Businesses interested in pursuing payment integration options are typically unaware of the range of payment facilitation options available to them, and the respective issues for each option. Choosing the correct Payment Processing Partnership and deciding how payments to your software base are taken care of are a vital component of your business’s success.

Credit Card Decline Mitigation Solutions

There are usually two schools of thought regarding a Payment Processing Partner :

  • The business side of things:
    • A stakeholder with lesser or no coding involvement at all tends to look more at how a payment integration will affect their user base in the long run, as well as how the integration will enhance their bottom-line.
  • The developer side of things:
    • Possibly a stakeholder, but 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.

The facilitation possibilities are:

  1. Payments Partnership
  2. Utilizing a payment aggregation service.
  3. Standard merchant account.
  4. Becoming a payment aggregator yourself.
  5. Hybrid Aggregation.
  6. Third party processor-to-bank integration.

The Payment Processing PartnershipThis is typically an agreement with a processing organization to share revenue in return for the leverage the merchant organization brings by way of their application-using market base. (Learn more about Payment Processing Partnerships)

The processing organization might also participate with:

  • Survey creation
  • Mobile application development assistance
  • Marketing support
  • Tweaking existing systems to meet the needs of the user base.

Those who choose the Payments Partnership option are typically price oriented, focused on the sell price to their user base and/or potential profit to the SaaS organization’s bottom line.

Understanding your Organization’s Leverage:

In general, organizations undervalue their leverage. Leverage is measured in two ways: application potential and existing transnational volume. Existing volume is self explanatory, but application potential is a bit trickier.

Measuring application potential includes:

  • Account organizational funding
  • Stakeholder history
  • Where the application is at in development and a review of it by the potential processing partner
  • Market awareness of the potential processing partner
  • Market data provided by the SaaS organization.

Utilizing a payment aggregation service

Applications like Stripe have seen success because of easy integration, great API, and reduced friction of onboarding in aggregation services. It should be noted that costs will be higher than typical merchant accounts.

Other factors that should be explored such as:

  • Account holds
  • How will increasing processing volumes be affected?
  • How good is customer service?

Standard Merchant Account

Choosing a processor who provides your users a merchant account means that every application user that wants to process payments (within the application) will be required to complete a processing application and be underwritten. This typically means more onboarding friction, but this depends on a number of factors. SaaS application-specific boarding can be arranged, assuming there’s partnership potential.

Positives can outweigh any friction that users might encounter in some cases.

These include:

  • Superior support
  • Recurring payments adoption plans plus implementation assistance from the processor
  • Recurring revenue to the application stakeholders
  • Lower processing fees
  • Support of the application’s business itself

Becoming a payment aggregator

Becoming a payment aggregator is often not the right fit for a business. Businesses see the potential for frictionless onboarding without taking into consideration the compliance, expense, risk mitigation, legal work and staffing concerns that accompany the onboarding value..

Hybrid Aggregation or Hybrid PayFac

Hybrid Aggregation can also be thought of as managed payment aggregation. Look at the aggregator example above, but eliminate the initial expense, compliance and legal expenses by having a specialized payments firm manage those aspects for you, and underwriting and risk mitigation concerns. The benefit will be frictionless boarding.

Third party processor-to-bank integration

This facilitation model refers to ACH Payments (e-checks). Employing ACH processing usually benefits software applications that have using companies with recurring payments needs. Costs are lower and bank accounts don’t expire or get closed near as often as credit card accounts. The downside is that underwriting can be difficult, and poor underwriting is the leading cause of this model’s failures. To make things worse, many ODFI banks have very strict policies that prohibit certain types of transactions.

Understand all available options, and the the potential drawbacks before choosing a Payment Processing Partnership.