Rainforest helps software platforms grow revenue by embedding payments into their product without taking on risk or compliance headaches. Where many payment providers focus on reducing cost, Rainforest provides a best-in-class payments experience that drives volume expansion, profit, and enterprise value for their software platform partners. Rainforest recently announced its $20M Series A led by Matrix Partners with participation from Infinity Ventures, Accel, and BoxGroup.
After exiting my previous startup, Patientco, a patient financial engagement company, I spent several years running a consulting firm where I helped software companies embed payments and other financial services into their products. Regardless of a software company’s industry – be it retail, construction, logistics, non-profit management, or any other vertical – payments is a universal language. What I noticed was that software platforms are looking for the same critical things: a payment provider who has modern, robust technology, great developer experience, exceptional customer service, fair commercial terms, and full portability of merchant data. These software companies are experts in their respective verticals, and they’re relying on a payments partner to help them grow and thrive.
Despite looking at every possible option, I could never find a provider that checked all those boxes. On the one hand, the new upstart PayFac providers were mostly just wrapping other processors and had all of the problems of their predecessors, plus unproven tech. On the other hand, the large modern processors were all originally built for direct merchant processing; they had to retrofit their platform to even be able to support embedded payments via software platforms. Plus, none had enough knowledgeable and experienced talent to offer the level of service that I knew growing software companies were hungry for.
From my experience building a payments company at Patientco, and then sitting in the buyer's seat with dozens of software companies, I knew I could do better. My vision was to set the new industry standard for both service levels and commercial terms, while providing state-of-the-art technology.
Our platform clients are vertically-focused SaaS companies. For example, patient billing platforms for healthcare, business management platforms for the logistics and trucking industry, and order management platforms for niche retailers. One of our platform clients was working with six different payment providers and, because these were referral relationships, the platform was earning very little revenue from payments. The merchant experience was disjointed because none of the payment providers were fully embedded; merchants had to log into the payment provider’s portal and contact the payment provider’s support team. And the platform didn’t own the merchant onboarding data, card data, or transaction data.
The platform initiated a strategic initiative to consolidate and optimize the payments experience. As an established company with a large, complex codebase and more than 15 different checkout flows, they wanted a partner who would help them navigate and manage the implementation. They had tried a few other providers, but none provided the high-touch support that the platform was looking for combined with the profit potential needed to invest in the implementation and migration. The platform ultimately chose Rainforest to back its new branded payments product and lead the migration.
In less than 4 months following contract signature, they had successfully completed the full integration using Rainforest’s full suite of embedded components. Throughout the process, Rainforest provided hands-on project management including on-site support and working groups. The platform now has their own branded payments product, backed by Rainforest. Payments are fully embedded, so merchant onboarding, payments, and reporting are part of a unified platform experience. Our support team is working closely with the platform to migrate merchants from legacy providers to the platform’s new embedded payments product. The platform now has complete control of the merchant relationship, and payments revenue is increasing by up to 2x as merchants are migrated.
Rainforest was purpose-built for platform payments, and that shows not just in our technology, but in the way we operate. One of the hidden challenges of payments is risk management. This adversely impacts vertically-focused SaaS platforms when they experience low merchant approval rates because their mainstream payment providers don't understand how to underwrite the vertical. Rainforest works with these SaaS platforms to make sure the risk model is aligned with the industry/vertical.
Payment providers generally take one of two approaches to risk management: mainstream and high-risk. Mainstream payment providers tend to have a rigid underwriting model and only work with merchants who fit that model. High-risk providers accept some of the merchants that mainstream providers reject, but assess significantly higher processing fees and tend to lag significantly behind in technology. The industry has created a false dichotomy where anything that doesn’t fit into the mainstream profile gets dumped into high-risk. The reality is that many merchants who don’t quite fit the mainstream risk profile don’t actually have a high-risk profile, either… they just have a different risk profile.
Mainstream providers tend to mitigate risk with blunt tools like holding payment reserves or delaying payouts, which can be disruptive to merchants. In contrast, Rainforest collaborates with the SaaS platform to use more surgical risk-mitigation techniques. As part of our innovative approach, we develop a vertical-specific underwriting model for each platform and leverage custom data from each platform to improve transaction monitoring. No other payment processor has created the end-to-end risk platform which starts with merchant onboarding and continues to transaction monitoring.
In addition to our platform-specific risk model, we fully delivered on the three critical needs I had identified as a consultant: technology, commercials, and support. We built robust, modern technology with a great developer experience – we didn’t wrap around a legacy processor or retrofit a direct merchant processing solution for platforms. We built from the ground up for platform payments, and every auditor who has evaluated our technology has said that we are more advanced and more secure than much larger companies.
Our commercial terms are the friendliest in the industry. Our standard pricing enables most platforms to increase their payments revenue by at least 2-3x compared to working with an ISO. The platform has full ownership of their merchant onboarding data, transaction data, and card data. And our terms are so fair that most of our contracts are executed with few or no redlines.
Looking at support, we have an advantage because we’re a team of payments experts focused exclusively on platform payments. We’re not upselling and supporting 20 ancillary products, we’re highly motivated to help our platform clients grow their processing volume. Our experienced team takes a high-touch, consultative approach to help platform clients increase adoption, optimize interchange, and turn payments into a profit center.
From my past experience, I knew intuitively that the opportunity for embedded payments was massive and there was strong dissatisfaction with existing payment providers but, over the last 2 years, I’ve realized that both the opportunity and the dissatisfaction are even more significant than I originally thought. Every week, I have the privilege of meeting software founders and CEOs in various verticals. I’m amazed by the niche offerings. For example, we’re working with SaaS platforms for shed builders, trucking companies, roofers, nonprofits, healthcare providers, youth sports leagues, equipment rental businesses, and craft beverage distributors, just to name a few.
Software is becoming more and more specialized to the workflows of specific industries and even niches within those industries. For example, a platform for roofers enables the roofer to use satellite pictometry to generate roof measurements, generate a quote based on those measurements, send the quote to the prospect, book the project, create a work order, manage the project and budget, invoice the customer, and collect payment all in one place. SaaS platforms are emerging in every imaginable vertical and, regardless of the vertical, at some point in the workflow a merchant needs to get paid. Study after study has shown that merchants don’t want standalone payments, merchants want embedded payments along with other value-add services, thoughtfully implemented in a way that facilitates their day-to-day operations rather than creating more work. The platforms that get this right are the most successful.
And because I’m talking with these platforms every day, I’m also hearing directly from the platforms about their frustration with other payment providers. Providers are piling on a litany of fees, which erodes platform revenue. The reporting provided by some payment providers doesn’t show how the fees are applied to each transaction, so it’s difficult for platforms to even discern whether or not they’re being billed correctly.
A product manager recently described this whole experience to me. When they reached out to their payment provider to ask about the fees, their Account Manager deflected by asking about their monetization plans and attempting to upsell other new ancillary financial products. And this is the narrative from a platform that is “lucky” enough to even get a response. We hear from many platforms that they’ve had 3 or more Account Managers in the last year due to RIFs and attrition, and it often takes weeks or months to hear back.
The lack of transparency and support from other payment providers is an enormous opportunity for us at Rainforest, and we’ve leaned into it. We have full pricing transparency and penny-perfect reconciliation, making it easy for every platform client to understand their residuals report.
Where a lot of other payment providers optimized their commercial models around locking platform clients into a long-term contract, we earn our clients’ business every month – and it shows in the quality of support we provide. Our standard terms include no monthly minimum, no long-term commitment, and full merchant portability. Instead of holding our platform clients hostage, our commercial model was designed to help them grow.
As a repeat fintech founder, I have had the opportunity to work with many investors over the past two decades. When we were fundraising for our seed round, I wanted to make sure that we had fintech experts around the table. I wanted people who really understand payments and fintech. Fintech is unique because we’re building in a highly regulated space. It’s important that our investors understand the journey we’re about to go on. Infinity Ventures is one of those fintech experts.
Infinity Ventures in particular has been fantastic to work with. They bring deep knowledge and expertise of both payments and fintech. This has enabled them to become trusted advisors and thought-partners to me and my entire leadership team. Additionally, as former operators with deep M&A experience, they have extensive networks spanning software companies and the payments ecosystem. Infinity Ventures has been extremely helpful with industry connections both for partnerships and recruiting.
We started with getting the basics right: technology, commercials, and support. Going forward, we’re looking to enable more payments rails and provide even greater flexibility with funds flows. We’re also continuing to build out our open ecosystem. We want to enable our platform clients to connect with a full suite of adjacent capabilities including BaaS, card issuing, lending, etc. We’ve chosen the partner ecosystem approach in order to provide this capability without losing focus on our area of excellence, which is platform payments. Platforms shouldn’t have to choose between great tech, attractive commercials, and incredible service, and we’re committed to being the payment provider that offers all three.
