6 Key Features of a Managed PayFac

A recent survey by Forbes Advisor revealed that only 9% of Americans still pay for their purchases using cash. For frequent purchases like gas and groceries, they are increasingly choosing to use credit and debit cards. Naturally for businesses, accepting payment cards has become unavoidable. 

As a direct consequence, independent software vendors (ISVs) that can process payments have a lucrative opportunity to grow their customer base and revenue by becoming a traditional or managed PayFac (or payment facilitator). In fact, Juniper Research predicts an 84% growth in revenue from embedded payments or PayFac-as-a-Service from 2023 to 2027, which translates to $59 billion.

In this article, we’ll explore the key features that SaaS businesses should look for in a managed PayFac solution.

TL;DR

  • For SaaS providers, becoming a PayFac may be a particularly lucrative opportunity as it can help them add a new revenue stream. However, becoming a traditional PayFac requires fulfilling strict compliance and regulatory obligations, building your own payment infrastructure, managing legal dealings with sub-merchants, partnering with payment processors, and taking care of many other operational aspects. 
  • In contrast, partnering with a managed PayFac solution provider takes far less money, effort, and time. The managed PayFac handles all compliance and infrastructure requirements while providing a payment facilitator model to its own customers or sub-merchants. 
  • The key features SaaS providers must look for in a managed PayFac solution are integrated payment processing, robust security measures, instant onboarding, dynamic pricing management, automated settlements and payouts, and an extensive partner ecosystem—all of which is offered by Stax Connect.

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Understanding PayFacs

Payment facilitators or PayFacs emerged in the 1990s and have now become a staple in the payments processing industry. Small- and medium-sized businesses would use traditional payment facilitators to accept online and cashless payments.

Square and Stripe were some of the earliest PayFacs but today there are numerous options for businesses to choose from. Even SaaS vendors may choose to become traditional payment facilitators or adopt a managed PayFac solution by partnering with companies that offer PayFac-as-a-service. 

Before we delve further, let’s try to understand what a payment facilitator business model means. Simply put, a PayFac is a third-party company or service provider that allows businesses to accept cashless payments (from debit and credit cards) and online payments. You may think of it as a master merchant that can process payments for sub-merchants within their payment app.

Without a PayFac, a business must go through the formidable process of identifying the right merchant acquirer (an acquiring bank that will host the business’ merchant account) and payment processor. They would also have to go through the traditional merchant account application and approval process which typically takes substantial time.

In contrast, a PayFac offers a quicker merchant onboarding process so sub-merchants can enroll and start accepting payments from customers in just a few hours. 

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What Is a Managed PayFac?

As a SaaS provider, becoming a PayFac may be a particularly lucrative opportunity for you as it can help you add a new revenue stream. However, becoming a traditional PayFac can be quite daunting. You must fulfill strict compliance and regulatory obligations, build your own payment infrastructure, manage legal dealings with sub-merchants, partner with payment processors, and take care of many other operational aspects. All this requires significant investments of time and money.

In contrast, partnering with a managed PayFac solution provider takes far less money, effort, and time. The managed PayFac handles all compliance and infrastructure requirements while providing a payment facilitator model to its own customers or sub-merchants. This can, therefore, be a low-risk option for SaaS businesses that don’t have the resources and financial/technical know-how to become a true PayFac. 

PayFac vs. payment gateway

Sometimes, there’s a bit of confusion with the terms payment gateway, payment processor, and payment facilitator (PayFac). So let’s clear that up before we delve into the important features of a managed PayFac.

A payment processor is essentially a financial organization, such as a bank, that connects a business to a card network (like Visa or Mastercard) and handles underwriting. It sends transactions to the networks, manages the transactions by approving or declining them, and oversees the settlement of funds among the banks of cardholders and businesses. 

A payment gateway is the technology used by a payment processor to process transactions. The technology collects, records, and transmits a cardholder’s data for authorization to a payment processor. Based on the result of the authorization, it then lets the cardholder know if their payment has been accepted or declined.

Key Features of a Managed PayFac Solution

Let us now take a look at the features you should be looking for when choosing a managed PayFac solution provider. 

Integrated payment processing

As a PayFac, you must allow your sub-merchants to accept multiple types of cashless payments. This includes card-not-present payments such as online payments and other remote payments that happen over fax, phone, and mail.

Your managed PayFac solution should also be able to simplify recurring payments and invoices. Plus, it should help you cater to a global customer base by allowing payments worldwide. 

With a managed PayFac model, your fintech business can focus on attracting more customers and building your core product while the PayFac handles and streamlines payments for your sub-merchants. Moreover, your SaaS business will earn a percentage of the payments made through your platform. So not only will you earn from your core offerings but also from these payment transactions.  

Robust security measures

With a managed PayFac, you do not need to worry about enforcing and meeting compliance standards. It’s their job to ensure that your platform as well as the sub-merchants that use it are PCI DSS compliant. The managed PayFac is also responsible for running KYC (Know Your Customer) checks as well as any other compliance or regulatory standards required for your business.

Managed PayFacs are also responsible for monitoring the transaction activity of sub-merchants to identify fraud, terrorism financing, and money laundering. With their technological capabilities, they also ensure data security through the encryption of transactions and cardholder data. Plus, they must provide secure data storage to avoid data breaches. 

Instant onboarding

With a managed PayFac, you don’t need to worry about setting up payment options, opening accounts for sub-merchants with payment processors, or maintaining a traditional merchant account with banks when onboarding new users on your platform.

Instead, you can add new users with just a few simple electronic forms and minimal paperwork. Since sub-merchants don’t need to have individual merchant accounts, they can be added and approved to accept payments through your platform almost instantaneously. This is perhaps the most useful functionality that a managed PayFac solution offers.

A managed PayFac solution will also offer a centralized platform management system that not only allows you to add customers quickly but also edit their information, view, and generate reports. It will also provide an overview of all your sub-merchants as simple dashboards.

The right solution provider will ensure that their software integrates easily with yours and that the resulting platform has an easy-to-use interface. 

Dynamic pricing management

As a PayFac, you can help your sub-merchants create more customized payment and billing features and thereby have dynamic pricing and flexible contracts based on the unique services they have chosen. 

With constant monitoring available to you from your managed PayFac solution, you can identify merchants that require additional payment services. You can then upsell or cross-sell to such customers, which creates new revenue streams.

Automated settlements and payouts

By providing an all-in-one payment solution to your sub-merchants, you can ensure that funds are transferred quickly (as the managed PayFac solution provider will have long-standing relationships with sponsor banks and payment processors).

A managed PayFac can also track all the transactions of your sub-merchants to identify any issues with payments and help resolve them quickly. Best of all, all these features are all automated. 

Merchant transactions will also be categorized and processed automatically in batches without any intervention from your business or your sub-merchants. Batch processing of payments reduces delays, cost overheads, and blockages in transactions. 

Extensive partner ecosystem

A good managed PayFac solution will come with APIs that are developer-friendly, while also being robust. This allows developers to easily integrate the PayFac software with your fintech product. Developer-friendly APIs also allow for easier integration later on with various third-party software if requested by your sub-merchants or when it is necessary to keep up with industry trends. 

A managed PayFac can also allow you to white label the payment experience so you may create a strong brand identity and become more recognizable to your customers. By offering customization suggestions based on data analysis, the PayFac can help you improve the customer experience of your SaaS platform. 

Why Stax Connect Stands Out

Stax Connect is an excellent option for software providers looking for a managed PayFac solution, especially those looking for web-based functionality. 

One of the notable benefits of opting for Stax Connect is that we offer a dedicated partner success manager and assistance from an acclaimed customer support team. They will guide you with the integration of Stax Connect, implementation of payment processing, etc., which is way better than being handed documentation that you may have to figure out with minimal support (which is often the case with other PayFac solutions). 

Final Words

A SaaS provider needs to consider their budget, goals, and resources before shopping for a managed PayFac solution. With the right one, you can expand your SaaS offerings and generate income from processing transactions with a low initial investment. Stax Connect is a great option not only because of its highly-rated customer service but also the ease with which it can get your sub-merchants to start accepting payments through your platform. 

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FAQs about Managed PayFac

Q: What is a PayFac?

A Payment Facilitator (PayFac) is a third-party company that allows businesses to accept cashless and online payments. Essentially, a PayFac acts as a master merchant that processes payments for sub-merchants using its platform. PayFacs make it easier for businesses to onboard quickly and start accepting a variety of payments, eliminating the need to go through traditional merchant account applications.

Q: What is a managed PayFac?

A managed PayFac is a specialized service that handles all the operational aspects of payment processing, including compliance, infrastructure, and onboarding of sub-merchants, on behalf of another business. This is an ideal solution for SaaS providers who want to add payment processing to their services without the burden of building and maintaining the infrastructure themselves. Managed PayFacs like Stax Connect offer a low-risk, high-reward solution for SaaS businesses.

Q: What should companies look for in a PayFac?

If you’re evaluating payment facilitators, be sure to ask them about their:

  • Payment integration capabilities
  • Security measures 
  • Onboarding process 
  • Pay processes 
  • Partners and API capabilities

How to Increase Customer Lifetime Value (CLV)

Customer lifetime value is a common buzzword heard in the world of sales and marketing. Yet it’s also a vital metric for SaaS businesses to track if they hope to achieve robust customer retention and stable profit margins.

Not to mention, CLV helps you to make informed business decisions about how to allocate resources to areas such as marketing, product development, customer support, loyalty management, and more.  .

Maximizing CLV involves identifying key touchpoints in the SaaS customer journey, and leveraging them to transform potential customers into dedicated advocates. In this blog, we’re going to cover what customer lifetime value is, how it influences the SaaS customer journey, and how software companies can increase CLV by enhancing the user experience.

TL;DR

  • Customer Lifetime Value (CLV) is a crucial metric for SaaS businesses, indicating the net profit expected from a customer’s relationship with a brand over time, influenced by purchase frequency, order value, and acquisition cost.
  • The SaaS customer journey comprises the stages of awareness, consideration, decision, retention, and advocacy. To increase CLV, businesses must optimize key touchpoints across these stages such as website visits, customer support, feedback, and loyalty programs.
  • Strategies to increase CLV include building strong customer relationships, implementing a robust customer success strategy, offering appropriate pricing models, and more.

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What is Customer Lifetime Value?

Customer Lifetime Value (CLV) is an important metric in SaaS, eCommerce, and retail that measures the profit that a business can expect to earn from a single customer over the duration of their relationship with a brand. This takes into account factors like average purchase frequency, average order value, and customer acquisition cost.

Put simply, CLV tells you how effectively you are realizing potential revenue. When CLV is low, this can be a sign that a large number of customers feel unsatisfied with your product or service, or aren’t being supported well enough to maximize their investment. Meanwhile, a high CLV indicates that you are retaining customers and finding ways to boost average revenue per customer.

Calculating customer lifetime value can be done in several ways. A basic customer lifetime value formula gives you an overview of CLV across your customer base for a defined time period:

CLV formula = (average revenue per user (ARPU) x (gross margin) / (churn rate)

SaaS brands can also use more granular customer lifetime value calculations if they want to segment their customers into different cohorts, or calculate predictive customer lifetime value.

Understanding the SaaS Customer Journey

Knowing how potential customers navigate the process from looking for a solution to becoming brand loyal is essential to acquiring customers—and in keeping them. While there may be some variations depending on the business model, the SaaS customer journey can be broken down into five distinct stages, which are:

Awareness. To become a loyal customer, consumers first need to recognize a need or pain point and begin looking for solutions to address it. Whether a potential customer will discover your SaaS product depends on effective outreach and marketing strategies such as social media, blogs, webinars, and paid advertising.

Consideration. This is the phase when consumers start comparing different SaaS solutions to determine which offers the best fit for their needs. This process involves learning about features, pricing models, and finding reliable testimonials. Businesses need to pay close attention to prospects during this phase and proactively engage with them for the best chance of conversion.

Decision. Once a customer has narrowed down the number of options available, they’ll want to examine the remaining solutions in more depth before they are ready to commit to a subscription. This could involve reading success stories from businesses in their verticals, testing product demos, and engaging with sales reps to ask more technical questions.

Retention. Once a customer has been onboarded, SaaS providers need to keep engaging with their users to ensure they are fulfilling their core value proposition. Customer retention is made easier when users can access rapid customer support, provide feedback on new updates, and enjoy a product that’s continuously being refined.

Advocacy. When customer satisfaction and brand loyalty are high, customers are more likely to recommend your solution to others and participate in referral initiatives. These customers are highly valuable in growing your business, as buyers trust the testimonials of other users far more than a brand’s own marketing efforts. With a high number of advocates on your side, generating new leads becomes more cost-effective.

To improve CLV, SaaS businesses need to identify the key touchpoints in each of these stages that help to transform interested consumers into loyal brand advocates. By investing in these touchpoints and creating more positive customer interactions, you can find more opportunities to increase lifetime value. Common touchpoints that influence CLV include:

  • Website visits
  • Customer support
  • Feedback and surveys
  • Referral programs
  • Onboarding
  • Product updates
  • Loyalty programs

How to Increase Customer Lifetime Value

Let’s dive into these touchpoints in more depth to understand how they can improve lifetime value.

Build strong relationships

Customer relationships are at the core of any successful business. As customer acquisition cost (CAC) rises, it’s no longer possible to achieve robust growth via customer acquisition alone.

Strong relationships go far beyond transactions and subscription renewals; SaaS companies need to ensure that existing customers feel supported and valued if they are to continue being customers, which makes customer retention central to increasing CLV.

Your interactions with customers should focus on creating long-lasting loyalty that drives repeat business and lowers your churn rate, in turn increasing the average customer lifespan.

Investing in personalization allows SaaS businesses to tailor their offerings to individual customer needs, preferences, and pain points by gathering valuable customer data on the user experience. For example, when a new customer signs up for a plan, you can ask them questions about their intended use of your software during the set-up phase. This enables you to tailor the onboarding process to focus on specific features that are relevant to their needs.

Personalization should be reinforced with effective communication strategies, such as regular email updates, proactive customer support, and user surveys that ask for feedback about their experience. This helps to build trust and improve customer satisfaction over time.

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Implement a robust customer success strategy

Current customers don’t only need to be nurtured to subscribe; they need to be nurtured to stay engaged and satisfied with what you offer. If customers feel neglected by a SaaS provider they’re not likely to stay committed for long, which causes LTV to tumble.

Customer success is a strategic approach that focuses on building customer loyalty and satisfaction over the long term. With a dedicated customer success team to hand, SaaS businesses can focus resources on boosting customer retention rates by ensuring customers are achieving their desired outcomes.

You can support your customer base by providing a personalized onboarding experience and ongoing guidance dedicated to their needs. Monitor customer behavior to identify customers who may be underutilizing your product and are at risk of churn. Regularly sending out educational content, such as webinars, tutorials, and help guides, empowers customers to maximize their subscriptions.

Offer the right pricing model

How you price your software product has a massive influence on the lifetime value of a customer – not to mention your bottom line. Common SaaS pricing models include:

  • Tiered pricing
  • Flat-rate pricing 
  • Feature-based pricing
  • Usage-based Pricing 
  • Freemium pricing

Offering multiple pricing plans gives customers choice and flexibility depending on their transaction volumes, which features they require, and how many user seats they need, among other considerations. Aligning your tiers with key customer segments ensures you are addressing key user needs and pain points, as well as providing robust upselling and cross-selling opportunities.

Add-Ons for specific features and services are another great option to consider, as this allows customers to customize their plans and pay for only what they need, while still increasing total revenue.

It’s important to remember that customer needs will shift over time, so you need to make it as easy as possible for them to change plans with minimal friction. Smooth transitions between plans and tiers will help CLV to grow over time while also minimizing churn.

Offer features and services that add immense value

A good place to start is by building an expanded ecosystem that brings together complementary features and services across a specific vertical. Creating an all-in-one SaaS solution streamlines workflows and minimizes the need for customers to seek alternative tools or integrations to get their tasks done.

For example, SaaS companies regularly offer integrated features such as payment processing or loyalty management, since the businesses who use their products may also have a need for these services. For example, Stax offers Stax Connect as an integrated payment processing functionality for merchants to add to their existing tech stack.

Encourage customer advocacy and referrals

Your best customers aren’t always those who spend the largest amount of money. Rather, the highest levels of CLTV are seen in customers who spend the most time telling other consumers about your solution.

By turning customers into advocates, you can create a self-perpetuating cycle of growth for your business that turbocharges lifetime value.

Brand advocacy is linked with high CLV because your most valuable customers attract new customers via activities such as leaving reviews and making referrals. According to Power Reviews, 98% of consumers feel that reviews are an essential resource when making purchase decisions

However, businesses cannot expect customers to undertake these efforts organically; to turn high-value customers into true brand advocates, you need to provide the right set of incentives.

A formal referral program enables you to reward customers when they bring in new business, as well as the incoming customers they’ve invited. Incentives include discounts, access to services in beta testing, or free plan upgrades to motivate customers to refer others.

Invest in continuous product improvement

Creating a SaaS product is not a ‘one and done’ process of development. To stay relevant, businesses must ensure their product continues to evolve and adapt to changing customer needs. The customer experience may suffer if your service no longer delivers the same level of value, or hasn’t kept up with changing market trends.

To continue refining your product, you need to understand what your customers are looking for and prioritize developing these areas. Run regular surveys to gather customer feedback on pain points they’ve encountered using your service, any product gaps, and what features they would most like to see added. It’s also important to keep a close eye on what your competitors are doing, as this could impact CLV if customers are being lured away by compelling new features.

It’s essential that your development cycle aligns with the needs of your customers, as well as your own marketing efforts. Long, drawn-out cycles risk frustrating customers, compared to smaller, more frequent updates that keep your product fresh and interesting. Something as minor as a new filter to help organize data can make a huge difference to customer satisfaction and lengthening the customer lifecycle.

Create loyalty programs and incentives

Loyalty programs are designed to segment your most loyal customers by recognizing and rewarding their value to your business. As opposed to ‘earn and burn’ rewards initiatives, an effective loyalty program fosters long-term engagement via incentives that encourage behaviors advantageous to your business, which increases CLV over the long term.

For example, rewarding customers with loyalty points or discounts when they complete a survey gives SaaS businesses valuable customer data to help refine their product and CRM strategy. You can also offer special discounts for customers who renew their subscriptions early or subscribe for longer periods of time, helping to reduce customer churn.

A tiered loyalty program is another option that allows customers to earn points based on their usage, tenure, or spending. Each tier unlocks escalating benefits for the highest-value customers, which can include priority customer support, early access to new features, upgrading plans at a discounted rate, and more.

For best results, continuously monitor your loyalty program to see whether it’s achieving your objectives. Be open to customer feedback about what rewards they would like so you can keep refining your program for the best results.

Final Words

CLV not only identifies ways to increase revenue, but helps SaaS businesses to allocate resources to initiatives that are effective at boost customer retention. Each stage of the SaaS customer journey – Awareness, Consideration, Decision, Retention, and Advocacy – hold pivotal touchpoints that can be leveraged to convert prospects into dedicated brand advocates who build recurring revenue for your business.

These touchpoints include building strong customer relationships through personalization, implementing robust customer success strategies, offering the right pricing model, providing valuable features, encouraging customer advocacy, investing in continuous product improvement, and loyalty programs.

Armed with these insights, it’s time to transform your SaaS business and begin developing your own set of CLV strategies. For more about preparing your SaaS solution for better customer experiences, check out Stax Connect.

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FAQs about Customer Lifetime Value (CLV)

Q: What is Customer Lifetime Value (CLV)?

Customer Lifetime Value (CLV) is a critical metric used in SaaS, eCommerce, and retail to gauge the profit that a business can expect to earn from a single customer throughout the duration of their relationship with the brand. CLV takes into account factors like average purchase frequency, average order value, and customer acquisition cost. A high CLV intimates good customer retention and effective ways to boost average revenue per customer.

Q: How is Customer Lifetime Value calculated?

Calculating customer lifetime value varies, but a simple approach involves an overview of CLV across your customer base for a defined time period:

CLV formula = (average revenue per user (ARPU) x (gross margin) / churn rate

Q: What does the SaaS Customer Journey comprise?

The SaaS customer journey comprises five distinct stages: Awareness, Consideration, Decision, Retention, and Advocacy. Each stage is essential for acquiring and retaining customers.

Q: What are the strategies to increase Customer Lifetime Value?

Some strategies to increase CLV include building strong customer relationships, implementing a robust customer success strategy, offering appropriate pricing models, offering features and services that add immense value, encouraging customer advocacy and referrals, investing in continuous product improvement, and creating loyalty programs and incentives.

Q: How can businesses build strong customer relationships to increase CLV?

Businesses can build strong customer relationships to increase CLV by focusing on fostering long-lasting loyalty that drives repeat business and lowers the churn rate. This can be achieved by personalizing the business offerings to fit individual customer needs, preferences, and pain points. Effective communication strategies, such as regular email updates, proactive customer support, and user surveys that ask for feedback about their experience, also contribute to building rapport with the customers.

Q: How does the right pricing model influence CLV?

The pricing model of your software product has a significant influence on the lifetime value of a customer. Offering multiple pricing plans gives customers choice and flexibility, caters to various customer segments, and provides opportunities for upselling and cross-selling. Add-Ons for specific features and services allow customers to pay for only what they need, while increasing total revenue.

Q: How do loyalty programs and incentives help in increasing CLV?

Loyalty programs recognize and reward the most loyal customers, fostering long-term engagement via incentives that encourage behaviors advantageous to your business, such as renewing subscriptions early or subscribing for longer periods. This helps in increasing CLV over the long term. A tiered loyalty program, for example, unlocks escalating benefits for the highest-value customers, such as priority customer support, early access to new features, and upgrading plans at a discounted rate.

Q: Why is customer advocacy important for increasing CLV?

Satisfied customers who recommend your solution to others, participate in referral initiatives, and leave reviews make up your most valuable customers. They attract new customers, contributing to a self-perpetuating cycle of growth for your business. Therefore, turning customers into advocates by providing the right set of incentives through a formal referral program significantly helps in increasing CLV.

Q: How does continuous product improvement contribute to increasing CLV?

Continuous product improvement ensures that your service delivers the same level of value and stays up-to-date with changing market trends, thereby preventing customers from being lured away by compelling new features from competitors. Further, understanding your customers’ needs and refining your product accordingly can greatly enhance customer satisfaction and extend the customer lifecycle.


 

The 6 Most Effective Strategies to Cultivate Payment Feature Adoption in SaaS Platforms

Developing and improving new features for your SaaS platform can take a massive investment. Unfortunately, the majority of software product features—80% according to some studies—go unused. 

That’s why if you put your money into high-value features like integrated payment functionalities, you still need to go one step further to ensure they receive a warm welcome. Optimizing your payment feature adoption funnel from awareness to usage will drive user engagement and increase software value. 

Streamlining the user onboarding process, conducting product analytics, or enhancing the app experience alone isn’t enough when introducing new features. We want users to adopt and make use of your payment features effectively. 

So, let’s understand how feature adoption exactly works and how it can help maximize your SaaS success.

TL;DR

  • Feature adoption is when users integrate new features—like payment processing—into their day-to-day operations. Some users may jump right in after the launch; others may require more push.
  • Done correctly, payment feature adoptions can help SaaS companies enhance user experience, boost revenue potential, and gain a competitive edge.
  • Encouraging payment feature adoption is a long-term goal, not a one-off. Start with making features visible, educating users, employing gamification and incentives, collecting feedback, and constantly improving the features based on user input.

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What is Feature Adoption?

Feature adoption describes how users embrace new features or functionalities rolled out by a service provider. Put another way, it indicates when and to what extent users recognize the value of these particular features.

Feature adoption occurs when users install the update, familiarize themselves with the new functionality, and utilize it in their day-to-day.

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Feature adoption vs. product adoption

Feature adoption represents a more targeted metric than product adoption. While product adoption encompasses overall product usage, feature adoption focuses solely on the adoption and interaction with individual functionalities.

Adoption rates can differ between user segments. Some may jump right in, while others may cling to the traditional and familiar tools they’ve been using. That’s why SaaS companies employ feature adoption strategies tailored to their target users’ needs.

For example: For payment features, multicurrency transactions and intuitive user interfaces can significantly boost adoption. But before we get into these strategies, let’s first explore the concept and significance of payment feature adoption.

Payment Feature Adoption: What Is It and Why It Matters

Payment feature adoption is the process of integrating and leveraging payment-related functionalities within your platform. 

It expands your niche offerings, from accepting diverse payment methods to managing subscriptions and automating invoicing processes.

If implemented correctly, payment features can enhance your platform’s value proposition in the following ways:

  • Enhanced user experience. 65% of businesses reported spending 14 hours per week on administrative tasks related to payment collection. Your clients’ merchants can streamline these processes by using your platform’s payment feature, saving them time and effort. 
  • Higher revenue potential. The payment processing market is projected to spike to $198 billion with a 12% CAGR. It’s driven by the growing use of solutions and merchants looking for alternative payment options. By releasing features tailored to your user ​​base (e.g., buy now, pay later options), you can capitalize on this market trend and tap into higher revenue potential.
  • Competitive advantage. Integrated payment processing can differentiate your brand from competitors in a crowded market. Users are more likely to opt for an all-in-one software solution with payment features than using and paying for multiple platforms.

However, factors like convenience, security, trust, availability, and familiarity come into play when it comes to payment feature adoption. 

The more user-friendly, secure, and useful your payment features are, the higher the chances of people using them. Consider following these strategies to inspire long-term payment feature adoption.

6 Strategies to Encourage Seamless Payment Feature Integration

Some users are laggards. Everett Rogers’ classic Diffusion of Innovation Theory describes this group as bound by tradition, conservative, and skeptical of change. They can be challenging to bring on board.  

New payment options may frighten them, especially if they’re used to existing ones. They may have concerns about migrating their current accounts and disrupting their workflows.

The following techniques and case studies illustrate effective approaches to encourage seamless payment feature integration and drive higher adoption rates.

1. Understand your users to deliver tailored solutions

You can drive feature adoption by building payment features that address users’ pain points and are compatible with their workflows. For this, you need to reorient yourself with what customers want and need.

Surveys and questionnaires are quick ways to gather this information and analyze user behavior. It will clue you in on use cases and user segments that would benefit most from this new feature. 

For example: eCommerce startups may require a simplified system with one-click checkout and saved payment information to reduce friction during checkout. Meanwhile, mobile-first users may prefer a seamless in-app payment experience that offers convenience and speed.

Let’s take the case of shelter SaaS company Shelterluv. The company initially used Stripe for its payment processing solution, Shelterpay. However, the integration fell short of their expectations, even disappointing them in two ways:

  • Stripe’s reporting didn’t meet the needs of Shelterluv client’s accountants and other finance managers.
  • Stripe held cash for a Shelterluv customer in Nevada and refused to release them despite multiple requests until brought directly to their CEO.

They finally switched to Stax after months of gathering and evaluating these inputs. In only two weeks, they had met half of their annual goal for pet adoptions and raised more than $15 million in donations. Reporting will also be simpler and more detailed, with a dedicated Stax expert to handle any issues that may arise.

2. Create awareness with accessible and visible features

In the absence of awareness, even the most innovative product features won’t be adopted. Make sure your new payment features are visible and easily accessible in the interface. 

In-app messaging and notifications can alert users of their availability. Meanwhile, visual cues like pop-ups and banners can guide users where to find them.

Outside of your app or website, you can share feature announcements on social media platforms like LinkedIn or Facebook to generate buzz and word-of-mouth.

Take this example from the professional service automation platform BigTime Software. On Facebook, it announced a product update featuring improved payment data flow between BigTime Wallet and Sage Intacct, a cloud-based accounting software. The post also informed readers of a beta feature for billing clients in their local currency.

Image2

Source: BigTime Software

But it didn’t end there. Notice the CTA that directed users to a blog post explaining the new payment features in detail. This strategy increases awareness and provides in-depth information to interested users.

Image3

Source: BigTime Software

The more visibility and feature information you provide, the more users are likely to engage with it. (Yes, you can do this even if your new feature is still in beta mode.)

3. Educate users about new features to eliminate barriers

Educating users about new features takes feature discovery to a whole new level. By providing functionality tooltips and tutorials, you empower users to leverage the payment features to their advantage.

Walk users through the process of setting up and using the specific feature. It can be video tutorials or interactive walkthroughs demonstrating how the payment feature integrates seamlessly into users’ workflows. 

Mango, a practice management tool, does the same to help users navigate the features, particularly complex ones like billing and invoicing. 

They offer webinars to thoroughly educate users on how to make the most of Mango’s Stax-powered payment features.

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Source: Mango

In your user guides, add pre-designed templates that showcase where to input information. These templates serve as visual aids, showcasing the step-by-step process and making it easier for users to follow along. 

For instance, you can provide sample templates for creating invoices, setting up recurring payments, or configuring payment preferences. These guides allow users to easily replicate the required inputs, resulting in a more accessible learning experience.

4. Gamify and reward users to motivate continuous use

Researchers found that gamified mobile money payment systems connect with users’ value systems and fulfill their desired needs. So, make the user experience more rewarding to boost adoption and user retention.

​​Explore no-code solutions like UserGuiding and Mambo.IO to implement gamification capabilities in your interface. They can help you display leaderboards, badges, or progress bars to incentivize users’ feature adoption and usage. 

You could, for example, have a point-based platform where users earn points or virtual currency for each successful payment transaction. Points earned can then be used for discounts, special deals, or access to premium features in your software.

Gamification techniques tap into human’s innate desire for achievement and recognition. Thus, infusing elements of fun, competition, and rewards into your payment feature experience can motivate users to engage more. 

5. Collect feedback to identify issues or areas for improvement 

User feedback is a powerful resource during the payment feature post-launch stage. It’s your direct line to users’ thoughts, opinions, and suggestions to refine your offerings.

Collect feedback from users regarding their experience with the payment feature. It may be through surveys, in-app feedback forms, or customer care channels. Then, build a feedback loop by responding and taking action based on the insights received.

If users find your payment process complex or suggest additional customization options, iterate on the features to foster higher adoption rates. This iterative process not only resolves issues but also shows users how you value their opinions.

GoJek, a multiservice tech platform, leaned into user feedback to drive improvements. Drivers on GoJek’s Driver App mostly stuck to the basic functionalities and didn’t bother with the updates. The team performed user surveys to gather insights on app usage and feature awareness. 

From this, they were able to learn which features need fixing. They streamlined the Driver App interface, simplified the menus, and enhanced overall usability with the data at hand. Through multiple iterations, the redesign improved feature uptake, with a 50% increase in visits to the menu featuring driver-friendly benefits.

6. Refine and iterate consistently to meet evolving user needs 

Payment features require continuous improvement and iteration, or they’ll end up being part of the 80% of features that are rarely or never used.

Monitor feature adoption metrics right after the feature release. Track key metrics, such as monthly user logins, monthly active users (MAU), number of feature activations per user, net promoter score (NPS), churn rate, and retention rate. 

These insights can’t only tell how well or poor your user engagement and feature usage frequency are. They can also help determine your monthly feature adoption rate, calculated as:

Monthly Feature Adoption % = (Feature MAU / Monthly User Logins) * 100

A higher adoption rate suggests that users are successfully integrating and utilizing the feature in their workflows. Conversely, a lower adoption rate may indicate the need for improvements or adjustments. 

Be sure to identify and tweak any issues negatively affecting your results. Even with favorable outcomes, measure performance and refine your features continuously. This ensures they’re functioning optimally and delivering the intended value to users.

Elevate User Experiences with Effective Payment Feature Adoption

Payment feature adoption is crucial for SaaS organizations and ISVs looking to develop extensive solutions for existing and new users. It enables customers to fully utilize your features’ full capabilities, which in turn enhances your platform’s overall value proposition. 

Positive feature adoption rates require ongoing effort, but you can start by:

  • making features visible
  • educating users
  • using gamification and incentives
  • collecting and responding to feedback 
  • continuously improving and iterating the features

These payment feature adoption strategies are easier to implement with a reliable payment processing partner. Optimize user journey today—Stax Connect fuels platform growth under the Payments-Led Growth strategy. Our adoption expertise enables partners to increase their attachment rates and implement new features. Schedule a free demo or contact us to get started.

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FAQs about Feature Adoption 

Q: What is feature adoption?

Feature adoption is when users integrate new features (e.g., SaaS payment processing) into their day-to-day operations. Positive feedback, user engagement, and referrals are some indicators that suggest successful feature adoption. 

Q: How can I improve my feature adoption rate?

Listen to your users’ pain points and make it easy for them to see the feature’s value. Post-launch, ask them how the new feature benefited or limited them. Only by knowing their input can you make iterative feature upgrades to boost feature adoption.

Q: What is the difference between feature adoption and product adoption?

Product adoption is a broad term that refers to users’ acceptance and use of the entire software product. It encompasses the overall product usage, including all features and functionalities it offers. If users have adopted the product, they’ve integrated it into their daily routines and utilize it regularly to achieve their goals. The focus is on the product as a whole. 

On the other hand, feature adoption is more specific and targeted. It refers to how users embrace and use individual features or functionalities rolled out by the service provider. This could be an update to the existing product or a new addition. It is more focused on the adoption and interaction with specific functionalities, not the product as a whole. For instance, a payment feature adoption would refer to the integration and use of payment-related functionalities within the platform.

Q: How can I measure feature adoption strategy results?

Track the total number of users adopting the feature and the duration of adoption (say, a month). Then, divide the feature’s monthly active users (MAU) by monthly logins and multiply the answer by 100 to get your monthly feature adoption rate.

Also monitor other retention-related KPIs like churn rate and feature stickiness to gauge your strategy’s effectiveness.

Q: Can I apply these tips to all types of products & services?

Product managers and product teams can apply these tips to encourage feature adoption across industries and offerings. While implementation may vary, the underlying principles and strategies discussed in this article remain relevant and adaptable.

Q: How can I ensure new features don’t degrade the user experience?

Test and iterate on them before the official feature release. With the help of pre-release test users, address any usability, functionality, or integration issues before introducing the features to a wider audience. 

Revolutionizing Field Service Management: How Sera and Stax are Driving Growth and Client Satisfaction

“Software that builds your bottom line”—That’s Sera’s mission for residential HVAC, plumbing, electrical, and home service businesses.

Sera is a Field Service Management (FSM) software company based in Grapevine, Texas that helps clients grow their financial health with automated intelligence technology by identifying inefficiencies and pricing gaps.

In fact, Sera clients have shown an average of 52% increase in revenue within the first six months of usage.

With a bulletproof pricing model based on job-time efficiency, margin pricing, and labor rates, Sera offers the best-in-class support and satisfaction. Their suite of features includes scheduling, live customer booking, and simple quote building, enabling field service professionals to focus on the work that matters—delivering outstanding service to their customers.

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Challenge

As a field service management software, Sera ensures that the jobs field service contractors complete are profitable.

With hundreds of field service businesses ranging from plumbing, HVAC, handyman services, and more, Sera needed a way to provide their clients with payment capabilities that seamlessly integrate with their workflows.

Sera works alongside business owners, operators and technicians that are often completing jobs that require their full attention. Instead of worrying about operational efficiencies, payment reconciliation, pricing, and scheduling customer appointments, Sera provides all of those services for you.

As one Sera customer says, “Everything on Sera … makes things a lot more efficient.”

With all of these moving parts, Sera needed a partner that could align with one of their primary value propositions of increasing efficiency.

This meant finding a partner that removed friction points such as delayed requests for merchant approvals and slow communication for support needs.

Enter Stax’s payment solutions.

Derek Ziegler, Sera’s Product Manager, recalls that their partner before Stax “had a phone number for a help line to call. It was a customer service number where you’d be put in a queue, instead of contacting a dedicated account manager that would email you back within an hour.”

Sera Payments Led Growth

All too often, this kind of support is common amongst integrated payment partners.

Stax Connect guides partners with the Payments-Led Growth framework, recognizing that turning on payments is not as simple as a flipped switch.

From Chris Meseke, Head of Product, it was Sera’s primary objective to find a partner that was able to support them while scaling their platform—from merchant onboarding to resolving customer support tickets in a timely manner.

Impact

“I’ve never experienced this before with a partnership”—Chris Meseke, Sera’s Head of Payments

Stax Connect’s Director of ISV Partnerships, Tommy Avers found Sera at the right time, although there were many in a crowd that offered payment integration services. However, what stood out the most about Stax was the extended support outside of our typical scope.

Sera Payments

Meseke says, “Stax took ownership and played middleman to a contractor and us. They put together a program plan and a project plan and everything, which was way above and beyond; To come to the table with that was pretty unique.”

Not all payment partners can provide payments expertise, flexible technology, and adoption expertise for your payments product.

That was certainly the case for Sera with their partner before switching.

Since partnering with Stax, Sera has launched Sera Payments, and has seen:

  • Reduction in merchant approval time
  • Larger processing volume per merchant
  • Faster issue resolution

Highlights

“Stax is always listening to us”

When it comes down to the primary motive behind switching to Stax, it was really about supporting the needs of Sera’s clients better.

“From the onboarding perspective, it’s a knock out of the park,” says Meseke in regards to Stax’s streamlined onboarding and enrollment process for Sera’s merchants.

For clients that made the switch from Sera’s previous payment processor to Stax, “the sentiment is that the support is tremendously better, which makes our experience for our clients a lot better.”

Sera Field Service Software

Integrated Payments Fueled by Payments-Led Growth with Stax Connect

Fuel your platform with the power of Payments-Led Growth: a significant, sustainable, and scalable business growth source. Stax Connect provides integrated payment solutions with payments expertise, flexible technology, and adoption expertise.

Contact us today to learn how you can easily craft payment offerings on your platform that maximize value for your business and your users.

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Examining the Payments Maturity Curve: How to Choose An Integrated Payments Model

From referrals to an integrated API to full payment facilitation, it can feel like a steep slope to incorporate payments in any way with a SaaS platform. In reality, many vertical SaaS platforms take a gradual path to mature their payments sophistication and knowledge. We call it the Payments Maturity Curve, which consists of five stages: referral partnerships, ISOs, payment APIs, managed PayFac, and full PayFac. Choosing the right model, or deciding when the right time is to step into the next level of payments can fuel your platform’s growth.

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Quick Recap: What is a Payment Integration?

Payments integration involves the ability of software companies to integrate and productize payment processing within their platforms. This integration offers a seamless payments experience for businesses and brings added value to their software users. There are different options available for integrating payments, both from a technological and vendor selection standpoint.

Integrated Payment Benefits

Integrated payments contribute to the growth and success of all software companies. The valuable benefits far outweigh the risk and effort they may require, especially when you choose a model that works best for your stage of payments maturity.

  1. Increase customer lifetime value with a stickier product feature. By adding payments to your ecosystem, you are providing another essential tool for businesses, enhancing customer loyalty and increasing annual contract value.
  2. Improve user experience and engagement. Your software can and should be the one-stop for your customers’ needs. Without payments as a product feature, users struggle with disparate systems, resulting in higher user churn.
  3. Grow with a sustainable source of revenue. Monetizing transactions taken through your payments feature can boost the bottom line and increase the overall enterprise value of your company.

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Integrated Payments Partner Vs. Becoming a PayFac

Why would software companies choose to work with an integrated payments partner rather than developing their own payment system? It comes down to risk, capital, and time.

Developing an in-house payment system entails substantial risks, requires significant upfront and ongoing capital, and demands a longer time to market. In contrast, integrating payments through a third-party vendor provides a quicker time to market, lower risk, and a significant return on investment.

Identifying Each Stage of Payments MaturityPayments Maturity Curve

The Payments Maturity Curve consists of five stages: Referrals, ISO Relationship, Payment APIs, Managed PayFac, and Stax as a full PayFac. There are pros and cons of each phase, and it is typical to approach payments in a “crawl, walk, run” scenario.

Referral Partnerships

The first stage, Referral Partnerships, allows software companies to refer their customers to a third-party payments vendor. This option is low risk and low maintenance for the software company. However, it may lead to a lack of control and insight into the customer journey, as the payments company takes over customer support. Referral partnerships also offer limited technology options and revenue potential for the software company.

ISO Relationships

The next stage, ISO Relationship, is similar to referral partnerships but often involves working with independent sales organizations (ISOs). Software companies rely on ISOs as resellers or referral agents for payment services. However, ISOs may have a limited technology stack, and software companies may face challenges in integrating with third-party middleware gateways.

Payment APIs

Moving up the maturity curve, the third stage is Payment APIs. This option provides more control and customization for software companies. With payment APIs, software companies can integrate payment processing directly into their platforms, offering a seamless and tailored experience for their users. However, it requires more development effort and resources from the software company.

Payment API companies are also strictly that, putting technology first. Your dev team may appreciate the thorough documentation and straightforward integration. However, without a strategy to support the launch and post-launch of your payments feature, the ROI could fall flat.

Managed PayFacs

The fourth stage, Managed PayFac (also known as PayFac-in-a-Box, PayFac as a Service, etc.), allows software companies to own their payments without becoming a payment facilitator. This option offers greater control, improved revenue opportunities, and a seamless user experience. However, it involves more regulatory requirements, additional responsibilities, and increased complexity compared to previous stages.

Full PayFacs

The final step in the Payments Maturity Curve is the full PayFac. Some software organizations have taken every step along the curve, becoming their own payment facilitator and taking all of the operations in-house. The benefit of this is being able to cut out all of the middlemen and third-party vendors that also monetize on transactions. This allows you to take in more of the potential revenue. However, there is a rather large investment in dollars and time. To quickly summarize all it takes to become a payment facilitator, you need to:

  • Get a bank sponsorship
  • Secure a settlement engine
  • Build automated enrollment systems
  • Implement payment processing technology
  • Oversee risk management
  • Build comprehensive reporting and collect insights

Payments-Led Growth With Stax

With all of the burden and responsibility that comes with being a PayFac, some organizations that have made their way up the Payments Maturity Curve even decide to take a step back. At Stax, we’ve formed partnerships with software companies that are at a fork-in-the-road decision to move back to being a managed PayFac, so they can focus on their software again without the strain of resources on payments.

Stax is a comprehensive payments solution that provides software companies with a complete payments infrastructure. With the Payments-Led Growth framework, Stax offers advanced features, customization options, and generous revenue-sharing partnerships, allowing software companies to fully leverage payments as a strategic growth driver.

We believe that in order for vertical SaaS companies to accelerate growth, you need the fundamental and intangible pillars of Payments Expertise, Flexible Technology, and Adoption Expertise.

Learn more about Stax Connect and find out how you can quickly get started on monetizing payments today. We will be happy to answer any questions you have and help you leverage the best all-in-one software payment processing solution for your needs.

Why SaaS Companies Should Upsell Surcharging to Sub-Merchants (and How to Do It)

Credit card usage in the US has grown steadily over the past few decades. According to a report by TransUnion, the number of credit cards in Q3 of 2022 stood at 510.9 million. This goes to show that credit card payments aren’t going to slow down anytime soon. 

Unfortunately for businesses, this also means greater processing costs—that can quickly add up. Not surprisingly, surcharging is increasingly becoming an attractive option for more and more businesses to offset these costs. 

As such, SaaS companies that offer integrated payments would be wise to tap into this opportunity and upsell surcharging to their sub-merchants. In this article, we’ll explore the case for upselling surcharging and how to do it right.

TL;DR

  • Credit card brands or networks like Visa, American Express, Mastercard, and Discover charge certain fees per transaction when customers use credit cards to make payments at a business. Usually, the merchant shoulders this fee but as they start adding up, they can cut into their profits.
  • Credit card surcharging allows businesses across a wide range of industries to offset processing fees, which can be immensely beneficial for merchants that have a slim profit margin. 
  • As a SaaS provider that offers integrated payment processing to sub-merchants, upselling surcharging can be a great way to build better relationships with customers and increase user adoption. Stax Connect ensures you can offer a surcharging add-on easily—without any substantial developmental or financial investment—all while ensuring compliance and security for your users.

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Understanding Surcharging

Credit card brands or networks like Visa, American Express, Mastercard, and Discover charge certain fees per transaction when customers use credit cards to make payments at a business. Usually, the merchant shoulders this fee but as they start adding up, they can cut into their profits. That’s why, almost every American state (with a few exceptions) now allows businesses to pass this transaction fee on to the customer in the form of a surcharge. 

Legal and regulatory considerations

A credit card surcharge is also known as a “merchant surcharge” or a “checkout fee.”

In the United States, Visa has made major changes to its surcharging policies—effective April 15, 2023—one of which is to lower the surcharge rate from 4% to 3% for its network in the United States. This will require merchants to lower the surcharge to 3% for all brands’ credit cards when Visa is accepted.

As of now, credit card surcharging is only banned in one US territory and two states—Puerto Rico, Connecticut, and Massachusetts. 

Current market trends related to surcharging

Credit card surcharging allows businesses to offset processing fees, which can be immensely beneficial for companies that have a slim profit margin. 

As such, when it comes to customer perception about surcharging, it seems to be quite positive. A survey by PYMNTS and Payroc found that 85% of cardholders paid surcharges being fully aware of them in their most recent transactions. 

The same survey also revealed that only 21% of cardholders felt their satisfaction dropped when asked to pay a surcharge. Clearly, customers react favorably to surcharges when they are properly informed about them as well as why they are required. 

What’s more, surcharging can also prompt customers to pay using a less expensive method—such as debit cards or ACH.

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Common Industries and Business Types That Implement Surcharging

Credit card surcharging has been successfully used in many industries to offset the cost of accepting credit card payments. Here are a few examples.

Financial and legal services

Businesses that offer financial or legal services such as accounting, tax management, law offices, etc. collect credit card surcharges from their clients to manage processing costs.

Service industry

Accepting credit cards is a great way to accommodate a bigger customer base. In return for allowing credit card payments, plumbers, contractors, repairmen, handymen, landscapers, and other such service providers add surcharges when their customers pay by credit cards.

Health and wellness industry

In the healthcare and wellness industry, certain professionals such as estheticians, plastic surgeons, veterinarians, and dermatologists provide services that are often not covered by insurance. Apart from paying by check and cash, many patients make payments with credit cards for which these businesses add a surcharge. 

The Case for Upselling Surcharging to Sub-Merchants

For a SaaS company, offering payment processing to its customers can be a lucrative option. Offering integrated payment processing makes your product a full-service solution for customers, thereby increasing customer loyalty and confidence.

As a SaaS provider that offers integrated payment processing to sub-merchants, upselling surcharging can be yet another way to build better relationships with customers and increase user adoption. To understand why, let’s take a look at the payment processing costs sub-merchants typically have to bear.

Payment processing costs for sub-merchants

There are three main kinds of processing fees that sub-merchants pay on every credit card transaction: interchange fees, assessment fees, and payment processor fees. 

Of these, the first two are set by card networks and are unavoidable. The third fee is set by the payment processor depending on the pricing structure they use (flat-rate, tiered, interchange-plus, or membership-based). 

All of these, put together, may cost a merchant between 1.5% and 3.5% of the transaction amount—which is quite substantial.

How surcharging can offset these costs

With surcharging, merchants can easily pass on these costs to the customer. All they need to do is inform customers that they will need to pay a surcharge if they choose to pay by credit card. 

They will also need to mention the percentage customers need to pay as a surcharge, which will need to be shown as a separate line item on the receipt. And of course, merchants will need to make sure that they abide by all applicable federal and state laws related to surcharging while they’re at it. 

Benefits of upselling surcharging for SaaS companies 

As a SaaS company providing integrated payment processing, if you can show your sub-merchants how they can easily mitigate their credit card processing fees through surcharging on your platform, you are likely to build stronger customer relationships and bring in more revenue.

Plus, sub-merchants can benefit from the following. 

Convenience. For one, it will be more convenient for them to pay for an add-on surcharging feature on the same platform instead of looking for a third-party surcharging tool. 

Guaranteed compliance. If your solution handles surcharging-related compliance automatically, it takes away a lot of headaches for sub-merchants. 

Steps to Take Before Upselling Surcharging

Of course, before you upsell surcharging capabilities, you must identify how popular credit card payments are among your users. Surcharges will have a minimal effect on a business’s bottom line if most of its customers don’t use credit cards. 

Secondly, credit card surcharges are not a flat rate but a percentage of the transaction amount. Customers may be more willing to pay a 4% surcharge on a few dollars than a large purchase of, say, $1000. 

Also, there are some state-wide regulations where surcharges cannot be applied for transactions below a certain limit. Understanding all this will help you figure out which sub-merchants may be most receptive to your surcharging upselling efforts. 

Helping your sub-merchants adhere to legal and regulatory policies is another great way to improve customer satisfaction. You could also offer advice on how they should inform their customers about surcharging and how they can ensure that surcharges are listed clearly on receipts. By increasing the level of confidence that sub-merchants have in your expertise on surcharging, you can increase your chances of success. 

Best Practices for Upselling Surcharging to Sub-Merchants

Keep the following in mind before you think of upselling surcharging to your SaaS users.

Knowing your sub-merchants

Analyze payment data and show your users how they can recoup some of the costs of credit card processing by adding surcharges. Some sub-merchants might be hesitant to surcharge fearing customer dissatisfaction and even backlash. 

However, there are surveys that show that if customers are informed properly, they are more willing to pay surcharges. You can work with your customers to come up with a surcharging plan that works best for them.

Successful communication strategies

The pros and cons of surcharging should be clearly communicated to your sub-merchants. Surcharging may help them increase profits but there is a cost associated with setting up surcharging and complying with national, state, and brand-level regulations. All this should be clearly communicated to sub-merchants with the promise that as their payment provider, you will be able to guide them through the transition. 

Providing ongoing support and education to sub-merchants

After you have successfully upsold surcharging to a sub-merchant, you need to notify them if there are any changes in regulations, updates from credit card networks, or in your own company policies. Going this extra mile will not only reassure your customers but also ensure that they aren’t unknowingly breaking any rules. You should also provide ongoing customer support to sub-merchants so that they can get their surcharging questions clarified and issues fixed. 

Being aware of common objections

The most common objections against surcharging are customer dissatisfaction and complicated rules and regulations. Show them how customer dissatisfaction can be mitigated with proper information and education of end users. When it comes to legal and regulatory hurdles, show your sub-merchants that you are willing to educate them when they decide to purchase your surcharging add-ons. 

Final Words

Offering a surcharging option that can be plugged into your payment platform is an excellent way to bring in more revenue. Stax Connect helps you create a complete payments ecosystem from scratch—in as little as 30 days. It also ensures that you can offer a surcharging add-on easily without any substantial developmental or financial investment—all while ensuring compliance and security for your users. To learn more, contact the award-winning customer support team at Stax today.

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FAQs About Upselling Surcharging

Q: What is credit card surcharging?

Credit card surcharging is when a business passes on the fees charged by credit card brands to customers, adding a surcharge to credit card payments to offset processing costs. A credit card surcharge is also known as a “merchant surcharge” or a “checkout fee.”

Q: What are the benefits of surcharging for merchants?

Surcharging allows merchants to offset credit card processing fees, which can be beneficial, especially for businesses with slim profit margins. When done right, surcharging helps merchants or sub-merchants improve profitability and allocate resources more effectively.

Q: Why should SaaS companies upsell surcharging to its sub-merchants?

By providing integrated payment processing, your SaaS product becomes a comprehensive solution, boosting customer loyalty and trust. Upselling surcharging can further enhance customer relationships and drive user adoption, given that you’re helping sub-merchants reduce their payment processing costs. 

Q: What are the best practices around upselling surcharging to SaaS sub-merchants or users?

Here are some of the steps you can take to successful upsell surcharging to sub-merchants:

  • Analyze payment data to identify sub-merchants who would benefit most from surcharging. 
  • Communicate the pros and cons of surcharging, including compliance requirements. 
  • Provide ongoing support and education on regulations and updates. 
  • Address common objections, such as customer dissatisfaction and complex rules. 
  • Offer a seamless surcharging solution within the SaaS platform to enhance convenience and compliance.

 

What Is Vertical SaaS?

Vertical SaaS is an emerging branch of software solutions tailored to specific industries or niches—as opposed to software for generic business needs like CRM, project management, or accounting (otherwise known as horizontal SaaS).

The world of software-as-a-service is an ever-changing one. With revenue expected to reach $135.10 billion in 2023, advancements in the SaaS industry happen almost in the blink of an eye. SaaS businesses must, therefore, keep up with the latest industry trends and always be on the lookout to expand their addressable markets. 

In fact, many SaaS startups have been able to achieve multi-billion dollar valuations by focusing on vertical SaaS. The fact that vertical SaaS companies like Veeva, Toast, Blend Labs, and Procore have gone public is proof of how profitable this business model can be. 

“People ask, why can Vertical SaaS reach higher levels of market share than their horizontal counterparts? It’s because they are purposed for a specific end vertical, customer, use case. They are Built to Serve,” says Tidemark founder, David Yuan.

In this article, we’ll dive deeper into the world of vertical SaaS, exploring its benefits, challenges, and best practices for success. 

TL;DR

  • Vertical software solutions are those that are hyperfocused on addressing the pain points or specific needs of small and medium businesses (SMBs) in certain industries or niches. In contrast, horizontal SaaS companies provide generic solutions that cater to the needs of several different industries.
  • Vertical SaaS companies often focus on developing solutions for complex or underserved industries that have typically been ignored by bigger software companies. The benefits of vertical SaaS include improved functionality, greater cost savings, and increased operational efficiency.
  • The most common challenges associated with vertical SaaS are competing for adoption against popular legacy or traditional SaaS solutions, a smaller lead pool that may soon exhaust, and managing the expectations of consumer-like SMB customers.

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Vertical SaaS: Definition and Characteristics

SaaS products can be largely divided into the following two types: horizontal SaaS solutions and vertical SaaS solutions. 

Vertical software solutions are those that are hyperfocused on addressing the pain points or specific needs of small and medium businesses (SMBs) in certain industries or niches. 

For example, companies in the healthcare or restaurant industry will need solutions that help with scheduling patient appointments or managing tables respectively. Vertical SaaS businesses build solutions that address such specific needs of a particular industry. 

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Some of the key characteristics of vertical SaaS include:

  • Industry-specific solutions. Because these solutions are designed to meet the specific needs of particular industries or niches, they often provide specialized features and functionality.
  • Deep domain expertise. Because vertical SaaS platforms are niche-focused (e.g., financial services, healthcare, real estate, eCommerce, etc.), these software companies are able to develop deep expertise in those niches. They can understand the unique needs and challenges of those industries and develop highly effective and targeted solutions.
  • Targeted marketing strategies. Being niche-focused also means the company has to chase down a smaller, more reliable pool of leads. This increases conversions and ROI and lowers the customer acquisition cost.
  • Customizable solutions. Vertical SaaS solutions often come with a high degree of customizability, so users can configure them to suit their specific needs. This is particularly important in industries with unique workflows and processes.
  • Integration with other software. Vertical SaaS companies often provide industry-specific integrations—e.g., electronic health records (EHRs) in healthcare—that allow for seamless data transfer and improved efficiency.

In contrast, horizontal SaaS companies provide solutions that cater to the needs of several different industries. For example, Slack is a communication platform that can be used by any company for organization-wide messaging—regardless of the industry it belongs to. 

To summarize, the following are the main differences between vertical and horizontal SaaS models:

Vertical SaaS Horizontal SaaS
Industry or niche-specific Generic; caters to several industries
Relatively new in the market Has been around for much longer
Fewer established players in the market, so entry is relatively easier Many established players exist in the market, so entry is more difficult
Better integrations are possible because solutions are niche-specific Industry-specific integrations are not possible
Greater conversions and ROI since the target market is narrower  Better growth opportunities since the target market is broader
A smaller, more targeted lead pool ensures lower customer acquisition costs Customer acquisition costs are higher due to a larger, more generic lead pool

Benefits of Vertical SaaS

Bessemer Venture Partners reports that market capitalization of the vertical SaaS industry has grown 12x—from $50 billion in 2010 to more than $600 billion in 2020. 

The reason behind this phenomenal growth? Vertical SaaS companies often focus on developing solutions for complex or underserved industries that have typically been ignored by bigger software companies. 

For example, small businesses in healthcare, food service, financial services, or construction often struggle to keep up with changing regulations, distinctive business models, and complex sales processes. Vertical software solutions tailored to meet such needs have made their lives a lot easier. 

According to Fractal Software, “Vertical SaaS businesses don’t set out to fundamentally change the industries they operate in by replacing key parts of their workflows. Instead, they create the tools that enable business owners to do what they already do better.”

Here are some of the most notable benefits that vertical SaaS offers:

  • Improved functionality. Being industry-specific, vertical SaaS can provide end-to-end solutions (with native integrations) that satisfy the specific needs of niche customers. 
  • Cost savings. Since vertical SaaS provides solutions tailored to the needs of a targeted audience, its conversion rates are usually higher. Optimized acquisition and retention strategies coupled with lower transaction fees provide vertical SaaS companies with better scalability prospects and cost savings. 
  • Increased efficiency. The pandemic forced businesses to rework their operations in order to improve efficiencies in the face of an economic recession. Vertical SaaS companies came to their rescue by providing software that increased employee productivity while reducing the need for additional headcount. By providing native integrations that don’t need additional developmental effort, vertical SaaS vendors helped small businesses improve operational efficiencies. 

The rapid growth and success of vertical SaaS have led software giants like Salesforce and Microsoft to come up with “industry-focused” cloud services for sectors like healthcare, manufacturing, financial services, etc. These enterprises have realized that they will need to level up if they want to compete with the next generation of SaaS startups.

What Is Vertical Saas | Woman On Computer

Challenges of Vertical SaaS

Despite its many benefits, vertical SaaS does come with its fair share of challenges. Let’s take a look.

1. Competition 

As a software vendor with a niche market focus, you’re likely to come across prospects who have been using a traditional SaaS or a legacy solution for their business needs. Often these would be popular brands that have come to be accepted as industry standards (e.g., QuickBooks for accounting or HubSpot for marketing). 

So even if you might have a better solution for your target audience, they may be unwilling to switch and may perceive it as a downgrade from their current system.

The solution

Think about how you can add more value to your software products—something that no one else is currently offering. Elevate the customer experience so that it’s unparalleled—be it through exceptional customer service, payment processing solutions, special customizations, workflows, or insights that your competitors don’t have the expertise or the bandwidth to provide. 

Integrating payments within your platform will also make your platform stickier, and can provide an additional stream of revenue for your business. By offering payments as a feature of your product, you can customize your pricing structure, differentiate your platform from competitors, and deliver a more holistic experience.

2. A smaller lead pool

When you cater to a niche industry, your lead pool will likely be limited in size. Smaller industries will always get outnumbered by more mainstream ones. So even though your conversions may be greater, you’ll always run the risk of exhausting your lead pool. 

The solution

There are a few different ways vertical SaaS vendors can expand their total addressable markets (TAM). Think about how you can help the customer succeed. What services can you offer to help their business expand? What new features or integrations can you upsell? (Hint: Payments are a good one!)

You may also want to consider exploring similar niches. For example, if your solutions cater to spas, you may want to venture into salons as well. 

3. Consumer-like expectations from SMB customers

Perhaps the biggest challenge vertical SaaS vendors face is managing the expectations of their SMB customers. They are almost consumer-like in that they want inexpensive solutions and are a churn risk. 

Plus, many of them don’t want to pay for a separate payment solution; they want it to be integrated into the software their business runs on. This is all the more important as even end-users don’t want to deal with multiple payment components. 

For example, many restaurants use Toast to manage their business end-to-end—from processing payments to managing payroll, inventory, and lots more. Many wellness service providers will use Mindbody to manage bookings, scheduling, and payments from a single integrated platform.

The solution

Integrate payments into your vertical SaaS platform to ensure seamless payments. Not only can this help you build a new revenue stream by monetizing payments, but it can also help you reduce churn as customers start to rely more on your “all-in-one” solution.

If you’re looking to integrate a complete payments ecosystem within your vertical SaaS platforms—quickly and inexpensively—look no further than Stax Connect. Our all-in-one platform handles safety, security, risk, and compliance so you can focus on what matters most—growing your business. 

Examples of Vertical SaaS

Now that we’ve covered the basics, let’s take a look at some real-world examples of successful vertical SaaS solutions in various industries. 

Hindsite

Hindsite, a provider of lawn care and irrigation business software, was doing an amazing job of simplifying operations for its users but was looking for a way to add even more value to its solution by integrating payments into it. They chose Stax Connect as their partner owing to the outstanding support, communication, and visibility our team provided—every step of the way. 

As a result of the integration, Hindsite has been able to save significant time that users would otherwise spend on reconciling revenue. This has greatly improved the user experience as their customers no longer need to use two different systems to manage their business.

Blend

Founded in 2012, Blend is a digital lending SaaS platform that simplifies applications for financial services firms. The company began as a solution catering to mortgage applications but went on to offer a diverse range of products for consumer loans, deposit accounts, insurance marketplaces, and credit card applications. 

By targeting similar verticals, Blend was able to successfully expand its addressable market. In July 2021, the company went public raising $360 million with a market capitalization of almost $4 billion. 

Veeva 

Veeva, a cloud-based software provider for the global life sciences industry, started out by offering CRM software to pharmaceutical sales reps. They started working on their future offerings well before hitting saturation in the CRM market. 

Soon they came up with a new product line not just for the sales function but also for clinical operations and research functions. That’s how it became a $2.4 billion company (with initial funding of just $10 million) in less than six years. 

Final Words

Vertical SaaS showcases the power of targeting a niche market with powerful, tailor-made solutions that address its needs and challenges. In the current business landscape, this strategy definitely has more merits than developing generic products that appeal to all industries. The key is to find the missing piece in a niche market and focus on providing solutions to tackle that. 

There will always be new trends and opportunities in the dynamic world of SaaS. However, offering integrated payments can be a simple yet effective way to add more value to and elevate the user experience of your vertical SaaS offering. Contact us today to find out how Stax Connect can help you achieve this easily. 

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FAQs

What is vertical SaaS?

Vertical SaaS, also known as industry-specific or niche SaaS, is a specialized form of software-as-a-service that caters to a specific industry or niche, providing tailored solutions to meet the unique needs of that market.

What is vertical vs horizontal SaaS?

Vertical SaaS solutions are designed to meet the specific needs of a particular industry or niche (e.g., finance, real estate, healthcare, etc.). They offer specialized features and functionality that are tailored to the requirements of that market.

On the other hand, horizontal SaaS solutions (like project management software or email marketing tools) are designed to meet the needs of a wide range of industries and businesses. They offer more generic features and functionality that can be used across different industries and business types. 

What are the advantages of vertical SaaS?

Being niche-specific, vertical SaaS solutions often provide specialized features and functionality that are customizable, targeted, and highly effective. Marketing to a small, targeted lead pool can enable lower customer acquisition costs and greater conversions. Also, by providing native industry-specific integrations that don’t need additional developmental effort, vertical SaaS companies can help SMBs improve operational efficiencies. 

 

Busting 3 Unjustified Myths About Integrated Payment Partnerships

It’s no surprise that user experience is the key to success for any application. So when a software company decides that integrating payments into their solution is the right move, choosing a payment partner that focuses on providing the best experience isn’t just nice-to-have, it’s a requirement.

Partnering with an integrated payments provider can supply countless benefits to both you and your customers. By integrating tailored payment processing technology into your application, you’re unifying the user experience. Your users won’t have to leave the comfort of your platform to access other tools–it’s all in one convenient place.

Many integrated payment partnerships offer attractive incentive programs, though some might find it too good to be true. Because of this, ISV partner programs become the subject of myths or misconceptions. But ISV partnerships can present wonderful opportunities with benefits for both you and your clients. As Ricky Dunbar, Senior Director of Partner Success, mentioned in our webinar, “What it comes down to is choosing a partner that has the right technology… and that can be there to guide, steer, consult, talk to you” about heading in the right direction with payments.

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Myth #1: Payment Technology is Difficult to Implement

One pressing concern about integrating payments directly into your platform is the perceived difficulty of integrating the technology, or the potential requirement of needing a dedicated team of developers for maintenance. “What it comes down to is choosing a partner that has the right technology,” says Ricky. Integrating payment technology into your platform or application is actually much easier than it may appear. This is in part due to the leveraging of APIs. An Application Programming Interface, or API, is a unique piece of technology that enables software companies to seamlessly integrate and accept payment with one application.

Using an API, clients won’t need to leave your platform to access different features, creating a unified experience. Stax Connect’s exclusive all-in-one API allows users to process payments any way they’d like. And by utilizing a partnership’s success and development team to ensure the integration is seamless and tailored to your solution, implementation is much easier. With the right integrated payment partnership, you’ll have experts and complete guidance to implement the technology seamlessly and effortlessly.

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With Stax Connect RESTful API your merchants can:

  • Process single and recurring payments
  • Send regular and scheduled invoices via email or SMS text message
  • Securely store and tokenize customer information after every payment for future use
  • Quickly fill out a transaction by selecting from your pre-loaded catalog items
  • Automatically update your cards on file
  • Integrate countertop terminals and pin pads
  • Sync your data 2-ways with QuickBooks Online

Myth #2: My Customers Won’t See the Benefits

The beauty of a partnership is that there is a laundry list of benefits for both you and your customers. Your customers gain direct access to the cost of processing and award-winning customer service. Your business will see the added value by making your platform more robust with an integrated payment solution. Clients won’t even need to leave your platform to access all of these great features. You’ll also enjoy profit-sharing and incentive programs as a partner.

By joining an integrated payment partnership, you can direct your customers and sales teams to this payment facilitator for their payment needs, continue scaling your business, and serving end-users with your software or service. When you become a payments partner, you’re adding an additional revenue stream to your company simply by getting others to sign up for the tools they actually need to start accepting payments from customers, and with different methods.

Another benefit of becoming an integrated payment partner is both you and your customers will enjoy a variety of payment solutions all in one platform. As your partner in payments, Stax Connect makes it simple for your customers to seamlessly accept payments straight from your technology.

Not to mention, your customers are likely going to be willing to pay even higher basis points than your competitors charge because of the flexible technology we offer. Ricky mentions, “We’ve done cases where we’ve been able to take them to market at higher than their competitors because of how they’ve integrated, and how they’ve wrapped up their product feature set around payments so it’s unique and drives value.”

Stax Connect Features Your Customers Will See and Love:

  • Card Present Payments
  • Easy to Integrate API
  • Quickbooks Online 2-Way Sync
  • eCommerce Solutions
  • Business Analytics
  • Virtual Terminal
  • Recurring Payments
  • Text2Pay

Myth #3: Integrated Payment Partnerships Mean Extra Hidden Fees For My Customers

The idea of an integrated payment partnership shouldn’t be scary because of the misconception that hidden fees will get passed onto your users. This concern isn’t unwarranted due to the fact that the payment processing industry as a whole is notorious for excessively nickel and diming their merchants. A partnership for your platform won’t corner your customers into paying excessive fees for each transaction.

Credit Card Processing Fees Your Customers Can Avoid:

  • Credit Card Terminal Fees
  • Setup Fees
  • Early Termination Fees
  • Reprogramming Fees
  • PCI Compliance Fees
  • Address Verification Fees
  • Chargeback and Retrieval Fees
  • Payment Gateway Fees

A transparent, easy-to-understand payment processing fee structure encourages businesses to sign up because it eliminates surprise charges and gives merchants the ability to manage their budgets more easily. The right integrated payment partner will be able to guide you on the best ways to onboard and manage your merchants, so they don’t have any surprises with your fee structure.

By partnering with Stax Connect, your merchants will never have to deal with contracts, hidden fees, or markups. Our pricing is always easy to understand, with customer support available to merchants. Offering your customers simple, transparent pricing options to process payments keeps customers happy, which increases your platform’s value. Not to mention, Stax Connect offers a flexible and generous pricing model specific to your software’s needs. You choose the fee structure your merchants pay per transaction, giving you the most control and flexible options.

“If you’re in a vertical or segment where cash flow is critical, you can take two days away from the cash flow cycle for your customer so they’re actually getting paid faster,” says Ricky, alluding to the fact that some customers may be hesitant to switch solutions, however, with the right communication strategy, they will understand the benefits of your solution over someone else.

To Sum It Up: 3 Myths Busted About Integrated Payment Partnerships

Integrated Payment Partnership

A lot of myths and misconceptions surround partner programs. An integrated payment partnership with Stax Connect offers benefits for all parties, providing ample support to ensure your success. Profit-sharing and incentive programs offer growth opportunities, and savings are passed on to your merchant customers.

Integrated payment technology enables merchant customers to access all of their tools from your platform, unifying and simplifying their experience while adding value. All in all, integrated partner programs are attainable opportunities that build valuable relationships and offer many benefits. By investing in your own technology, you’ll be adding a significant stream of revenue for your business and appealing to investors.

Stax Connect partners with organizations to build connections, all while providing the best service for our partners. As a Level 1 PCI Compliant service provider, we stand on cutting-edge technology, 24/7 human support, and transparent pricing. With our support and technology, your customers will reap the rewards of integrated payment technology.

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FAQs about Integrated Payment Partnership

Q: What is an Integrated Payment Partnership?

An integrated payment partnership is a business collaboration where software providers integrate payment processing systems into their software applications. It offers added value to the platform, making it more robust and appealing to users by providing a unified user experience.

Q: What are the misconceptions about Integrated Payment Partnerships?

Three main misconceptions addressed about integrated payment partnerships are:

  1. Payment Technology is Difficult to Implement: This myth is debunked by the fact that with the right partner, implementing payment technology into your platform is a straightforward process, made easier with the support of the partner’s success and development team and the use of APIs.
  2. Customers won’t see the benefits: On the contrary, customers enjoy a plethora of benefits from using an integrated payment solution on your platform, which strengthens your offering. Not only does it streamline their experience, but they also gain access to transparent processing fees and the partner’s customer service. For partners, there are profit-sharing and incentive programs.
  3. Integrated Payment Partnerships imply hidden fees: Integrated payment partnerships are not designed to impose excessive fees on customers. The right partner will ensure a transparent pricing structure that eliminates surprise charges, allowing customers to manage their budgets better.

Q: What is the role of APIs in Integrated Payment Partnerships?

Application Programming Interface (API) is a unique piece of technology that enables software companies to integrate and accept payments with their application seamlessly. This streamlines the user experience, as clients do not need to leave your platform to access different features. In the case of Stax Connect, their exclusive all-in-one API allows users to process payments any way they’d like.

Q: What are some features offered by Stax Connect’s RESTful API?

Stax Connect’s RESTful API offers features such as processing single and recurring payments, sending regular and scheduled invoices via email or SMS, securely storing and tokenizing customer information for future use, integrating countertop terminals and pin pads, and more.

Q: What does it mean to have a transparent payment processing fee structure?

A transparent payment processing fee structure means that there are no hidden charges. This allows businesses to manage their budgets more effectively and adds to their satisfaction, thereby increasing your platform’s value.

Q: How can an Integrated Payment Partnership benefit my business?

By joining an integrated payment partnership, your business platform is enhanced with an integrated payment solution. This adds value to your platform, making it more robust and attractive to clients. Further, you can profit from sharing and incentive programs as a partner.

Q: How can Integrated Payment Partnerships impact customer experience?

Integrated payment partnerships optimize customer experience by providing a unified user experience where customers don’t have to leave your platform. They benefit from the cost of processing, customer service, and access to various payment solutions all within one platform. When implemented right, customers are more likely to pay higher basis points because of the convenience and value they get from the flexible technology offered.

Q: Are Integrated Payment Partnerships only suitable for certain businesses?

No, integrated payment partnerships can be beneficial for any business that wants to enhance its platform and provide a comprehensive user experience. It can be especially beneficial for businesses that scale their platform constantly, serve end-users with their software or service, or are seeking an additional revenue stream.


How to Implement Payment Processing with Automated Onboarding for Your SaaS Customers

For SaaS companies wanting to offer payment functionality, the choice of a payment partner is a crucial one as it reflects directly on their business. As such, the onboarding process is typically the first touchpoint that a sub-merchant may have with your payment service. If this process is slow and tedious, it can create substantial friction between you and your new clients.

In a highly competitive marketplace, this could be a serious impediment to your business growth and reputation. The key is to look for a payment partner that can help you offer quick and efficient automated onboarding for your sub-merchants.

Automated onboarding enables merchants to use online channels to apply for a merchant account and get approved instantly. They enter the necessary information into an online form, and the underwriting process takes place at the backend. No lengthy phone calls or emails are required, and the entire process happens seamlessly with very little human intervention. 

In this article, we’ll take a closer look at automated onboarding including the benefits and value it offers, and discuss how you can implement it easily on your SaaS platform.

TL;DR

  • The merchant onboarding process is a risk assessment of sorts that ensures that a merchant’s business carries minimal financial risk. Essentially, the process involves analyzing a business’s financial and other data (some required legally) to determine whether it is legitimate or not. 
  • Traditionally, merchant onboarding has largely been an error-prone and time-consuming paper-based process involving manual credit risk and AML checks. However, merchants no longer care to sit around for days, waiting for their payment processor to approve their merchant account.
  • Automated onboarding is, therefore, an essential requirement for ISVs and SaaS companies that want to offer payment solutions to their customers. It offers a wide range of benefits including improved efficiency, fewer delays, greater data accuracy, reduced costs, better regulatory compliance, and greater customer satisfaction that results in stronger customer relationships.

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What Is Merchant Onboarding?

Before we delve into automated onboarding, let’s take a step back and understand what onboarding merchants really mean. Merchant onboarding starts as soon as a SaaS company or ISV’s new users sign up with a payment service provider (PSP). Note that this is not the same as a software vendor’s user onboarding process whose objective is to help users understand how to use the platform.

Instead, the merchant onboarding process is a risk assessment of sorts that ensures that a merchant’s business carries minimal financial risk. For example, high-risk merchants—those that operate in industries typically associated with a greater likelihood of fraud or chargebacks—will need to undergo stricter vetting than regular merchants.

Essentially, the process involves analyzing a business’s financial and other data (some required legally) to determine whether it is legitimate or not. 

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What Does the Onboarding Process Look Like?

A typical merchant onboarding process involves the following:

  1. Pre-screening: At the onset, a payment processor will collect relevant merchant data through an application. Payment companies review these merchant applications to ensure that everything is in order and within acceptable limits. Note that this is just a quick check and not very in-depth. However, it can still be very useful in weeding out fraudsters and scammers.
  2. Identity verification: Next up, the Know Your Customer (or KYC) process begins. Merchants will need to provide relevant background information to the payment company including proof of identity, proof of address, bank account information, etc. Naturally, this is one of the most time-consuming steps in the onboarding process. 
  3. Reviewing merchant history: A lot of information can be unearthed about a merchant from their credit history. This often involves the personal credit history of the owner, and their track record running other businesses, investments, or settling debts. The business’s tax returns and credit history would also be of immense relevance to the payment company. Any irregularities or red flags could dissuade them from onboarding a particular merchant.
  4. Additional checks for high-risk merchants: Depending on the level of risk assessed (in the previous steps), the PSP or acquiring bank may conduct an analysis of a merchant’s business and operational model to check if they might be financially viable in the future. This is typically done only for high-risk businesses and may also involve a web content analysis to ensure that their digital presence is legitimate.
  5. Information security: If the results from the previous steps are all favorable, merchants will need to guarantee that their processes and systems are compliant with the latest data security regulations and norms. Regardless of the payment methods they accept, (e.g., credit cards, contactless payments, online payments, or others), the merchant needs to be 100% compliant with all information security regulations.

Payment Processing with Automated Onboarding

Traditionally, merchant onboarding has largely been a paper-based process involving manual credit risk and AML checks. The process was error-prone and immensely time-consuming. This resulted in greater costs for those involved and frustration and delays for merchants.

However, in recent years, there has been a substantial shift in customer expectations with convenience being a priority. Merchants no longer care to sit around for days, waiting for their payment processor or ISO (independent sales organization) to approve their merchant account.

Automated onboarding is, therefore, an essential requirement for ISVs and SaaS companies that want to offer payment solutions to their customers. Merchants today expect a quick, efficient, and streamlined onboarding process. They should be able to start processing payments as soon as they sign up for your platform. This requires automating several workflows.

First, merchant data needs to be submitted to underwriters online. This can be achieved in two ways:

  • Using an API or file-based approach, merchants can send their data online, and underwriters can verify them and issue Merchant IDs (MIDs) almost instantly.
  • In some cases, underwriters may issue blocks of pre-activated MIDs to merchants. They would, however, reserve each block for certain pre-approved merchant category codes (MCCs), for example, restaurants. 

These merchants can start taking payments right away. However, the payment facilitator (PayFac) has to provide information on every merchant (that gets a MID) within 24-48 hours of them starting to process payments.

  1. Automation will also be required for the merchant data acquisition process. An API or an online application form can come in handy for this purpose. 
  2. Once you have captured the merchant data, it needs to be submitted to the acquiring bank automatically. Your platform, therefore, needs to integrate with the acquirer, so that the data can be sent via a file or an API. Then the acquiring bank will issue a MID which may be configured within the gateway automatically. 

Alternatively, the MID can also be derived from a pool of pre-approved MIDs. Within 24 hours, any new merchant will be included in the report on active MIDs sent to the acquirer. Note that the merchant will be able to process payments even during these 24 hours.

Automated onboarding, thus, enables you to leverage APIs to receive merchant data and documentation online and share real-time notifications about application statuses. It also facilitates the verification of data against online databases which drastically reduces the processing time.

The Benefits of Payment Processing with Automated Onboarding

Automated onboarding offers a wide range of benefits for ISVs as well as merchants who want to start processing payments through their platforms. Let’s take you through some of the most crucial benefits that could be game-changers for your business.

  1. Broaden your payment options: Today credit card processing is a must for any business selling goods or services. With automated onboarding, your eCommerce sub-merchants will be able to set up payments quickly and efficiently. 
  2. Minimize delays in processing merchant applications: Most business owners these days want to start off quickly and save time on paperwork and documentation. With automated onboarding, you can save plenty of time in processing sub-merchant applications, thanks to instant data transmission. It also simplifies documentation and routes them smoothly between departments.
  3. Build strong customer relationships: With automated onboarding, ISVs and SaaS companies can create strong relationships with their customers right off the bat. An efficient onboarding experience makes a great impact and stays with your sub-merchants forever. It also showcases the immense value that you bring to the table for your users. After all, convenience and seamless processing are very likely to create great customer experiences.
  4. Reduce costs: With automated onboarding, there are no negotiating fees. Fees and rates are transparent and sub-merchants are well aware of the charges per transaction. The operational costs associated with printing, stationery, and other administrative charges are also eliminated with automated onboarding. It saves a lot of resources and offers a streamlined process that benefits everyone. 
  5. Generate key data automatically: With automated onboarding, key information is analyzed quickly to produce important outputs. For example, when sub-merchants enter their type of business and other important information, the system will provide them with their MID and MCC.
  6. Simplify data management: Manual data entry at multiple points is the perfect recipe for errors, inefficiencies, and redundancies. With automated onboarding, you can eliminate all of these possibilities, centralize data entry, and gain greater visibility into sub-merchant data.
  7. Boost customer satisfaction: Merchants are more than likely to lose business to their competitors if they’re unable to get approved on a payments platform quickly. This can be absolutely catastrophic for a business in the long run. A well-designed automated onboarding process is thus necessary to retain sub-merchants customers and enhance their experiences.
  8. Improve regulatory compliance: With automated onboarding, you can ensure that all parties are compliant with the necessary data security regulations. This can be quite a challenge with manual onboarding. But a seamless automated onboarding process can easily enforce regulatory compliance with the right technology and streamline the collection of sub-merchant data.

The Bottom Line

These days, both merchants and their customers demand ease, simplicity, speed, and efficiency in payment processing. A manual onboarding process may involve data entry errors and other complexities resulting in substantial delays for merchants. The only way to ensure convenience for your sub-merchants and satisfaction for their end-users is through automated onboarding.

The biggest challenge for ISVs and SaaS companies, however, lies in finding a payment partner that can streamline merchant onboarding with the right mix of technology and due diligence that concludes the process quickly and efficiently. An effective solution will use APIs that can easily integrate into their software platforms and allow sub-merchants to submit their data and documentation online and get approved to accept payments almost instantly.

Thankfully, ISVs and SaaS companies looking to offer payment processing with automated onboarding need not look any further than Stax Connect. We offer a couple of enrollment options that automate onboarding. Stax Connect partners can choose to white-label our API to process new applications, or build custom enrollment flows off of our API in their own software. Either way, our underwriting technology can automate accepting merchant applications within 20 minutes.

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What’s Next for Vertical SaaS? A PE Firm’s Perspective

Greater Sum Ventures’ (GSV) Brian Seagraves, VP of Product, and Jason Butler, VP of Payments, joined Stax at the first-ever Vertical SaaS Summit, where vertical SaaS leaders shared strategies, perspectives, and insights to grow beyond the subscription.

As experts in the private equity space, Brian and Jason concluded the summit with their session on what’s next for vertical SaaS solutions and how leaders can continue to drive growth during today’s economic climate.


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Growing Beyond the Subscription in the Face of the First SaaS Recession

Saas Customer Cycle Before Payments-Led Growth
The Typical Lifecycle of Traditional SaaS

According to Forbes, SaaS is experiencing the first industry-wide recession with mass layoffs and historic industry draw-downs. However, PE firms and private investors see the SaaS market as a large landscape that can be looked at through two lenses.

The first lens requires looking back at the last three years since the COVID-19 pandemic, from instability and deals halted due to the uncertainty of the economy to accelerated growth in 2021 when the market came back to life, to now—where interest rates are at all-time highs, and the SaaS industry is broadly prioritizing profitable growth. From an institutional valuation perspective, the market has notably slowed down.

From another lens, however, Brian comments that many of his peers and SaaS companies under the GSV portfolio are still growing well. Some verticals have even accelerated during the pandemic due to the nature of their services.

“The path forward,” says Brian, “is to prioritize profitable growth with an emphasis on generating earnings.”

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Advantages of Integrated Payments Vs. Selling Payments as an ISO

With a push to drive more revenue and grow beyond a recurring subscription, many vertical SaaS companies are beginning to see the value of offering payments within their products. However, there’s a difference between integrating payments with an ISV or payments partner versus reselling payments, like an ISO.

While being a reseller of payments is a fast and easy way to provide payment technology to users, it isn’t always an ideal solution. Jason recalls his experience with Ministry Brands and their progression from selling payments to fully integrating payments with a partner. He says, “We didn’t understand what we needed to know about payments; we couldn’t answer sophisticated customer questions or even handle Tier 1 support.”

Their other option outside of reselling payments was to build a payments company, which is a considerable expense of time and money.

Jason continues, saying, “That’s one reason we’re excited about Stax and have seen success with our partnership with Stax. Instead of having to build or buy a payments company, we can leverage the infrastructure Stax has, whether it’s the technology infrastructure, sales experience, marketing experience…Couple that with what we have within our SaaS platforms, and we can offer integrated payments.”How Payment Facilitators Make Your Platform Better

By partnering with a PayFac, there is a more seamless customer experience where data can flow back and forth. Users can marry data from the platform alongside their transactions, giving a concise report that no longer needs to be manually reconciled. And usually, that report can be built within the software itself.

How a Multi-product Platform in a Vertical Industry Can Lead to Higher Revenue Gains

A core strategy for GSV and other PE firms is to offer multi-product platforms within their portfolio to bring complementary companies together and provide innovative solutions.

When products are integrated, businesses cross-sell without investing in developing a brand-new feature. The advantages of having sister companies that complement each other lead to profitable growth without additional expenses.

Another notable advantage of this is the ability for multi-product platforms to bundle their offerings at a discount—giving customers a longer lifetime value than with a single product.

Post-Pandemic Payment Options: Card-Present and Digital Payments

In a new world where in-person shopping and transactions were essentially halted, digital payments, contactless payments, and e-commerce exploded in popularity. However, vertical SaaS platforms should still consider the value of card-present options and evaluate the needs of their customers.

Jason shares, “There are a lot of verticals or use cases out there where card-present payments are still significant. You go to the doctor, and you pay in-person there; you go to your psychologist, and you pay in-person there; your orthodontist, etc. Now we have technology where card-present functionality can be integrated into the SaaS platform, just like card-not-present or e-commerce.”

This seamless integration eases the administrative burden of SaaS end-users and gives them access to more information. Consumers often expect their payments to be reconciled to the same account, with their card information securely stored for contactless payments in-person or digital payments online.

An example of using both contactless and card-present payments would be using card-present tokenization to store a customer’s card information when they pay in person and offering them a discount or loyalty membership that can later be paid for using their card on file.

These two methods help businesses drive more revenue to their bottom line.

Why Vertical SaaS Solutions Command Higher Valuations

For GSV, payments are always the first thing they look at in terms of valuation or giving their partners an edge with supplemental revenue. Features such as surcharging ease the cost of the business using your SaaS platform.

Anytime a customer buys a service or product, there are many ways to integrate those to provide a better and more seamless customer experience, causing less friction.

Brian says it’s essential to define who you’re going to sell to and who your customers are. Vertical SaaS has the advantage of targeting niche markets. However, it’s ideal not to be too narrow that demand doesn’t exist. It’s most effective to define your market segment and understand it well before growing from there and moving to an adjacent market.

For investors, vertical SaaS companies that do complementary things also have the potential to integrate and cross-sell. Stax, for example, is an integrated payments partner with platforms that provide legal software services, professional service management systems, field service software, and more.

Payments Revenue Vs. Recurring Revenue Vs. One-Time RevenuePayments-Led Growth Vs Saas Subscription Growth

Typically, investors or PE firms look at recurring revenue differently from one-time revenue because there are higher multiples and the potential for future success. With recurring revenue in SaaS platforms, you don’t need to find a new customer to get new revenue, making it easier to grow in some ways. In many cases, payment revenue is even looked at just like recurring revenue.

“I can think of many examples within our portfolio where the revenue we were getting from payments was as much or more than the SaaS revenue,” Jason shares. Some businesses sometimes offer their SaaS platform for free and only rely on payment revenue.

The Final Word: Growing Your SaaS Value With Integrated Payments

Payments-Led Growth is a strategy for vertical SaaS platforms to drive revenue with payments. But how can you leverage payments to their fullest potential? It would be best if you had a partner that has the following:

  • Payments Expertise
  • Flexible Technology
  • Adoption Expertise

“You have to partner with a company like Stax that can help you with the sales, help you with the support, help you with that technical infrastructure that’s been there and done that.” You focus on driving customers to your SaaS platform, while payments are a natural by-product.

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