your software, and your embedded payments? I think that’s where you always have to go back to, to ground yourself on all these topics.

Todd Ablowitz (09:44):

That’s fascinating stuff. When we started, and we saw Stripe, and then we saw Shopify payments, and we weren’t close to it, but we saw the Toast ecosystem get built. There are so many others, Mindbody. We were seeing take rates at least two and a half, three times the integrated payments take rate. The big trend, and you saw this to the tune of hundreds of ISVs, not thousands in the U.S., anyway, but hundreds of ISVs becoming payment facilitators. When they do it right, Shopify, Toast, Modernizing Medicine, Workway, these kinds of companies, they see massive increases. I’m interested, again, bringing it to 2023, and your fresh look, plus an independent view on what’s happening in the software-led payments world, what’s on the ground right now?

Brian Abernethy (10:45):

I would say that if we were to assume that the majority of these software vendors are coming from a relatively removed role in what they play in this payment, so maybe they’re a referral partner, maybe they’re working with someone like Stripe today, but not necessarily participating in revenue, they’re likely growing very quickly. Maybe they just took around a funding, and part of that thesis of the investment was, “You need to go turn on the spigot of revenue from payments.” If you think about where they’re coming from, I think the leap to go from a referral partner, or a Stripe Connect partner, to go all the way or to a registered payment facilitator is scary. It’s hard to wrap your mind around. I think there’s probably a little bit of a misconception about how long it takes, what are the expenses.


There are, of course, platforms out there that will streamline that for you, right Todd? I think what ends up happening is that, while maybe over the past five years there was this big trend towards these ISVs seeing these incredible successes, some of their peers becoming registered payment facilitators, and chasing that, to no fault of their own. It’s understandable. I think it’s come back a little bit, where this PayFac as a service continues to gain steam and popularity, for a number of reasons. There are new entrants in the market, the legacy providers are building their own platforms, to offer a PayFac as a service. We alluded to a couple of features of payment facilitation that are attractive to a software vendor, like speed of onboarding, and a few other neat, backend tricks.


I think that it’s that walk in the crawl/walk/run progression, where maybe someday, you can go become a payment facilitator, but for now, let’s prove to yourself that you can bring in the sales process, that you can bring in level one support, that maybe you can bring in some underwriting, and some risk. Once you’ve built that discipline, and that muscle, then you can easily go become a payment facilitator. I think the bet that a lot of these PayFac as a service companies are making is, maybe you won’t want to. Maybe that marginal benefit isn’t there. That seems to be the trend. How do I get as close to that golden ticket of the revenue that’s associated with a PayFac with as little risk and investment as possible? Here we are, in this PayFac as a service explosion that we’re seeing.

Todd Ablowitz (12:56):

It’s interesting you bring that up, because at Infinicept, we have spent the last at least six years actively building to the full registered PayFac business. Sometimes there are some similar models, like Adyen for partners, and one of the things we consistently saw was, some of the prospective customers that have the economic benefit, without question, of owning it all themselves, continued to say, “It’s a bridge too far. It’s scary.” We spent a number of years working with partners, trying to cobble together a network of partners that had enough coverage so that we could always have a partner for the big majority. We had trouble finding a patchwork of partners that could cover the majority of the market need. The only ones we saw that were succeeding at that were also locking in the technology ecosystem, locking in the gateway with the product, maybe locking in one processor.


We didn’t see multiprocessor, or options, and we, most importantly, didn’t see anyone that was greasing the skids for that upgrade path at some point, when they’re ready. Almost begrudgingly, and we’ve only been talking about this for a little bit, we launched Launch Pay, which is our PayFac. We felt that someone had to follow the embedded payments bill of rights. Someone had to go out and make the benefits of an agnostic ecosystem, the benefits of openness, choice, choose your process or choose your gateway, some of this stuff, but needed to bolt on that payments part, just to help them with training wheels, or the walk in the crawl/walk/run. We launched that, and I’m really curious… sometimes it’s really fun on these podcasts to do shared product development, or just talk openly about what the market needs. I’m really interested in what you think the next thing is needed there, and where you had pointed, and what your customers are screaming for.

Brian Abernethy (15:09):

I love the way that you phrased that. I think that while the idea of payment facilitation, of course, has been out there for a long time when it comes to vertical SaaS, and obviously, more recently, this PayFac as a service, I think that the branding, or the story that a lot of these players will say is, “You can start in the PayFac as a service, and then we’ll graduate you. You can do it all with us.” In my experience, that is probably not accurate. I would challenge some of the listeners to comment back on our LinkedIn, or however we post this, how many examples can you give me of someone who has truly started in that model and actually truly graduated, you can find them on the MasterCard list of registered PayFacs? I would struggle to come up with one, and there may be one out there.


I love the way you described it, I love the embedded payments bill of rights, because I do believe that is what the market is asking for. It’s asking for the ability to access the feature functionality, the benefits that payment facilitation provides, with an option toward the future. These are growing software companies, and the reality is, a lot of them are investor-backed. Transactions will happen, priorities will change as that payments portfolio grows. The next acquirer of the business very likely has their own plans for payments. The flexibility to move that portfolio down the road without some predatory contract, and some crazy, non-solicitation, and liquidated damages, and all these wild things I see in my travels, that’s what the market is asking for.


They’re looking for someone to offer them a true transparent, trustworthy solution that delivers the technology and the financials they need, but preserving optionality for the future, whatever that might look like, knowing that they don’t know what their business will look like five years down the road. Hopefully, they sell it, who knows who they sell it to? I would say, over the past maybe six months, that’s really been a trend that I’ve heard from my clients and from the market.

Todd Ablowitz (17:05):

Well, that’s great to hear. Certainly, we strive to meet that, and that’s what we’re going after. As you were talking about it, I was thinking about it. I was thinking, the payments bros were selling the merchants, and then when the software companies started doing a better job selling the merchants, the payments bros just started selling the software companies, and what we saw is a result like you described. That’s a great transition. I want to really move into what you see your customers needing beyond the payment provider, beyond the PayFac as a service. What are you seeing? It seems like this sales topic, selling merchants, if they’re doing that newly, and they’re better at it, are they good enough at it? Are they meeting their potential? What are you seeing out there?

Brian Abernethy (17:50):

Yeah, absolutely. This is one of my favorite topics, I’m glad you brought it up. I’ve long believed that one of the most overlooked components of an embedded payment strategy is your go-to market and commercialization piece. It’s all very exciting to identify a new vendor who has great tech and incredible financials. “Look at this proforma, we’re going to make all this money. Our enterprise value is going through the roof.” It looks great on a board deck, but that revenue is unlocked through the very frontline blocking and tackling of convincing a small business owner and operator to use your product. A lot of times, we see what I’d call a false start, where someone spends a lot of time and money choosing a new payments vendor, integrating it to their platform, beta testing, everyone’s excited, and they can’t seem to get any business on board.


I think it’s a combination of, merchant services certainly can be complex to sell, depending on the sophistication of the small business you’re targeting. I think more so it’s a lack of awareness of the pricing, and packaging, and different levers you can pull to drive that adoption, and convince this customer that this is the best option. I’ve experienced it myself, as a small business owner, having to make that decision of, do I use the embedded solution that’s a little bit more expensive, or the non-integrated one that’s a little bit less? Because I live in this world, I can appreciate the value of the integration, but many of them don’t. Objection handling around that obviously is very important, but the number one lever that these ISVs can pull to drive payments revenue is more adoption.

Todd Ablowitz (19:24):

I’ve experienced this, because I’ve had the benefit of working with some of your customers, we know there’s an opportunity because we’ve seen Shopify sell, and get 70% of their revenue from payments. We’ve seen Toast get north of 90% of their revenue from payments, with huge adoption rates. The opportunity is there, it can be done, full stop. What are the couple of key things that you find your customers asking you to do, to really put the key in the lock for them, really tangible three things that you put boots on the ground for them, or you show them how to put boots on the ground, probably more accurately? How do you do that?

Brian Abernethy (20:12):

The number one thing that we always do is an exercise that I would call value-based pricing. The exercise here is to quantify the benefit to the small business of using the integration versus not. This is something, I think conceptually we all understand, “It’s integrated, it’s better,” but I’d love for someone to explain that to me. Why is it better? What does it do? I can share an example from my own life. My wife is a therapist, and owns her own practice. We use one of the large behavioral health EHRs out there, that uses one of the largest payment processors in the world. Shortly after signing up for it, we got a notification that we were getting a price increase on our merchant services, up to 3.5% and 50 cents a transaction. Of course, there’s steam coming out of my ears, given my own company.


Of course, we could have chosen to use a non-integrated solution, and put it on cost plus nothing, and save some money. When I sat down to do the math on it, based on the volume that the practice does, and the amount of time it would take her to manually reconcile those payments at what she bills per hour, very quickly it became obvious that this actually might be under priced, this 3.5% and 50 cents, because it made no sense to go and do this manually. I think that’s just an example of, how can you as a software vendor quantify the benefit that this integration provides to your customers? I always reframe it as, you need to look at this as the total cost of ownership of accepting payments, not the merchant services line item on your P&L. You’re very likely to miss if you over focus on that. You might have a very low cost, non-integrated solution, but you’re paying someone an expensive wage to manually reconcile paper statements, any number of things, reach out to customers who haven’t paid bills, update credit cards manually.


All of a sudden, when you look at, how much did you pay to accept your payments, it’s actually the opposite. Measuring that is a little bit of an art, it’s not an exact science. When you can start to quantify that delta between using your solution and not, I think then you can justify your premium, and you have a lot more conviction going to market and selling it at that price.

Todd Ablowitz (22:23):

It’s funny, we had the same exact experience. We put on a conference, and the conference software came with payments, I think we talked about this before. We’re like, “Wait, 3.5& and 50, are you crazy? This is madness. I’m a payments professional, I’ve been in this business forever.” Of course, we kept it. It was way more valuable than some cockamamie swivel chair over here. It was way better, it made all the sense in the world.

Brian Abernethy (22:50):

Yep, absolutely. That’s always the first exercise that we run. I would say, beyond that, I think it’s understanding your customer base, and the characteristics that they possess. Are you fairly homogenous in terms of size, and by proxy price sensitivity? Do you have an enterprise channel? Do you have maybe a mid-market, or a down market channel? It’s very likely that they’ll require different types of approach when it comes to selling merchant services. When you think about a lot of the successful PayFacs you mentioned earlier, Todd, a lot of them have true B2B2C, and that C in that equation is a true small business who maybe isn’t quite as price sensitive, who is looking at this solution as, “This is the one piece of software I use to run my business.” As a result, it’s very likely that you can sell them a rack rate, or a sticker rate, a blended rate price, and they’re going to take it.


That’s just the cost, and you don’t really deviate off of it, maybe for a one-off merchant, but most of the time, you’re going to sell it. That eliminates a lot of problems and challenges for you, because now you don’t necessarily need to hire a merchant sales rep, or train someone on it. It’s an add-on feature than anyone can really sell. Conversely, if your B2B2C, if that C is a little bit more enterprise, and has some experience or some savvy when it comes to the structures of merchant services, then you maybe do need someone who has experience in a little bit more of a competitive situation, and a longer sales cycle. Understanding what that might look like beforehand is really important when it comes to determining that merchant pricing.

Todd Ablowitz (24:22):

You were talking about that pricing topic. I was thinking that it’s really about value.

Brian Abernethy (24:27):


Todd Ablowitz (24:28):

How much value does that software provide? I’m not talking about value added BS, I mean, how much value does that software provide that is monetized through payments, but where you’d have to be crazy not to take it, because of all the value aligning your software and your payments provides? Let’s move on, and close out with where you think this is going. In software-led payments, I know you’ve said you’re wondering about where the growth in software-led payments takes us, and what happens to the processors. What are your thoughts? I wonder if we agree or disagree here.

Brian Abernethy (25:07):

I’m very curious how the processors will continue to innovate in a way that makes them relevant. By relevant, I mean, protects their portion of the proverbial pie, of the gross profit that’s available. Traditionally, when we looked back at the referral agreements of yesteryear, they were keeping the lion’s share. Maybe it was a 50% split, but with some buy rates, they were keeping the majority of the revenue. Now, we’re looking at PayFac as a service, or payment facilitation, they’re down in the low double-digit, maybe single digit take rates for themselves, in terms of what they’re keeping. In what appears to be another race to the bottom, how are these large processors and the challengers, the new entrants, going to continue to innovate to keep themselves relevant and profitable, and make this channel worth continuing to service?


That to me is a trend that I continue to keep an eye on, especially as I see some of the larger legacy players who maybe stayed away from this PayFac as a service channel in the past, it appears they recognize this is inevitable, and are now making their own moves to offer a solution like this. Very curious to see how they protect their own margin as the software continues to take on more of the work.

Todd Ablowitz (26:19):

In 26, 27 years almost in payments, I’ve heard about the race to the bottom for my whole career, and I’ve heard that margins were shrinking for my whole career. Merchant margins are expanding, at least in small business, which powers the revenue of the industry. It seems that the companies that have the race to the bottom are the ones that aren’t identifying the segments and the technologies that are driving value. My bet is, I don’t think we’ll see margins materially go down, they might stay the same or go up for the companies that chase value through segmentation and technology. What do you think?

Brian Abernethy (27:05):

Yeah, I completely agree. It’s not to say that the margins themselves are compressing. I would wager that free market innovation would create more value that you can then capture with better margin. That makes total sense. I think the question is, of that margin, who keeps what piece? To your point, it’s, who’s providing the most value? The trend now is that the majority of payments are being accepted through some software platform. That’s relatively new, but I certainly don’t see it slowing down. As that continues to accelerate, and software-led payments continues to dominate, what value are the backend processors providing, short of an integration and some rails to process transactions? I think that’s going to be really interesting to see.

Todd Ablowitz (27:46):

Brian my friend, that was awesome. I loved that conversation. I always love when we have a chance to talk. Whether it’s recorded or not, we do it all the time, and I look forward to a really interesting time in payments. Thanks for coming.

Brian Abernethy (27:59):

Yeah, thanks Todd. I’ve really enjoyed listening to the episodes of this podcast, and it’s my pleasure to be here. Thanks for the opportunity.

Todd Ablowitz (28:08):

Thank you so much to Brian Abernethy for joining us today. I thought it was such a fun and enlightening conversation. I really hope you did, too. As always, many thanks to our awesome listeners for tuning in to the “It Pays to Know” podcast once again. We hope you enjoyed it. To hear more from us, go to infinicept.com, where you’ll also be able to learn more about our pay ops platform, and how we get payments going your way. We especially want to highlight our newest product, Launch Pay, which helps software companies get the PayFac experience, with all the transparency and openness of becoming a full PayFac, without the expense and lift. As a founding member of the Embedded Payments Bill of Rights, we’re 100% committed to doing payments right. For Infinicept, this is Todd Ablowitz. Thanks again for tuning in, and we’ll pay you another visit next time.