---
title: "Pricing payments in vertical software"
author: "Matt Brown"
canonical_url: "https://notes.mtb.xyz/p/secrets-pricing-payments"
source: "notes.mtb.xyz (Substack)"
year: "2024"
primary_topic: "payments"
tags: ["payments", "vertical-software", "fintech", "frameworks"]
fetched_at: "2026-05-14"
note: "Markdown twin of the canonical Substack post. The canonical URL above is authoritative; this file may lag if the original is edited."
---

Payments are the secret weapon of the best vertical software companies, like Shopify and Toast. It’s not uncommon to see 2-5x increases in revenue, retention, and other metrics once a platform successfully embeds payments. It’s now easier than ever to *start* with payments, thanks to companies like Stripe. But it’s more difficult than ever to *succeed* with payments.

I call this the “embedded payments iceberg”. Many companies think that a few lines of code and hours of work will yield a whole new monetization model. However, integrating payments is just the tip of the iceberg, and real success requires more than product and engineering work. **One of the most important yet least appreciated aspects of a successful payment strategy is pricing.**

![Iceberg metaphor for embedded payments: a small white "Embedded payments" tip sits above the waterline against a sky, while the much larger underwater portion is labeled with the hidden workstreams a platform actually has to handle — pricing, risk management, product growth, support, security, product analytics, and revenue recognition and accounting.](https://substackcdn.com/image/fetch/$s_!4_av!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F94e45881-c7fe-4c43-9af9-ccd6f377e533_1480x832.jpeg)

It’s not as simple as slapping a 2.9% + $0.30 fee on card transactions and calling it a day. There are many levers to pull in pricing payments. The right set of levers depend a lot on the vertical software platform’s market, its existing product suite and pricing strategy, and more. Seemingly small decisions on payment pricing can mean the difference between no adoption on one hand or lots of adoption but low or negative revenue on the other. It’s challenging to find the right balance and strategy.

[Rainforest](https://www.rainforestpay.com/) [^1], which offers embedded payments to vertical software platforms, recently released a free guide on payments pricing that should be required reading for anyone who has or is considering embedded payments. It’s available for free, with no registration required:

I suggest you download and read it, but I’ll summarize some of the most important points below.

#### Start by learning as much as possible about how your end customers accept payments today

The ideal payments pricing strategy for your platform hinges on the mix of payments your customers receive. Are they typically large or small? There’s a big difference between a coffee shop with an average order value of $5 and a B2B marketplace with order values of $5,000. The former should care more about the **per-item fee**, while the latter should care more about the **volume fee** component:

![Reference graphic decomposing the canonical 2.9% + $0.30 fee. The left card explains the volume fee (percentage of payment amount, scales with size — matters most for moderate-to-large tickets). The right card explains the per-item fee (flat fee per transaction — matters most for very small tickets). Beneath, a table shows that at $10 a $0.30 per-item fee adds 3.0% of cost (total 5.9%), while at $10,000 it adds only 0.003% (total 2.90%), highlighting how dramatically per-item fees punish small-ticket merchants.](https://substackcdn.com/image/fetch/$s_!axKh!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd498353e-aca7-47f2-9195-6568969f91ca_1958x1154.png)

How do your customers’ customers pay? Even if it’s mostly through card, what kind of card? There are key differences between debit and credit cards, personal and business cards, domestic and international, Mastercard/Visa versus Amex. understanding this will help set a strategy for **interchange plus, flat, or blended pricing**:

![Side-by-side comparison card titled "Card processing pricing structures". The left column lays out Interchange plus (a.k.a. IC+, Cost Plus, Passthrough-Plus): buy-rate-plus pricing such as IC+ 40 bps + $0.30, unpredictable for merchants but predictable margins for the platform, interchange-optimization savings flow to the merchant, more complex reporting and reconciliation, harder to net fees. The right column covers Flat (a.k.a. Blended): all fees rolled into a single rate like 2.9% + $0.30, clearer for merchants, optimization savings flow to the platform, easier reporting and easier daily netting.](https://substackcdn.com/image/fetch/$s_!dXW8!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fd6d6a4fc-26b4-4c8b-9c71-4137a693ae11_2094x1548.png)

#### Understand how comprehensive and specific your solution is, and how competitive and well-defined your market is to determine price ceilings

While many think 2.9% + $0.30 is the payment market rate, some platforms have more pricing power. To understand that power, consider factors like how comprehensive and critical the base software platform is, how narrowly defined your ICP is, and how unique embedded payments are in your vertical:

![Horizontal spectrum titled "Specificity and comprehensiveness" mapping a platform's profile to its payment price ceiling. The left end ("Horizontal, invoicing and payments only, very competitive, hardest to differentiate, commodity") sits near 2.6%, the middle ("Cluster of related verticals, moderately competitive, somewhat differentiated") near 3.0-3.2%, and the right end ("Vertical, comprehensive solution, least competitive, most differentiated, delivers massive value") at 3.5-3.9%+. A blue callout points readers to a decision tree on the next page for products that fall between these archetypes.](https://substackcdn.com/image/fetch/$s_!On5N!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fab67f6bf-1b04-469f-9160-3e9c5c3209e5_2080x1492.png)

![Two-step "Pricing decision tree". Step 1 asks "Which statement best describes the platform?": option A (all-in-one operating system, only software merchants need) advances to a next page; option B (more than invoicing and payments but not end-to-end) advances to step 2; option C (invoicing and payments only) terminates at a 2.6%-2.9% price band. Step 2 asks "How vertically specialized is the platform?": A (optimized for a specific vertical) advances further, while B (marketed to a vertical but not specialized) and C (horizontal) drop back to the 2.6%-2.9% band.](https://substackcdn.com/image/fetch/$s_!Hymu!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F15a7837e-8655-4f6c-af31-f9dacb80393b_2066x1450.png)

#### The implementation and pricing of payments allows for different ways of recognizing payments revenue, which affects a company’s valuation

There are a couple of ways to recognize payment revenue, which will affect your finances differently. If your company plans to raise money or be acquired, it’s critical to understand how investors or acquirers will evaluate your payments revenue and its effect on your margins.

![Worked example contrasting net vs. gross revenue recognition on $100M of processing volume at a 3% merchant fee with 2% passthrough costs and 30 bps in payment processing fees, leaving 70 bps net. Net recognition: revenue $700k, negligible cost, $700k profit, nearly 100% margin. Gross recognition: revenue $3M, cost $2.3M, $700k profit, 23% margin. A stacked bar at the bottom breaks the gross fee into passthrough costs, payment provider fees, and profit, showing visually what each recognition style includes in revenue.](https://substackcdn.com/image/fetch/$s_!6sFO!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F27789879-6fe5-4420-88fe-d716130e9dbc_2076x1506.png)

I won’t spoil the rest of the guide, but it’s worth a read for anyone who cares about succeeding in embedded payments:

And if you’re considering adding or improving payments, it’s worth chatting with Rainforest. They have decades of combined expertise in payments and vertical software. **The platform is excellent, but their service and guidance in navigating that “embedded payments iceberg” makes them the new secret weapon for vertical software companies.** You can find there here: [Rainforest](https://www.rainforestpay.com/).

---

*My name is **[Matt Brown](http://mtb.xyz/)**. I’m a partner at **[Matrix](http://matrix.vc/)**, where I invest in and help early-stage fintech and vertical software startups. Matrix is an early-stage VC that leads pre-seed to Series As from an $800M fund across AI, developer tools and infra, fintech, B2B software, healthcare, and more. If you're building something interesting in fintech or vertical software, I'd love to chat: [mb@matrix.vc](mailto:mb@matrix.vc)*

![Matrix Partners logo: the word "matrix" in heavy black sans-serif with a white asterisk inset into the "i", on a white background.](https://substackcdn.com/image/fetch/$s_!ml4D!,w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F5fbb4e09-82e1-4670-8ea6-5bcbd49b05aa_1658x480.png)

[^1]: Rainforest is a [Matrix](http://matrix.vc/) portfolio company and I led the [Series A](https://notes.mtb.xyz/p/rainforest) earlier this year.