Software as a service (SaaS) businesses rely on recurring revenue. Customers pay regularly (i.e., weekly, quarterly or monthly) instead of making a one-time purchase. This model supports predictable growth, but it brings challenges too. Ongoing billing can elevate chargeback percentage, especially if customers forget renewals. Hence, many traditional acquiring banks and low-risk payment service providers consider SaaS businesses in the high-risk category and reject applications of merchant account for Saas Companies.
You can connect with QuadraPay for SaaS recurring billing payment processing solutions. We connect you with payment processing companies that truly understand the SaaS business and the risks associated with it. QuadraPay provides dedicated SaaS merchant accounts in Australia which provides stable payment processing solutions.
What is a SaaS Merchant Account?
A SaaS merchant account is a special type of payment account designed specifically for software businesses that charge customers regularly. SaaS companies use various ways to charge customers. For example, some companies offer a free plan for a few days and then charge the customer. Some models charge customers based on how much they use the service. There are a few SaaS companies that charge on a yearly basis to customers. Each model has certain risks associated with it. A SaaS company charging AUD 29/month can face more frequent cancellations or chargebacks compared to a business charging AUD 5,000/year.
QuadraPay helps Australian SaaS businesses in choosing the right payment processing company based on their model type and ensures smooth and stable payment processing.
How do acquirers classify SaaS businesses?
1. Business Type
B2C SaaS companies serve their products directly to customers. They face higher chargebacks because customers are more likely to forget subscriptions. B2B SaaS companies deal with companies instead of customers. These companies usually read the billing terms and then sign the contracts. So B2B SaaS businesses often face fewer chargebacks.
2. Billing Model Complexity
Simple billing models like monthly or yearly subscriptions are quite easy to manage. Customers know how much they will be charged, and hence they are less likely to raise disputes. But complex billing models like usage-based (AI ML based SaaS paltforms) billing increase the risk. Here, SaaS companies charge customers based on how much they use the service. The customer can raise a dispute and file a chargeback if the final prices are higher than expected. Free trials converted into paid plans can create chargeback risk, especially if the customer is not informed about the payment plan properly.
3. Customer Geography
SaaS companies sell their services to customers all over the globe. Acquiring banks carefully review the business models and the location of their customers. Acquiring banks can consider your business in a risky category if most of your customers come from a location with a high fraud rate.
4. Churn Rate And Refund Policy
Churn rate means how often customers stop or cancel your service. There are usually two types of churn, i.e., voluntary and involuntary. Voluntary churn happens when customers choose to cancel any product or service. But involuntary churn happens when customers forget about the subscription policy and later file a chargeback. Acquiring banks consider involuntary churns in the high-risk category.
Refund policies play an important role when reviewing SaaS merchant account applications. If a SaaS company mentions clear and fair refund policies, then it reduces the potential risk.
The gateway layer of SaaS
A SaaS merchant account allows you to safely accept payments from customers and receive money in your bank. A payment gateway is the technology that connects SaaS websites with the acquiring bank so that you can securely accept payment.
The key features of a SaaS payment gateway are as follows.
1. Tokenisation
The SaaS payment gateway should store card details in the form of tokens so that customers do not need to enter the card details again and again. The payment gateway will work with the saved token even if the customer’s credit card gets replaced or updated.
2. Automatic Card Updates
Automated card updating reduces payment failures. The card of a customer can get expired or lost and be replaced by the bank. The card network sends the updated card details to the payment gateway, and it saves the card information without asking the customer about it. So the payment gateway uses the updated card details for the next payment processing cycle.
3. Smart Retry System
Payment processing can fail when the customer does not have enough balance in the account or because of network issues. The payment gateway of the SaaS platform automatically tries for payment after some time. A smart retry system gives another chance to the SaaS business to collect payments.
4. Dunning Management
The payment can fail for various reasons. The SaaS payment gateway automatically sends reminders to the customers regarding what went wrong while processing payments.
What Do Underwriters Need From a SaaS Application?
1. Website And Product Documentation
Underwriters check the website thoroughly to understand the SaaS company. They check the product descriptions and the types of customers they are targeted to. The pricing page should clearly explain the monthly or yearly charges, the charging amount and any extra fees. The checkout page of the website should clearly explain the billing frequency and how customers can cancel the product or service. This builds trust, and underwriters can give quick approval for a SaaS merchant account.
2. Processing History
Underwriters even check the payment processing history of around 3-6 months. If you have used a Stripe or PayPal payment system, then show the payment processing history and clearly explain the reasons for chargebacks and what steps you have taken to reduce them.
3. MRR And Growth Trajectory
MRR (monthly recurring revenue) plays an important role in a SaaS business. Underwriters give quick approval for SaaS subscription billing merchant accounts if a SaaS company has steady or growing MRR with low churn.
4. Terms Of Service And Refund Policy
Terms of service and refund policy should be very clear, and customers can easily find them. Underwriters can consider your SaaS business risky if there are differences between your policies and actual billing.
5. Director And Company Documentation
Underwriters need the company and directors’ details while verifying the application of SaaS merchant accounts. This process is known as KYB (know your customer). A SaaS company needs to submit important documents like the company registration papers, address proof, director ID proof and details of business owners. Accurate and complete documents will speed up the approval of the SaaS merchant.
How Does QuadraPay Work With Australian SaaS Businesses?
QuadraPay reviews your business website thoroughly, along with past payment processing, chargeback rates, refund policies and your product type. If there are any issues, then we suggest you how to fix them. We then prepare an application form which includes all the important details that acquirers want. QuadraPay then sends the SaaS merchant account application form to An Australia or International acquirer that understand this business and the risks involved. We even negotiate better terms to guide you in the entire merchant account approval process.
Frequently Asked Questions
1. What is the difference between a SaaS merchant account and a software merchant account?
A SaaS merchant account is mainly for businesses that charge regularly (weekly, monthly or annually). But a software merchant account includes both one-time sales and subscriptions.
2. Can a pre-revenue SaaS startup get a merchant account?
Yes, a SaaS startup can get approval for a merchant account. But underwriters will check your business plan, checkout process and product type during evaluation.
3. What rolling reserves should I expect?
You can expect rolling reserves of 5-10 per cent held for 90-180 days.
4. What happens if my dispute rate increases?
Try to find out the exact reasons for the dispute rate and fix it to prevent account termination issues.
Are you running a SaaS business and struggling to have a stable SaaS payment processing solution? If yes, then you can connect with QuadraPay. We partner with the finest payment processing companies of the US, UK, Australia and many more and provide SaaS merchant accounts.