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Payment Facilitation and SaaS Platforms: The Perfect Fit?

SaaS platforms typically have fierce competition for the same end customer. Those that don’t look to continually offer new, sticky solutions as well as find new ways to further monetize their base, end up losing so much ground they ultimately have to close their doors.

For application looking to avoid that fate adding or enhancing payment functionality and options can drive both increased revenues and customer acquisition rates.

Payments and rules/compliance obligations often conflict. The pace of regulatory and legal enhancements are often significantly behind the technology and entrepreneurs looking to create payment solutions.

Fortunately, one area that has evolved to offer SaaS platforms a method to monetize payments and acquire customers is Payment Facilitation.Payment Facilitation offers SaaS Platforms Payment Solutions

Acting as a Payment Facilitator offers the SaaS application the ability to control the end customer's payment experience. You essentially become a master merchant and board your client’s as sub merchants. They can apply and be approved and be processing in 15 minutes.

The frictionless onboarding is the primary allure of acting as a Payment Facilitator. Traditionally a merchant would have to complete fairly onerous paperwork, show business  formation and bank documents and then wait 3-5 days for their approval. Square built their business on”Buy our dongle at Rite Aid, fill out a quick form on our website and take payments in 15 minutes”.

Payment Facilitation is relatively new and because of the perceived risk the Payment Facilitation platform provider assumes [financial loss and reputational risk], the process to actually act as the Payment Facilitator was very complicated with much vetting and underwriting having to be done. Combined with significant time and expense only larger companies with significant resources were given the green light to become a PayFac.

Fortunately a Hybrid or Managed Payment Facilitator solution has emerged that offers the benefits of full blown Payment Facilitation [namely easy onboarding] without the massive time and expense.

In this model a platform could integrate to the Payment Facilitation platform in weeks and go to market very quickly. All without the significant upfront and ongoing costs involved in the true PayFac route.

There are instances when becoming a full blown Payment Facilitator makes sense. These include

  • Ownership of the entire payments process including contractual agreements with your platform users

  • Positioning the SaaS for an exit strategy where more value is assigned for customer “ownership”

  • Having a significant client base so that potential margin improvement as true PayFac exceeds implementation and ongoing costs.

 

Revenue potential | Client Retention | Client Attraction

 

There are multiple factors that will determine what revenue generation potential will be. As an example let’s use a platform user processing an average of $10,000 per month with an average transaction size of $50. The end user is being charge 2.9% and .30 per transaction. 20% of the payments are made via ACH at a charge of 50 cents per transaction.

In this example the SaaS provider would likely see $50+ per month in payment revenue. If you have 200 clients you potentially could generate $10,000 per month in recurring revenue.

Beside revenue generation there is also the added benefit of increased retention rates. When your application automatically bills end customers and reconciles payments the idea of switching providers becomes very painful.

For most businesses getting paid is job #1. If your application does this in a way that eliminates most of the very painful work of collecting payments your clients have a strong incentive for continuing to use your application.

Take this one step further. As you work to attract new clients leading with how you can make payment collection and reconciliation simple is a powerful customer acquisition tool. Making this simple to sign up for and quickly get going adds to the appeal.

So if your SaaS platform has or could add payment solutions you should take a closer look at how Payment Facilitation can benefit both you and your application users.

 

 

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Comments: (1)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 06 May, 2019, 11:53Be the first to give this comment the thumbs up 0 likes

It is impressive how I can copy-paste a few lines of code into my website and start accepting digital payments in a few minutes. However, it's depressing how the PSP (e.g. PayPal) puts a hold on my account after it has received money and when I want to withdraw it to my bank account and then asks me all the questions that banks ask before approving my merchant account. IME, when it comes to business payments, you face friction either before onboarding or after onboarding - a truly frictionless payments system is yet to be invented. And that includes blockchain payment systems. 

Carl Cotton

Carl Cotton

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OmenInvest

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This post is from a series of posts in the group:

Payments strategies 2015-2020-2030

Payments systems visions, strategies, trends, pilots, forecasting, and planning for the short-, medium-, and far-term.


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