SaaS Payment Processing Solutions
SaaS payment processing refers to a merchant account solution used by Software as a Service (SaaS) companies, enabling them to collect credit card payments from their customers for SaaS services. A SaaS credit card processing account comes with the capability of accepting both one-time and recurring subscription payments.
SaaS payment gateways differ from regular solutions, as specialized payment gateways help SaaS companies manage churn rate efficiently. The most popular payment methods included in a SaaS payment processing platform include credit cards, debit cards, ACH direct debit, and bank transfers.
In the year 1999, the world’s first SaaS platform was launched. The availability of broadband Internet across the United States and Europe helped the demand for such services grow manifold. Today there are thousands of SaaS products and services available, each capable of solving problems and adding value to businesses of different types.
SaaS Payment Processing is High Risk.
It is surprising but true that many traditional credit card processing companies may shy away from onboarding merchants from SaaS industries. There are various reasons behind this.
SaaS companies generally give free trial offers, which are an essential component involved in the marketing of SaaS products. However, it is a reality that not all free trial orders or freemium packages convert into paying orders. Customers may forget that they ever accepted the trial offer, or they may raise fake disputes. All these factors increase the credit risk on the acquiring bank.
SaaS companies operate on a global scale, and this may create challenges related to international cross-border transactions and tax laws. Different regions have various regulations, tax rates, and currency exchange requirements, all of which complicate the payment process for SaaS companies. Payment processing companies with a low risk appetite do not prefer to work with companies that may attract currency fluctuations, regulatory compliance issues, and potential disputes with customers or tax authorities.
Recurring billing is a common practice in the SaaS industry, where customers are charged on a monthly or annual basis for access to the software or application. It is natural for companies to lose a set of customers on a regular basis, and this is called the churn rate. It is important for the payment processing company to ensure that the billing information and card information are updated regularly. If these measures are not in place, it becomes extremely difficult for the credit card processing company to protect the sales projections and can pose significant financial risk to the acquirer.
SaaS companies heavily rely on online transactions, and almost 100% of these transactions are done over the internet, which increases the risk of online fraud, unauthorized access, stolen payment information, and fraudulent transactions. Traditional processors generally prefer to work in industries that do not have such a high possibility of fraud.
Another risk factor that has recently started appearing is the distribution of SaaS subscriptions in an unauthorized way. Group-buy tools or bulk purchasing schemes may lead to unauthorized reselling of discounted subscriptions and sharing of login credentials with multiple users. Many of these fraudulent group-buy companies may also be using stolen credit cards to subscribe to the trial of a product. A specialized high risk processing company implements extensive underwriting and risk evaluation measures, as well as proactively monitors the account to detect fraud and other potential risks.
Rates and Fees for SaaS Payment Processing
The pricing for a SaaS payment processing account is determined after a careful evaluation of various factors, including the expected transaction volume, the types of cards being accepted, and the risk profile of the company. However, there are some specific fees of which merchants must be aware when they apply.
The interchange fee is charged by the card brands. This fee varies based on the type of card used by the customer. Consumer cards have lower interchange fees, however, business cards are a little bit more expensive.
The payment processor that offers you the service acts as a bridge between the merchant acquirer and your business, and that is why it charges a payment processing fee (MDR), which is generally marked up on the interchange pricing. The payment processor may also charge a fixed amount on each transaction along with the MDR.
The monthly fee is the fee that companies pay to the payment gateway for using its services.
Chargeback fees are charged when a customer disputes transactions and demands a refund from the merchant.
Popular SaaS solutions that use credit card processing accounts
Subscription management platforms provide companies with the ability to easily manage recurring transactions. Additionally, these SaaS-based subscription management platforms allow companies to generate invoices and estimates. SaaS platforms help companies reduce administrative costs. Some of the most popular subscription management platforms include Chargebee and Recurly.
Saas based e-commerce platforms offer the ability to build a complete e-commerce website and also provide additional services like web hosting, email hosting, inventory management, and subscription management. These platforms reduce the complexity that traditional e-commerce businesses face. With SaaS-based e-commerce platforms, online entrepreneurs can offer a smooth checkout experience to customers and also reduce abandonment rates, improving overall sales conversion. Some of the most popular players in the e-commerce SaaS market include BigCommerce, Woocomerce and Shopify.
SaaS-based accounting software helps businesses automate financial tasks, including invoicing, expense management, and financial reporting. Traditionally, companies used to have application software that was installed on standalone computers. These software were not very reliable as they used to easily crash or be easily infected by viruses. With online accounting software, companies don’t have to worry about the crashing of the solution and losing the data. Some of the most popular platforms for accounting include QuickBooks Online and Xero.
SaaS-based Customer Relationship Management (CRM) software helps businesses easily manage customer interactions, track sales, manage the complete sales funnel, and extract important sales projections. Today, SaaS CRM plays a pivotal role in the day-to-day operations of companies. Online CRM solutions can be accessed in multiple locations. A CRM solution enhances the overall performance of the sales team and also helps improve the customer satisfaction ratio. The most popular SaaS-based CRM solutions include Salesforce, HubSpot, and Zoho.
Online booking and reservation systems allow companies to make online bookings, reservations, and appointment scheduling for various industries including hotels, travel, hospitals, healthcare, veterinarians, spas, and salons. Online booking platforms solve many problems as they offer companies the ability to accept online bookings in an automated way. Once a payment solution is added to an online booking and reservation system, customers can make real-time credit and debit card payments. For time-sensitive industries like airlines, railways, bus services, movie theaters, and amusement parks, these platforms are super important as they provide real-time seat availability and booking. A few of the most popular platforms include Booking.com and OpenTable.
In every industry, SaaS platforms are playing an important role; however, without the right payment processing solution, the value addition of a SaaS platform will be limited. The payment processing demands of a SaaS platform are very different from the demands of a convenience store or a boutique. That is why it is important for SaaS companies to choose a payment processor capable of ensuring that these unique demands are met.
Components of a SaaS Credit Card Processing Solutions
Online credit card processing for SaaS companies is a complex process that involves various parties, each with their own set of responsibilities that help ensure that transactions are processed efficiently and on time.
A SaaS payment gateway basically acts as an intermediary software between the SaaS company’s website or application and the various financial institutions involved in the payment process. This SaaS payment gateway accepts the credit card information that the customer provides on the SaaS website or application. It then encrypts the details and sends them to the payment processor, also known as the merchant acquirer, for authorization. The SaaS payment gateway handles all the responses it receives from the payment processor and communicates them to the merchant, which is the SaaS company, whether the transaction was approved or declined.
Another key player involved in SaaS payment processing is the subscription management tool. This can be created by the merchant or can also be sourced from the open market. Our payment processing solutions come with a built-in subscription management tool. A subscription management platform allows SaaS companies to manage subscriptions and initiate recurring transactions. It automates subscription billing invoices and also allows upgrades and downgrades of subscriptions.
The merchant acquirer is the acquiring bank, which takes full responsibility for processing payments on behalf of the SaaS company. The merchant acquiring bank collects the transaction information from the payment gateway and routes it to the right card network. Upon successful transactions, the merchant acquirer settles the funds to the company’s merchant account. The merchant acquirer also handles the settlement for refunds. The merchant acquirer ensures that the merchant complies with the rules and regulations set by the card schemes while processing payments.
Card schemes are the card companies, and these companies set the payment processing rules for the card industry. Some of the card schemes use card issuers, which are basically banks that offer lines of credit to cardholders. However, a few of the card brands are issuers themselves, and these card brands do not utilize the services of card-issuing banks. These card companies govern fee components like interchange fees and also govern various protocols and security requirements that apply to transaction processing through their card network. For a SaaS company to have excellent business over the internet, it is important for them to accept payments through different card types.
Card issuers are the banks that issue credit cards and debit cards to consumers and businesses. When a consumer or a business makes a purchase of a SaaS service, the card issuer verifies and approves the transaction based on the available credit line or funds in the account. In the context of SaaS payment processing, the card issuer ensures that the transaction is carefully authorized and also ensures that the cardholder data is secured by tokenization.
Types of Credit Card processing Services for SaaS companies.
An aggregate SaaS payment solution, also known as a shared MID, is a credit card processing account provided by a third-party payment aggregator or payment facilitator. With this type of account, the SaaS company uses a merchant account that is also offered to various other companies. In this case, the payment aggregator takes responsibility for underwriting, risk management, and compliance. While the onboarding process for such an account is quick, SaaS companies do not have direct control over the merchant account as it is shared by various other companies.
This type of account offers very limited control to the SaaS company. A shared MID increases the risk of account closure due to high chargebacks arising from other merchants in the shared pool. Additionally, this type of account is not very scalable. As the SaaS company grows and requires a larger transaction volume, the aggregator may implement limitations.
A dedicated SaaS merchant account is solely for the usage of a single company. This kind of account is generally provided by an acquiring bank or a payment processor(Principle member). With a dedicated merchant account, SaaS companies can have greater control over transaction processing. This kind of account takes a little bit longer in terms of approval, as the payment processor follows very strict underwriting guidelines. Once the account is approved, the merchant generally does not have to worry about scalability, as these accounts can handle large monthly sales volumes. Merchants get to have better control over chargebacks and returns and can also use advanced customization features to meet their unique needs.
Types of Credit Cards Supported for SaaS Payment Processing
Consumer Card Processing for SaaS refers to transactions made by individual consumers, that is, the end-users, for purchasing SaaS products or services. These are the cards issued in the name of individual customers and not in the name of any company or business. Consumers may use their credit or debit cards to make purchases for subscriptions, access digital content, or buy any consumer-centric SaaS subscriptions. Accepting consumer cards is extremely important for SaaS companies.
Business Card Processing for SaaS refers to a payment processor accepting business credit and debit cards. This type of card is generally issued to a business entity to meet business expenses. Generally, the transaction limit of this kind of card is higher than a consumer card. Companies use their business cards to purchase subscriptions for various SaaS softwares, including CRM, accounting software, project management software, and many more. Business customers purchase single as well as multiple licenses depending on their requirements. For a SaaS merchant the processing cost of business cards is generally higher than consumer cards.
Popular SaaS Payment Methods
To increase the conversion ratio and reduce cart abandonment, a SaaS company must offer all possible payment methods to their customers. Let us look at some of the most popular payment methods for SaaS companies.
Credit and debit card processing is one of the most popular payment methods in the SaaS industry. This payment method is used by consumers as well as businesses to buy subscriptions from SaaS companies. A good SaaS credit card processor should allow businesses to accept credit and debit cards of all types issued locally and internationally.
Direct debit is another popular payment method used by SaaS companies. This payment method allows customers to authorize direct debits from their bank accounts. For subscriptions, a fixed amount is debited from the customer’s account at fixed intervals.
Digital wallets like Apple Pay and Google Pay are also becoming extremely popular when it comes to payments for SaaS companies. These wallets come with a scan and pay feature, which does not require the customer to type in the entire card number, CVV, or expiration date. This convenience makes digital wallets a popular payment method in the SaaS industry. Along with that, processing payments with digital wallets is comparatively cheaper than credit and debit cards.
Other payment methods that can be used by SaaS companies include wire transfers, cryptocurrencies, and alternative payment methods.
Features of SaaS Credit Card Processing Accounts
Subscription payments allow SaaS companies to bill customers on a regular basis. Billing can be based on the agreement between the company and the customer or the subscription chosen by the customer on the company’s website. Typical subscription packages sold on SaaS platforms include monthly, yearly, and biannual options. Offering this feature is essential for the SaaS industry as it enables flexible payment terms for customers and businesses purchasing SaaS products and services.
By combining a SaaS payment gateway with a virtual terminal, SaaS companies can easily upsell or cross-sell products. Company representatives can upgrade subscriptions or add product features seamlessly.
Another essential feature of a SaaS credit card processing account is the ability to offer free trials. This allows customers to evaluate SaaS products before committing to a subscription. If customers do not cancel the subscription during the trial period, it should continue and charge them according to the agreed-upon terms between the SaaS company and the customer.
SaaS companies should be able to set up automated alerts that notify customers whose credit cards are due to expire. This ensures uninterrupted service and helps minimize churn due to expired payment methods.
Integration with account updater services is crucial to automatically update card information, reducing payment failures due to various reasons.
SaaS companies should have the ability to customize the checkout experience based on branding requirements. Customers should have a smooth experience while making payments.
FAQ SaaS Credit Card Processing
What are the top Payment Gateways for SaaS Merchants?
When processing credit and debit card payments on your website, you will need a merchant account and a payment gateway. In most cases, the payment processor will offer you a deal that includes a payment gateway and merchant processing solution. However, you are free to choose a payment gateway of your choice. Let us look at some of the most popular gateways used by SaaS companies.
Authorize.net is a popular payment gateway used by SaaS companies in the US and Canada. This gateway allows SaaS companies to accept various payment methods, including credit cards and debit cards. Its intelligent fraud detection, customizable checkout options, and easy integration with various SaaS platforms make it a preferred payment gateway for companies in the US and Canada.
The NMI gateway is another popular payment gateway platform used by SaaS companies. It allows SaaS companies to accept payments in various modes and comes with advanced features like recurring billing, subscription management, and mobile payments. The gateway also has advanced security features, full PCI compliance, and easy integration with popular SaaS platforms. This gateway is quite popular with businesses in North America.
For SaaS companies operating in the European Union, Trust Payments offers an exceptional gateway. With their payment gateway solution, European SaaS companies can easily accept payments in local as well as international methods. It also comes with a built-in subscription management tool that reduces costs for the company. The gateway also has advanced AI-based fraud detection features that offer peace of mind to business owners.
