Software and payments are converging in the commerce markets serving European small and medium enterprises (SMEs), a model that already dominates SME commerce in the US. Stripe, for instance, has partnered with Lightspeed and Mindbody in the US.

These platforms are developing integrated business management and point-of-sale software, often with their own designed hardware. They bundle or integrate payments with one or two strategic payments partners to create new revenue streams and improve the merchant experience. Typical target industries include restaurants, gyms, pharmacies, and retail—sectors in which integration enhances operations and the end customer experience.

However, SME commerce in Europe will likely diverge from the US playbook for several reasons.

• Europe’s highly local and fragmented software vendor landscape: Bain and Nexi estimate that more than 2,500 vendors operate across the Nordics, UK, France, Germany, Austria, Switzerland, Italy, and Eastern Europe, with the largest vendors serving only 30,000 to 60,000 merchants. Some of the most mature markets are dominated by platforms that specialize in vertical industries (see Figure 1).
• Local and complex regulation: Regulation varies substantially among markets both for payments and on industry-specific dimensions.
• Dominance of local payments methods: We estimate that in the Eurozone, roughly 50% of digital payments rely on local schemes, such as local debit or credit transfers, or alternative payments methods, which are country-specific and required for high conversion rates in many industries.
• Less attractive unit economics: European SMEs spend between €1,500 and €3,000 annually on software vs. €4,000 to €5,000 in the US, we estimate. Moreover, European payments economics are three to four times lower than the US economics because of lower average transaction volumes for merchants, lower total take rates, and capped interchange fees.
• High compliance and costs burdens: Extensive EU regulation in money laundering, know your customer, and other areas drive up costs. Also, if European software vendors want to assume control of payments flows via a payments facilitator model (common in the US), they must become registered and regulated financial institutions.

Figure 1

These factors make scaling payments revenue and improving the customer experience more challenging in Europe. They tend to promote reliance on a specialized payments partners to reduce investment costs and manage local fragmentation and regulatory complexity.

The case for integrated payments

Still, integrated payments remain a major opportunity for software vendors. We expect natively integrated payments volumes (in which payments processing is built directly into a business’s software) to increase at a roughly 25% compound annual growth rate (CAGR) in-store and about 10% when e-commerce is factored in vs. just about a 5% CAGR for broader EU digital payments. By 2030, natively integrated payments could represent more than 30% of the total SME revenue pool in Europe (see Figure 2). Natively integrated payments will also be boosted by a regulatory push in some countries, such as Italy, to further the integration between point-of-sale terminals and cash register software.

For SME commerce platforms, integrating payments can become a profitable new business line. It allows them to tap into the payments revenue pool, earning a profit on every transaction. They can use payments data to deliver richer insights and data-driven add-ons, such as discount offers for loyal customers or analytics on competitors. They can monetize new services such as recurring billing and instant payouts. Ideally, integrating payments will raise the retention rate of customers as owning the transaction flow makes the platform stickier to merchants.

The key to realizing this opportunity is identifying the appropriate model for integrating with the payments provider.

Choosing the appropriate model

The path to integration will depend on each SME commerce platform’s scale, ambition, and risk appetite. Tighter integration brings more control and profitability but also greater complexity. Four common partnership models—namely, lead referral, agent or independent sales organization, full reseller, and full payments facilitator—have emerged.

• Lead referral: The platform directs merchants to a partner payments service provider and earns a referral fee. The payments provider manages the sale of the payments capabilities. This model can get to market quickly, but the profit margin is limited.
• Agent or independent sales organization: The platform sells integrated payments on behalf of a payments service provider’s rails, earning a share of revenue. This gives the platform more control, and it captures a higher margin than referral. But it requires more commercial effort and broader technical integration.
• Full reseller: Payments capabilities are fully integrated within the platform, with the platform selling integrated payments via a wholesale price agreement. This allows the platform to optimize the checkout experience and maximize payments revenue, but it brings a high level of commercial and technical integration.
• Full payments facilitator: Here, the payments service provider manages onboarding, risk, and settlement. This model generates the highest share of revenue, but it requires heavier regulatory compliance effort and upfront technology investments.

In all cases, payments should be run as a profit center, tracking its own profits and losses, economics, and customer key performance indicators. The opportunity is substantial, but capturing it will take bold bets, the appropriate partners, and a clear-eyed view of what it takes to win.

Next steps: Lessons from early movers

Launching payments may feel daunting for platforms given that the endeavor might have to compete with other priorities such as refining the core software product and scaling distribution. A few lessons from the pioneers can inform the journey.

Start small; plan big. Investing early in complex integration and sophisticated partnerships can slow the go-to-market effort, cede space to more agile competitors, and delay the learning curve. It’s more effective to put products in the hands of merchants as soon as possible, then evolve the merchant experience over time.

Battle for the entire merchant ecosystem. Integrated payments should be a piece of a broader merchant feature and service ecosystem that the commerce platform offers to expand value for customers. Maximizing payments revenue while not considering the broader view will be less effective than making payments simple for customers.

Anticipate complexity. Payments sit at the intersection of complex technology and multilayered regulation. Leveraging payments partners’ expertise can avoid expensive mistakes and delays.

Plan for customer support. Payments have a higher frequency of customer support contact than software does. A commerce platform should evaluate how to deploy efficient customer service, leveraging the payments provider in order to avoid degrading service and customer satisfaction. This imperative will influence the choice of integration and partnership model, with more complex models requiring more customer service effort from the platform side. Trying to do too much, too early, and with limited customer service scale can disrupt operations.

Choosing the appropriate payments provider

For most platforms, it will be too complex to work with more than two partners at the same time. When selecting a single partner, platforms can assess each potential partner through a set of high-gain questions.

• Can they flex? Can the provider flex with different business models to allow a quick start? And can they evolve as volumes grow?
• Do they have multiple integration options? Can the provider offer customizable, multiple integration options across the merchant journey? They might have simple partner portals for administrative tasks and sophisticated application programming interfaces for checkout integration. Can the technical setup flex over time to allow the platform to calibrate investments?
• Is the journey simple and digital? Does the provider offer simple digital moments of truth, such as customer onboarding paired with solid local-country regulatory compliance, so that the platform is both hassle-free and risk-free?
• Are they close to the merchant? Can the provider scale up customer support to merchants through multiple channels and in the local language? Can it supply local payments rails and capabilities to boost in-store conversion?
• Can they accelerate business? Can the provider go beyond pure transaction if needed? Examples include devices and terminals for different store formats, embedded finance and financial products, commercial boost programs, and local support.

Integrated payments present a clear strategic opportunity for platforms in European SME markets beyond payments revenue to mining the commerce ecosystem around the merchant. Platforms that make deliberate integration choices—that is, those aligned with local regulation, industry needs, and their investment appetites—will be best positioned to capture durable growth. Europe’s fragmented market puts a premium on building focused partnerships with the appropriate providers and embedding payments as a strategic lever for long-term relevance and value creation.

About Nexi

Nexi is a payments technology company operating in high-growth European markets across a range of payment channels and methods. Nexi offers merchant solutions, issuing solutions, and digital banking solutions. As it invests in technology and innovation, Nexi focuses both on meeting customer needs and creating new business opportunities for them.