Software is a competitive game and developers are always looking to attract more users, keep them around longer and generate more revenue from each one. Many software companies have already discovered a way to achieve these goals and earn additional income — embedded payments.
But how exactly do software-as-a-service (SaaS) providers turn the payments taking place on their platforms into a revenue stream? In part three of this series, we explore why monetizing payments is such a powerful strategy and where the money comes from.
Turning a Cost Center Into a Revenue Generator
Offering embedded payments turns a cost center into a significant source of revenue. Taking payments is a key part of any company’s operations, so most business-focused SaaS platforms already offer some way to integrate external payment processing. That means, in most cases, the developers are absorbing the costs of building and supporting those integrations. Then, while the software developer is footing the bill, all the fees generated from the payments go to the merchants’ payment providers, bypassing the software developer and leaving them out of the revenue stream.
With the right partner (such as an embedded payments provider or tech-savvy independent sales organization), integrating fully embedded SaaS payments solutions enables software developers to effectively become the frontline payment provider. That means their SaaS platforms can earn a cut of the fees generated on every transaction processed by the merchants they sign up for payment services. The end result is that, instead of representing a cost with little to no direct return, payments can be a valuable source of recurring income in addition to the SaaS provider’s normal licensing revenue.
4 Ways To Generate Payment Revenue
Fees are generated whenever a payment is made. The fees — known as residuals — are then split among all the players involved in getting a payment from point A to point B. That includes the banks, the payment processor and the company that sold the merchant their services. Traditionally, the last player would be a specialist payments company like an independent sales organization (ISO). Now, with embedded SaaS payments, software vendors can also play a role.
There are several ways SaaS providers can generate residuals on payments activity beyond just processing payments, including gateway resales and value-added services. While each company has to decide how many new revenue channels to open up based on its needs and capabilities, there is no shortage of opportunities.
Transaction Processing: Most of the revenue a SaaS company will earn on payments comes from transaction fees. The fee earned on each payment is tiny — a fraction of a percent of the transaction value. However, the numbers add up quickly across an entire portfolio of users performing dozens or hundreds of transactions per day.
Gateway Resales: A payment gateway is the hub through which a digital payment starts and ends, and every merchant needs one. The gateway collects all of the customer’s payment information, encrypts it, sends it out for approval and returns the result to the merchant and customer. With the right partners, SaaS companies can easily add gateway resales to their payment offerings, opening up a second line of monthly revenue.
Value-Added Services: The more merchant services a SaaS provider offers, the easier they make things for their business users. Beyond payment processing, there are a variety of adjacent services merchants need to thrive. Value-added services include fraud protection tools, advanced security, invoicing systems and more. Each represents a potential upsell that increases the value proposition for the user while also bringing in extra recurring revenue for the SaaS developer.
Point-of-Sale (POS) and Payments Hardware: Many types of businesses use mixed payments that require both on-location hardware and web-based payments through the software. Having a variety of hardware options available makes signing up for SaaS-driven payments more attractive to users who need to accept physical cards.
Finding the Right Embedded Payments Partner
For many software companies, the most important aspect of adopting embedded payments is finding a way to do it that is low maintenance, easy to set up and easy to maintain. The goal is to tap into the revenue payments can offer without taking on the infrastructure burden that traditionally comes with it. That means finding the right partner is crucial to succeeding in software-driven payments.
A great partner needs to offer the latest in payments technology, make it easy to integrate into a SaaS vendor’s existing systems and provide unparalleled ongoing support to ensure everything runs smoothly for the lifetime of the relationship. In part four of this series, we’ll look at the most important things SaaS companies need to consider when selecting a partner and moving into payments.
Until then, to find out more about how NMI can power your SaaS payments journey, reach out to a member of our team today.
Don’t just turn on payments, transform the way you do business
- Generate New Revenue By adding or expanding payment offerings to your solution, you can start earning higher monthly and transaction-based recurring revenue.
- Offer the Power of Choice Allow merchants to choose from 125+ shopping cart integrations and 200+ processor options to streamline their onboarding.
- Seamless White Labeling Make the platform an extension of your brand by adding your logo, colors and customizing your URL.