Traditionally, many software-as-a-service platforms considered merchant services an additional benefit provided by some third party, such as an ISO.
Recently, SaaS platforms have realized that merchant services can become a substantial revenue source for themselves and not just for third parties. That is only if they implement embedded payment logic or integrated payment logic. By doing so, they can start monetizing payments as an added bonus to their core services.
Moreover, now it becomes clear that embedded payments not only provide an opportunity for payment monetization but also boost competitive advantage, increases customer retention and reduce churn. Sometimes, they even allow you to add certain critical features to the platform. With the addition of these features, your platform can compete with other alternative payment solutions on the market.
In the present guidelines, we will provide a list of key payment monetization mechanisms to monetize software-as-service platforms.
So, How Can a SaaS Platform Start Monetizing Payments?
Payment functionality is critical for a SaaS platform because it allows the platform to become the provider of merchant services. Thus, it can make some money by collecting its rightful share of payment and merchant service fees. Like we said, under the traditional merchant services model, this money, usually, went to the ISO.
So, besides the core product/service, that is the basic revenue source of the platform, it can implement alternative mechanisms for monetizing payments. These mechanisms both generate additional revenue streams from payments and also motivate customers to use merchant services now provided by this particular platform.
Now we’re able to move on to specific components of a payment monetization strategy.
Payment monetization
through markup
Monetizing payments
through pricing plans
Monetizing payments:
advanced features
Monetizing merchant
funding service
Monetizing advanced
reporting and customer
monitoring
Monetizing payments: a
strategy for franchise
services
Monetizing payments
through hardware/
terminal leasing
Surcharges for
additional gateway
usage
Bonus
Monetizing Payments Through Markup
The first and most typical mechanism for monetizing payments is based on markups. That is, a SaaS platform can provide motivate merchants to increase processing through the platform by offering favorable pricing policies. A SaaS platform can incentivize merchants to process payments through its platform by offering discounts or favorable pricing policies. For instance, it can offer processing services at a discount if the merchant’s consolidated processing volume exceeds some threshold. Thus, it motivates merchants to consolidate payments.
Example 1
Let’s assume that the average processing cost amounts to 2.5%+$0.10. The platform charges the merchant 2.9%+$0.25. Residual revenue sharing is the industry’s core principle. So, the platform provider can fully or partially collect the difference of 0.4%+$0.15 per transaction.
Moreover, the markup can vary depending on the particular transaction pricing strategy and service plan.
Monetizing Payments Through Pricing Plans
Any software-as-a-service platform charges certain fees for its services. Usually offering two or three different service plans to its customers. Traditionally, a basic, standard, and premium service. So, availability of payment logic within the platform’s offering can motivate its users to choose more advanced service plans.
Example 2
Let’s assume a SaaS platform offers some basic service plan that does not include any payment functionality at a price of $14.99 a month. A standard plan for $24.99 a month includes payment processing for 2.99%+$0.25 per transaction. Then, a more advanced (or premium) plan costs $49.99 a month. It includes payment processing for 2.8%+$0.15$ and a “free” payment terminal for card-present transactions.
Remember, that any payment offering consists of various features. These include regular CNP payments, payment terminals for card-present payments, subscription-based payments, and other functions. So, a software-as-service platform can use certain payment features to motivate its subscribers to opt for a more expensive plan.
Monetizing payments: advanced features
In addition to basic payment processing functionality, SaaS platforms can monetize payments by offering more advanced payment features. Examples of such features include decline recycling, account updater, chargeback management, and others. Therefore, payment software companies and SaaS platforms can charge additional fees for offering these advanced payment features.
Example 3
Let’s assume, a SaaS company X processes recurring transactions (in additional to providing its core service). As customers’ card data (number and expiration date) changes with time, there is a need for its timely updates. So, the platform can offer automated account updater function. As a reward, it can:
• Charge $0.50 per update and earn on the markup
• Introduce an additional monthly fee of $10 for the feature
• Combine both listed payments monetization components
Monetizing Payments through Merchant Funding Service
As a rule, a merchant is funded one or more days after the transactions are processed, usually within two business days. For instance, the proceeds from transactions processed on Monday, land on the merchant’s account on Wednesday or Thursday.
In some cases, merchants might need the funds before transaction processing or the next day after it. This feature is especially relevant for merchants that collect recurring payments on certain dates of the month.
Therefore, the platform might be able to advance some of the funds ahead of the billing date or speed up the funding process, charging an additional fee for the service. Obviously, the platform should have the required funds at its disposal.
Example 4
1) A standard deposit of funds to the merchant’s account, as mentioned previously, takes roughly two business days. For an additional fee of $50 a month, the platform can fund the merchant the day after the payment.
2) Let’s assume, a merchant is billing his customers on a recurring basis. The customers pay for the service twice a month, on the 1st and 15th day of each month. The approximate billing amount that the merchant charges on the 1st day of the month is $300,000. The approximate billing amount that the merchant charges on the 15th day of the month is $100,000. On the 20th day of a certain month the merchant needs additional $100,000. The platform owner knows that on the 1st day of the next month the merchant will get the next $300,000, so he can provide the requested advance for an additional fee.
Monetizing Payments through Advanced Reporting and Customer Monitoring
In order to perform daily or monthly fund reconciliation and profitability analysis, the merchant might require additional information. Traditionally, this information was only available from limited cumbersome legacy reports. These reports were provided by processors through ISOs, entrusted with management of the respective payment relationships. Advances in payment technology allowed payment platforms to provide this functionality directly, potentially charging an additional fee for the service.
Example 5
For an additional fee of $25 a month, a SaaS platform might offer a merchant advanced reporting functionality. Detailed reports might include information about:
• Each single deposit
• Each transaction from this deposit
• Fees collected from each transaction within the deposit
Monetizing Payments: a Strategy for Franchise Services
As we know, any franchise businesses’ main revenue source is the franchising fees it collects. So, if your platform serves franchise businesses, you can collect franchising fees directly from merchants’ proceeds. In this case, the franchisors won’t have to collect the franchising fees themselves. Integrated payments and integrated funding allow SaaS platforms to simply withhold these fees from merchant deposits. This feature considerably simplifies the process, so software platforms can rightfully surcharge additional fees for supporting it.
Example 6
Let us assume, a fitness franchise is operating a network of 100 fitness centers in a certain area. It uses the services of a SaaS business and decides to delegate payment experience to this same company.
The franchisor needs to collect $250 of franchising fees a month from each fitness center. In addition to the standard payment functionality, the SaaS platform offers the franchisor to collect the fees from the franchisees. It will withhold these fees from merchants’ deposits on the 1st day of each month.
The price it charges for this additional feature on a monthly basis is $9.99 per franchisee (fitness center). So, it means that the platform can increase its monthly revenue by almost $1000.
Monetizing Payments through Hardware/Terminal Leasing
The payment hardware leasing model is similar to the one often used by cable broadcasting companies. Modems, decoders, and cable boxes are rented by customers who pay modest monthly fees. After a year accumulated fees, usually, cover the cost of the respective hardware unit. So, all subsequent fees become the net revenue of the provider.
Moreover, nowadays, that Android payment terminals are available at the market, the model becomes especially relevant. Reason: Android-based payment hardware can not only process payments but also run other Android apps. Particularly, these apps can include restaurant software, POS systems or paperless document management. Thus, merchants get additional motivation for purchasing/renting of these terminals.
Example 7
A SaaS platform is offering merchants payment terminals for rent (or lease). The price of a terminal is $149, while the monthly payment for renting one is $14.99. So, after 10 months of service the platform will start generating profit from every merchant that rents a terminal. If it leases the terminals to 100 merchants, then the profit will amount to almost $1500 a month.
Monetizing payments through surcharges for additional gateway usage
A software-as-a-service platform usually partners with a single major payment gateway. However, some merchants might prefer to use the services of some other gateways for certain payment types.
So, SaaS payment gateway providers can generate additional revenue streams from payments by charging fees from third-party gateway users. That is, a SaaS platform can provide its sub-merchants with the option to process transactions through other gateways for a surcharge.
Example 8
Let’s assume the actual processing cost amounts to 2.5%+$0.10 per transaction. The SaaS platform charges merchants 2.9%+$0.25 per transaction if the merchant processes transactions through its primary partner gateway. However, if it processes transactions through another gateway, then the platform charges 4.4%+$0.25 per transaction. Depending on the platform’s contracts with specific gateways, it can either get the whole markup (1.5%) or share it with the respective gateway providers.
Bonus: Monetizing Payments Through Savings and Indirect Costs
When we think about payment monetization services for platforms, we mostly focus on increasing the number of revenue streams. However, as the proverb says, every dollar saved is a dollar earned. Integrated payments not only help you grow your revenue but also effectively cut down on expenses. Thus, they allow you to allocate more funds to your core product development.
For instance, embedded payments allow you to reduce the cost of merchant onboarding. Additionally, as merchant statements become more transparent, you are also saving funds on tech support. Clearer statements reduce the number of support calls from the merchants because available reporting data answers all their potential questions.
If you use advanced flexible payment technologies, such as UniPay Gateway, onboarding becomes instantaneous and frictionless. Consequently, it takes much less time, effort, and resources. Additionally, it allows the platform to get detailed information on transactions and batches processed (in the case of subscription-based payments). When it comes to merchant funding, you can get additional information on specific deposits necessary for payment reconciliation.
Conclusion
If you are a SaaS platform, then you have an opportunity to benefit from payment monetization. For this purpose, you can focus on monetizing payments through both adding features to your product and reducing indirect costs.
With the right payment partner, such as UniPay Gateway, you can always have the system adjusted to the specific needs of your merchants. Using the licensed open-source-code API, your SaaS platform can develop additional logic and sell it as a value-added feature set.
The flexible white-label payment gateway technology UniPay gateway, already implemented by multiple SaaS companies, can make the process smooth and seamless. Feel free to contact us for details. And don’t forget to watch our shot video guides on monetizing payments for SaaS and embedded payment monetization.