Business looking to implement a payment integration solution often aren’t fully aware of the types of payment facilitations available to them, or the respective issues. Making a decision about a Payment Processing Partnership and how payments will be facilitated to your software user base shouldn’t be made without fully understanding the range of options for your business to explore. Often the customer onboarding process also becomes an important consideration. Checking Account Owner Authentication can help in mitigating onboarding risk.
There tends to be two approaches when thinking about a Payment Processing Partnership:
- Looking in from business side of things:
- Usually a stakeholder with lesser or no coding involvement at all focuses on how payment integration will affect their user base in the long run, as well as how the integration will enhance their bottom-line.
- Looking in from the developer side of things:
- A stakeholder with a great deal of hands-on involvement with the application coding, they commonly look towards providing multiple payment integrations – much more of an agnostic approach to payments facilitation.
Available facilitation possibilities include:
- Payments Partnership
- Utilizing a payment aggregation service.
- Standard merchant account.
- Becoming a payment aggregator yourself.
- Hybrid Aggregation.
- Third party processor-to-bank integration.
The Payment Processing Partnership: Typically an agreement with a processing organization to share revenue in return for the leverage of the merchant organization. Leverage can be measured a couple of ways; application potential and existing transactional volume. (Learn more about Payment Processing Partnerships)
The processing organization might also participate with marketing support, mobile application development assistance, survey creation, or tweaking existing systems to meet the needs of the user base. Organizations who choose the Payments Partnership option tend to be driven by price sensitivity. The sell point to their user base and/or potential profit to the SaaS organization’s bottom line is the most important aspect for these businesses.
Understanding your Organization’s Leverage:
Many organizations tend to undervalue their leverage. Existing volume is easy to measure, but application potential can be harder to measure. Measuring application potential requires taking into account stakeholder history, organizational funding, developmental status of the application and a review of it by the potential processing partner, market data provided by the SaaS organization, and market awareness of the potential processing partner.
Utilizing a payment aggregation service
Applications like Square and Stripe have been popularized because of their great API, easy integration, and reduced friction of onboarding in aggregation services. In these cases costs will be slightly higher than typical merchant accounts.
Other factors that should be explored such as:
- Account holds
- How would increasing processing volumes be affected?
- What kind of customer service do the users of your application get when they need answers about payments processed?
Standard Merchant Account
A processor who provides your application users a merchant account to process means that every application user interested in being able to process payments (within the application) would be required to be underwritten and complete a processing application.
While this may seem like added friction, the actual amount of friction depends on a number of factors. SaaS application-specific boarding can be arranged, assuming there’s partnership potential.
The positives can far outweigh any friction. Positives include:
- Recurring payments adoption plans plus implementation assistance from the processor
- Lower processing fees
- Superior support
- Support of the application’s business itself.
- Recurring revenue to the application stakeholders
Becoming a payment aggregator
Becoming a payment aggregator is usually not the most prudent choice for a business. Businesses see the potential for frictionless onboarding without weighing up the compliance, expense, risk mitigation, legal work and staffing concerns that are associated.
Hybrid Aggregation or Hybrid PayFac
Hybrid Aggregation can be thought of as managed payment aggregation. Looking at the aggregator example above, we can eliminate the initial expense, underwriting and risk mitigation concerns, compliance and legal expenses by having a specialized payments firm manage those aspects for you. The benefit is frictionless boarding.
Third party processor-to-bank integration
This model basically only refers to ACH Payments (e-checks). Employing ACH processing usually benefits software applications whose using companies have recurring payments needs. Not only are costs lower, but bank accounts don’t expire or get closed near as often as credit card accounts. However, underwriting can be more difficult, and poor underwriting is the leading cause of this model’s failures. Many ODFI banks have very strict policies that prohibit certain types of transactions, some you wouldn’t think would be considered high risk.
Make sure you understand all available options, and the accompanying pros and cons before choosing a Payment Processing Partnership.