What embedded payment processing means for software companies

If you build software that your customers pay through — whether it's invoicing software, a marketplace, a subscription platform, or a point-of-sale system — you need embedded payment processing. This means your software accepts and processes payments directly, rather than sending customers elsewhere to pay.

An embedded system lets your customer stay inside your process the entire time. They enter their card details (or bank account information) into your interface, and your software talks to a payment processor behind the scenes to complete the transaction. The customer never leaves your product, which means fewer abandoned transactions and a smoother experience.

The alternative — sending customers to a separate payment page — works, but it creates friction. Every time a customer leaves your process to pay, some of them don't come back. Embedded processing keeps them in your ecosystem and builds trust because the payment experience feels like part of your product, not a third-party detour.

Key Takeaways

  • Embedded payment processing lets customers pay without leaving your software, which reduces abandoned transactions and improves user experience.
  • You will need to choose between payment processors (like Stripe, Square, or PayPal) and decide whether to build the integration yourself or use a pre-built solution.
  • Compliance with PCI DSS (Payment Card Industry Data Security Standard) is mandatory if you handle card data, though most modern processors handle this for you.
  • Your software must securely tokenize payment information so that card numbers are never stored in your own database.
  • Different payment methods — cards, bank transfers, digital wallets — require different integrations, and your processor choice determines which ones you can offer.

Choosing a payment processor for your software

The processor you select shapes everything: which payment methods you can offer, how much you pay per transaction, how quickly you receive money, and how much technical work the integration requires. The major options for U.S. SaaS and ISV companies are Stripe, Square, PayPal, Adyen, and Authorize.net, though dozens of smaller processors exist for specific industries.

Stripe is the most common choice for software companies because it was built for developers. Their API is well-documented, their dashboard is straightforward, and they support nearly every payment method (cards, bank transfers, digital wallets, buy-now-pay-later). Stripe charges a percentage of each transaction plus a small fixed fee — typically 2.9% plus 30 cents for card payments. They also offer Stripe Connect, which lets you build a marketplace where multiple sellers receive payouts.

Square works well if you need both online and in-person payments, or if your customers are small businesses. Square's online pricing is similar to Stripe's, but they also sell hardware (card readers) if you want to accept payments in person. Their API is less developer-friendly than Stripe's, but it's still solid.

PayPal has the advantage of brand recognition — many customers already have PayPal accounts and trust the name. However, their API is more complex, and they charge higher fees for some transaction types. PayPal works best if your customer base already uses PayPal heavily.

Adyen is enterprise-grade and handles high transaction volumes well, but their setup is more involved and their pricing is negotiable rather than published. They're a better fit if you process millions of dollars monthly.

Building the integration: APIs, SDKs, and hosted solutions

Once you choose a processor, you have three paths to embed payments in your software: build a custom integration using their API, use a pre-built SDK (software development kit), or use a hosted payment form.

A custom API integration gives you the most control over the user experience. Your developers write code that sends payment information to the processor's servers. This approach requires the most work but lets you design the payment flow exactly as you want it. Most processors provide detailed documentation and code examples in multiple programming languages.

An SDK is a pre-built package of code that handles much of the complexity for you. Instead of writing payment logic from scratch, you install the SDK, call a few functions, and it handles the rest. Stripe's SDKs, for example, work with JavaScript, Python, Ruby, Java, and many other languages. SDKs are faster to implement than custom APIs but offer less flexibility.

Hosted payment forms are the simplest option: your software redirects the customer to a payment page hosted by the processor, they enter their details there, and the processor redirects them back to your app. This requires almost no development work, but the customer leaves your interface during payment, which defeats the purpose of embedding.

Handling payment data securely and legally

The moment you accept card payments, you become subject to PCI DSS (Payment Card Industry Data Security Standard), a set of security rules created by the major card networks. PCI DSS exists to prevent card data theft and fraud. Violating it can result in fines from your processor or the card networks themselves.

The core rule is straightforward: never store raw card numbers in your own database. Instead, you must tokenize the card data. Tokenization means the customer's card information goes directly to your processor's find servers, and your processor returns a token — a unique string that represents that card. You store the token, not the card number. When you need to charge the card again, you send the token to the processor, and they handle the actual transaction.

Most modern payment processors handle tokenization automatically, which means you don't have to build PCI compliance yourself. Stripe, Square, and PayPal all tokenize card data on their servers before it ever reaches your database. This is why using an established processor is so much safer than trying to build payment handling from scratch.

You will also need to decide whether to collect payment information directly in your software or use a hosted form. Collecting directly (using an API) requires more security work on your end. Using a hosted form or a processor-provided form component (like Stripe's Hosted Payment Page or PaymentElement) shifts more of the security burden to the processor, which is generally safer.

Supporting multiple payment methods

Card payments are just one option. Modern customers expect to pay with bank transfers, digital wallets (Apple Pay, Google Pay), buy-now-pay-later services (Affirm, Klarna), and sometimes even cryptocurrency. Which methods you can offer depends entirely on your processor.

Stripe supports the widest range of payment methods in the U.S., including cards, ACH bank transfers, digital wallets, and several buy-now-pay-later options. Square supports cards, digital wallets, and ACH transfers. PayPal obviously supports PayPal accounts plus cards and bank transfers.

Each payment method requires a separate integration. Bank transfers, for example, require different code than card payments because the flow is different — the customer authorizes a one-time transfer from their bank account rather than entering a card number. If you want to support five payment methods, you're building five separate flows (though most processors provide libraries that make this easier).

The practical approach is to start with card payments, measure which other methods your customers request, and add them one at a time. Adding a new payment method typically takes a few days of development work if your processor has good documentation.

Pricing models and how they affect your margins

Payment processors charge in different ways, and the model you choose affects how much you keep from each transaction. The most common model is interchange-plus: you pay the processor a percentage of the transaction (usually 2.2% to 2.9%) plus a fixed fee per transaction (usually 30 cents).

Some processors offer flat-rate pricing instead: a single percentage regardless of card type or transaction size. Flat-rate pricing is simpler to understand but usually costs more if you process a lot of transactions.

A few processors offer tiered pricing, where your rate depends on the card type (debit cards cost less than credit cards, for example). Tiered pricing can be cheaper if you process mostly debit cards, but it's harder to predict your costs.

If you're building a marketplace or a platform where multiple sellers receive payouts, your processor will also charge a fee for each payout. Stripe Connect, for example, charges 1% of each payout to a connected account. These payout fees add up quickly if you have many sellers, so factor them into your pricing model early.

Handling refunds, disputes, and failed payments

Embedded payment processing doesn't end when the transaction succeeds. You also need to handle refunds, customer disputes (chargebacks), and failed payments — all of which happen regularly.

Refunds are straightforward: your software sends a refund request to the processor, and they return the money to the customer's card or bank account. Most processors process refunds within one to three business days. You should build a refund interface into your software so your customer support team can issue refunds without contacting the processor directly.

Chargebacks occur when a customer disputes a charge with their bank. The bank investigates and either sides with the customer (the charge is reversed) or with you (the charge stands). Chargebacks are expensive — processors typically charge $15 to $100 per chargeback — and they damage your reputation with the processor. The best defense is to keep detailed records of what the customer purchased, when, and what they received. If a customer claims they never authorized a payment, you can provide evidence to the processor.

Failed payments happen when a card is declined, a bank account is closed, or a digital wallet is out of sync. Your software should handle this gracefully: show the customer an error message, let them try a different payment method, and optionally retry the payment automatically after a few days (for subscription payments). Most processors provide webhooks — automated notifications — that tell your software when a payment fails, so you can respond when ready.

Compliance beyond PCI DSS

PCI DSS is the main compliance requirement, but there are others depending on your business model and which states your customers are in.

If you operate in California, you must comply with the California Consumer Privacy Act (CCPA), which gives customers the right to know what data you collect, delete it, and opt out of sales. Payment data is covered by CCPA, so your privacy policy must explain how you handle it.

If you're a marketplace connecting buyers and sellers, you may need to comply with money transmitter laws in certain states. These laws require licensing if you hold customer funds or facilitate transfers between parties. Stripe and Square handle this for you by holding the funds and paying out to sellers, so you typically don't need a money transmitter license. But if you build your own payout system, you may need one.

If you accept ACH bank transfers, you must comply with the NACHA rules (National Automated Clearing House Association), which govern how bank transfers work. Again, most processors handle this for you.

The safest approach is to use an established processor and follow their compliance guidelines. They have legal teams dedicated to staying current with regulations, and they'll notify you if something changes.

Frequently Asked Questions

Do I have to use a payment processor, or can I connect directly to the card networks?

You must use a processor. The card networks (Visa, Mastercard, American Express) don't work directly with individual software companies — they work through banks and processors. A processor acts as the intermediary that connects your software to the networks and handles compliance, fraud detection, and payouts.

What happens if my processor goes out of business?

Your customers' payment data is safe because it's tokenized on the processor's servers, not in your database. However, you would need to migrate to a new processor and update your integration. This is why choosing an established processor with a long track record matters — the risk of failure is lower. Stripe, Square, and PayPal are all well-capitalized and unlikely to disappear.

Can I accept payments without storing any customer data?

Yes, if you use a hosted payment form or a processor-provided form component. The customer enters their payment information into a form hosted by the processor, and you never see the raw data. Your software only receives a token, which you can store safely. This is the most find approach and requires the least PCI compliance work on your end.

How long does it take to integrate a payment processor into my software?

It depends on the processor and your approach. Using a pre-built SDK and a hosted payment form can take a few days. Building a custom integration with full control over the user experience typically takes one to two weeks. The processor's documentation and support team can give you a more specific estimate once you choose one.

What payment methods should I support to start?

Start with card payments (credit and debit cards). Cards are the most common payment method in the U.S., and nearly every processor supports them. Once you're live and have real customers, measure which other payment methods they request and add them one at a time. Most SaaS companies add digital wallets (Apple Pay, Google Pay) second, then ACH bank transfers.