Introducing a New Surcharging Program from Stax Connect

Okay. Good morning, everybody. Give everybody just a minute to join. We’ll go ahead and kick this off in one to two minutes. Looks like we’ve got some people joining. For those that just joined us, we’re gonna go ahead and get started in just a minute or two, give everybody some time to to get in and get settled. Alright. I think we can go ahead and get this kicked off. So good morning, everybody. Thank you so much for joining our webinar today. We’re very excited to be here to present a new surcharging model, that we are making available to our Stax Connect partners. Before we get started, I do wanna mention that this session is being recorded, so you will receive, a link to the recording via email, in the next day or two. And so feel free to, you know, obviously watch it again or share it with any of your colleagues, that you think would would benefit from watching. If you have any questions throughout the session, please feel free to submit them to us. You can do that, via the chat or the q and a, which you should be able to see on the right hand side of your screen. We will have, some time at the very end to dedicated to answering your questions. But if you have any, you know, throughout the session, if we’re able to, we’ll definitely make sure to get to your questions at that time. And so with that, we wanna go ahead and introduce the group here. First of all, my name is Katie McGinn. I am a product marketing manager here at Stax. If you’ve been on any of our other webinars in our any of our product webinars, you’ve probably seen me. And then we also have Jeremy and Anna. So I will kick it off to them kick it over to them so they can introduce themselves. Anna, I’ll let you go first. Thanks, Jeremy. So my name is Anna Wilson. I am the director of commercialization strategy here at Stax, and I work very closely with our sales, marketing, and product organizations to take our new products to market and make sure that they are a good fit for our partners and their merchants. Over to you, Jeremy. Thanks, Anna. So Jeremy Kroll, I lead our partner growth team here at Stax. And so what we do is work with our integrated partners on their growth and revenue initiatives and overall go to market strategies. I’ve been in the payments industry for, many, many years and have been involved with convenience fees, service fees, and now surcharging really over a period of time going back to the early two thousands. So I’ve dealt with a lot of programs like this over the years, and to me, this is the most exciting one that, I’ve seen, and so we’re excited to share that with you guys today. Awesome. Thank you both. And then just as a quick overview of today’s agenda, we will first start start off with just an overview of the benefits of surcharging. So I know we have some current, Stax Connect partners with us, but we also have some, what I like to call future Stax Connect partners. So I’m just gonna give a quick overview. If you have not been able to join any of our other, webinars or read any of our blogs on surcharging, just wanna give a quick overview of the initiative. And then we’ll get into why we’re here today, to talk about the new model of the surcharge merchant fee. We’ll go through an overview and then the benefits and, of course, a revenue breakdown that partners can expect to see with this new model. We’ll talk about one of our pilot partners, as we have been in pilot with this new model, for some time now. So just wanna give an update on, you know, the benefits and and everything that they’ve been able to see and accomplish with this new model. We’ll talk about reporting. Obviously, we wanna make sure that, you know, our partners have complete visibility into, into the this this model, and, we’ll make that available to you all via Stax Connect and Stax Pay. Also talking through any of the resources that we have available to you all, and then how to get started. So if you’re interested in learning more, or you would like to implement this model, for your merchants, we’ll definitely talk about what, what next steps will look like there. And so with that, I will pass it off to you, Anna. Alright. So as Katie mentioned, we have, covered a lot of star charging in the past and wanted to just do a very brief overview today to set the stage of what we’re about to cover. But I’m not going to go into all of the nuances of surcharging as a whole and Stax surcharge program. So we will make sure to link, multiple resources at the very end of this presentation so you have access to those as well. But in general, what are some of the benefits of surcharging? Historically, surcharging has been a very, very good tool, especially for our partners to help, provide flexibility to those merchants that are maybe more price sensitive that push back on, maybe traditional processing costs, especially when when we’re dealing with macroeconomic factors and businesses have to keep costs slow wherever they can. And so this has been a really good tool to allow businesses to pass on some of the fees to the cardholders whenever they’re using a credit card. This has also been very beneficial to allow customers or cardholders to have multiple flexible payment options. So for example, if they don’t want to cover the surcharge fee through a credit card, they still have the ability to use a debit card and ACH payment to pay or make their purchase. In the past, there’s been a lot of concerns with customer attrition for those that are offering surcharging or utilizing surcharging, but because of that pricing flexibility and allowing merchants or cardholders who use multiple payment methods, that has proven untrue. The last piece here, is really, I think, a bigger issue that a lot of partners and merchants have problems with, and that is the compliance aspect of surcharging. It can be incredibly complex to work with surcharging rules within different states. The card grants have a lot of complex regulations in place that we have to adhere to in order to avoid fines. And so for a lot of partners, they are really scared to implement surcharging just because of trying to manage this and make sure that they are within compliance. And so the benefit here is that working with with someone like Stax who is really considered one of the industry experts in surcharging. We’ve done this for many years. We have technology that handles all of the complexities within states, and also a lot of people that are true experts in the industry. So with with working with us, we are able to provide a very easy solution for both of our partners and their merchants to maintain compliance. So you might wonder why doesn’t everyone offer surcharge to their merchants with all of these benefits? Well, in twenty twenty three, there was a surcharge cap that was introduced by the card brands that prohibit anyone from passing on fees above three percent. And so there were some problems that that this cost. One was that this decreased ISV profit margins. A lot of our ISV partners would go to market with a rate higher than three percent. And so when they had to reduce that down to three, then they automatically saw a decrease in their margins. This also creates an issue when it comes to addressing the biannual pricing increases that the card brands typically do, every October and April. And so with increased costs and having that stagnant cap, there is just a less and less margin than many many partners see. And for some of our partners, not only did they see a reduction in margin, but they actually ended up seeing negative residuals. That was specifically or especially true to those partners that are in the b to b space where they take a lot of business cards or exclusively in a card not present environment. And so with that, we came out with a solution to help bridge some of that gap. We called it our surcharge platform fee, which was a flat fee that partners could charge to their merchants on a monthly basis to have access to the surcharge program. And although this was a really helpful tool for a lot of our partners, there were some that just had a different go to market strategy. And for them, this inflexible amount was not a good fit for the way that they price their payments or price their SaaS. And so it really just didn’t provide the flexibility that our partners need in order to help address different pricing strategies within their own organization. And so we went back to the drawing board, and we decided that we needed a different solution, and that is what we’re talking about today. So if we flip to the next slide thank you. We are now introducing what we are calling the surcharge merchant fee. So this is a simple, predictable, and compliant surcharge model that we’re making available to our partners and their merchants. Essentially, a percent that the merchants are responsible for paying on the surcharge volume itself, which would be lower than traditional processing. So still getting that low cost option, but it also allows our partners to have flexibility in their own pricing strategy and maintain margins as they’re, offering the surcharge to their merchants. So with that said, I’m going to pass on to Jeremy, and he’s gonna go over the specific benefits to this model. Thanks, Anna. So a big part of this really goes back to solving for the complexities of the integrated market. And so whenever I talk to integrated partners, I’ve yet to find anybody who hasn’t had a request from their merchants to support a surcharge model. And when integrators say no to supporting surcharging, it’s primarily due to two reasons. Reason number one is the complexity of managing the compliance of that program around the state laws that are in place, as well as the card brand rules. And then the second reason is because of the revenue impacts. And so when a when a integrator goes to a surcharge model, in many cases, it it can relatively negatively impact their overall residual stream, as Anna mentioned. And so with the introduction of this, platform fee that we can support, this really enables another revenue stream to increase the profit margin and flexibility of the overall program. There’s a, there’s a a large ecomm, SaaS provider out there who are old name by name, but they put right on the front of their website, if you don’t use us for your payments, we’re gonna charge you a one percent platform fee. So if you if you use a third party solution as opposed to their payment integration, you know, they essentially charge you one percent for that. This is a very similar model. It’s basically saying, okay. The three percent, you know, sort of covers the interchange cost. Now we’re gonna charge one percent, and that is a variable, a flexible rate. We have the capability to set that at, you know, half a percent or one point two five. There’s some variability there that we can we can drive pricing programs based on the uniqueness of each individual integrator. And effectively serves as a platform fee to cover the cost of you as an integrator supporting the program and creating that residual stream that you need to support your program and platform, as well as our program and platform for managing the overall state and car brand compliance. So merchants really like it because it it enables them, for example, if they’re in a merchant funded model today and they go to this model, in many cases, they can drop their overall effective rate from three to three and a half percent in many cases down to, you know, one to two percent, once you factor in the platform fee and and and debit cards, ACH, that sort of thing. So they can usually cut their pricing down pretty substantially. And also for the integrator, Anna mentioned earlier the fifty dollar platform fee as an example that we have supported in the past as a fixed fee, you know, to overall support surcharging programs. That doesn’t really scale. And so what we’ve experienced there is you have merchants that may be doing, you know, ten thousand dollars a month or a thousand dollars a month or a hundred thousand dollars a month, and they’re all paying fifty dollars for access to the platform. And there’s obviously a very wildly different value to the merchant, in that situation, and a and a fixed platform fee doesn’t really scale to do that. So this allowed us and you to scale that merchant cost with the value of the delivery that they’re getting across the the total amount of the volume that they’re processing. So it’s really a win win. Merchants really appreciate the fact that they can leverage this model. Our integrators appreciate the fact that they can now leverage this model and offer, surcharging largely at parity from a revenue perspective, that they do to their existing merchant funded business. And, really, the most important part is that Stax, in this case, we do all the heavy lifting for the compliance, of the program. So when you do the integration to us, you come into Stax Connect as an example. It’s just an API call that says, hey. Is this a search or eligible transaction? And if so, we we can push that down the path of a a surcharge. If it’s a not non surcharge eligible transaction, you get that right up front. For example, if it’s a debit card or issue from a a cardholder in a state that is doesn’t allow surcharging, Our API essentially does the work for you. So it’s all part of your current integrations, very little dev work, because it’s essentially especially if you’re already coming into Stax today, this is just one additional call to say, hey. Is this is this a surcharge eligible transaction? We go to the next slide. We’ll talk about the revenue here. So kind of about, going to set you guys through what this looks like. We’ve we’ve essentially modeled three situations here, sort of standard processing, what I would call merchant funded. In the middle, we’ve got surcharge with three percent cap today that we’ve been living under for the last couple of years since the Visa cap went into place, and then now in sort of this three plus one model. So if we look over on the left, let’s say merchants doing ten thousand dollars a month in process volume. Let’s say they’re charged, you know, three, three and a half percent, all in for their payments. The merchant is funding all of that, three hundred forty nine dollars in this example. Interchange on that might be two seventy. Net revenue is seventy nine dollars. So that becomes essentially revenue available for us to fund the program, for you as the integrator to fund the program and so forth. Now if we look at surcharge with a three percent cap today, we’re going to see a similar, let’s say the same volume, ten thousand dollars, three percent surcharge, the consumer customer cardholder pays three hundred. So our gross revenue in that situation has dropped, essentially from, say, three forty nine to three hundred, but then you get a little bit of a double whammy because the interchange actually goes up. So even if your interchange is consistent, because you now added three percent to the overall process volume because you just added three percent to the transaction amount, that’s going to increase your effective interchange rate by three percent as well. So you can see a pretty substantial revenue drop. In this example, seventy nine dollars versus twenty two dollars. Now if we add the one percent platform fee here, then that gets us back to an an increased revenue situation where we’ve got the the consumer funding three hundred of that. The merchant is funding a hundred. So the total gross revenue in that case, and actually, relative to TACO, that should be four hundred. We updated that. Must not have made it into this version, so apologies there. But that four hundred dollars would be the gross revenue minus two seventy eight. You get a total net revenue of a hundred and twenty two. So it’s a pretty substantial increase. And one of the things that we always try to do with this new model is we really try to create as close as we can to revenue parity for you as an integrator so that your non surcharge transactions and your surcharge transactions will effectively generate the same amount of revenue is what we try to do. Now keep in mind, you know, there’s variability in the interchange, whether you’re doing card present, card not present. Every, every one of our integrations is a little bit of a snowflake. So kind of just a full disclosure, you know, we have to run numbers for you. These are based on averages that we’ve seen, across some of our merchant portfolios. And so if you’re interested, get in touch with us, and we can model your actual transaction volume and give some estimates there. But these these are averages. Now I’m gonna go to the next slide and turn it back over to Anna. Alright. So, what Jeremy just said, as far as averages versus real numbers will vary very much depending on each integrator and their specific merchant base. But we wanted to show this with a real life example. So we have been piloting this with a partner for, a couple of weeks and wanted to show exactly what this looks like for that part. This partner is in a they’re in the professional services vertical and work a lot with, businesses that take business cards. They’re almost exclusively in a card not present environment. And looking at the prior model here to the left, this particular partner did utilize our fifty dollar platform fee prior to moving to this new model. And so looking again at the surcharge rate here of three percent, their overall average interchange dues and assessments on their volume was two point six nine percent. That dropped their their transaction net revenue two point three one percent. Then with the help of that platform fee, there they had an additional net revenue of a point three six percent. So all in all with those two combined, they had a total net revenue of point six seven percent against their volume. Now moving to the new model and removing that fifty dollar platform fee and instead replacing that with a one percent surcharge merchant fee, they went from, again, three percent plus the one percent to the merchant, and the change dues and assessments remain the same. And so all in all, the total transaction net revenue went from point six seven percent to one point three one percent, indicating a ninety six percent increase in that revenue. So, again, this can just be an incredibly powerful tool to use to be able to manage different margins and make sure that you are seeing the different, take rates that you need to see as a business to scale. Alright. So as we mentioned in the beginning, we we at Stax, we wanna make sure that we have provide the most simple solution when it comes to start charging. So not only with the technology, but also with our, humans and our expertise there. And so we have created and made sure that we have reporting that can reflect this to make sure that it’s very clear to both merchants and our partners what it is that they are paying for. So we’ve updated our merchant deposit reports and our monthly fee statements to make sure that this fee is reflective of, everything and that it makes sense for merchants when they’re going in to look at their financial statements. We have also created additional resources for our partners to be able to better sell and support this program. And so we have merchant facing materials such as email templates and one pagers that really help explain this program as well as FAQs for both sales and support teams to, again, be able to handle conversations and questions from merchants. Back to you, Katie. Awesome. Thank you, Anna, and thank you, Jeremy. And apologies to the group for our pictures being over the slides. I’m not sure how to fix that, so I’m sorry about that. Hopefully, we were able to get most of the information from the slides, though. That said, I did wanna mention, and I think I mentioned in the beginning, that we have many resources available in terms of surcharging, whether it be in general, specific to, you know, your state or whichever. So we did want to, provide you with some of those resources. If you have not been able to check them out just yet, we will go ahead and link those in the chat for you all, so you can take a look at that, whenever, you know, whenever you have the time. And then in addition to that, we also wanna know if you wanna hear from us about this. So if you would like more information, about surcharging in general or the surcharge merchant fee, I’m gonna go ahead and launch a poll on the screen. It should come up in about ten seconds. Let us know via this poll if you would like a member of the Stax team to reach out to you to discuss this further. So if you are an existing, ISB partner with us, we will have one of your growth managers, reach out to you. And then if you are a future, partner with Stax, we’ll have someone from from our, business development team reach out. So I will leave this up on the screen for just a moment. And by answering this poll, we will see your information on the back end. So we’ll know, you know, who we who we should be reaching out to. And then, again, if there are any questions that you’ve thought of throughout the session, please feel free. You can throw those in the chat. We do have a few minutes left, that we can dedicate to your questions. Like I said, I’ll go ahead and leave this up for just a moment. Give everybody a chance to answer. And then I think that is it for today. Again, though, if you guys have any questions, feel free to throw them in the chat. But, otherwise, if there aren’t any questions, we appreciate you guys joining. Look out for your in your inbox for a, recording of the session, and we’ll also get those links over to you that we linked in the chat as well. So with that, I will say thank you all again, and we look forward to seeing you at our next webinar. Thank you.