SaaS Credit Card Processing: Better SaaS Payment Gateway & Merchant Accounts
Software as a Service (SaaS) offers a variety of applications to users. These include on demand CRM, Ai driven softwares, image manipulation tools, project management tools, communication software, collaboration tools and more. Companies offering such softwares require SaaS Credit Card Processing that can suit their unique requirements. At QuadraPay we have massive experience in supporting companies with excellent SaaS Payment Gateway & Merchant Accounts. Our team has created this industry insiders guide for all Saas companies. This guide aims to educate Saas companies about the nitty-gritties of merchant services. Let’s begin.
A SaaS merchant account is a specialized credit card processing solution used by Software as a Service (SaaS) companies to collect credit and debit card payments from their customers. A SaaS credit card processing account can accept one-time and recurring subscription payments.
For a SaaS company to accept card payments it must have a merchant account and a payment gateway. The merchant account is issued by the sponsor bank. It includes a VAR sheet with MID details. This information is added to the SaaS payment gateway, and it works like a connection bridge between the acquirer, card issuer, and the merchants website.
In simple terms, SaaS payment gateways are specialized payment gateways that meet the unique requirements of SaaS companies. These gateways have advanced features like churn management, subscription payments, multi-user accounts, invoice links, and virtual terminals.
This SaaS payment gateway accepts the credit card information that the customer submits on the SaaS website or application. It then encrypts the details and sends them to the merchant processor for authorization. The SaaS payment gateway handles all the responses it receives from the payment processor and communicates them to the merchant, whether the transaction was approved or declined.
SaaS Merchant Accounts Are High Risk
It is surprising but true that many traditional sponsor banks and PSPs may shy away from onboarding SaaS merchants. There are various reasons behind this, and it is important for merchants to be aware of these so that they may better prepare, get approved, and avoid facing rejections. Let’s explore some of the key reasons that make SaaS merchant accounts high risk.
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 and may raise disputes. This is not new to the SaaS industry, and that is why banks prefer to work with those SaaS companies that do not offer free trials.
Most companies operate on a global scale, and this may create challenges related to cross-border transactions and tax laws. Different jurisdictions have different regulations, tax rates, and currency exchange requirements. All of these complicate the payment process for SaaS companies. Payment processors 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.
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 shared with 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 since it is shared with others.
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 SAS merchant account is approved for the use by a single company. such an account is generally created by an acquiring bank or a principal member payment processor. With a dedicated merchant account Saas companies get a better control over its payment processing capabilities.
In comparison to a shared merchant account getting approved for a dedicated account can take a little bit longer. There are many reasons behind the same. Those companies that offer dedicated merchant accounts follow extended underwriting principles and that is why it requires more time. Another reason is the complexity of integration. Sometimes integration of a dedicated account may take a bit longer.
Rates and Fees for SaaS Credit Card Processing
The pricing for a SaaS merchant services 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 merchants must be aware of when they apply.
Interchange Fee: 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 more expensive.
MDR also known as merchant discount rate is a fixed percentage that are merchant pace on sale of every saas product order.
Monthly Fee: A fee that companies pay to the payment gateway for using its services each month.
Chargeback Fees: This fee is paid by the merchant when the customer wins a dispute over a transaction.
Most Important Features of SaaS Credit Card Processing Accounts
When it comes to credit card processing for SaaS companies, it is important to have a clear understanding of the special requirements that such companies may have when it comes to payment processing. Let us now explore some essential features that cannot be ignored by SaaS businesses when choosing a payment service provider.
Subscription Billing and Recurring Payments. This is the most important feature that your payment solution must offer. Without accepting subscription billing and recurring payments, it becomes almost impossible for any SaaS company to survive. The payment processor should not only offer you these facilities but also provide additional software that may be required to properly manage recurring billing for your customers. Your payment processor should be okay with your demand for flexible billing cycles, including monthly, annual, and custom options. It will be amazing if your payment processor offers you reminder tools that shoot emails to customers regarding failed payments. If you offer free trials or promotional pricing, then your processor should also support the same.
Multi-Currency Support. Every SaaS business today focuses on local as well as international sales. It is important for you to collect payments from customers in different countries. The payment processor should offer you the ability to accept payments in multiple currencies and should offer transparent currency conversion functionality as well. This way, your customers will feel more secure while making payments on your website in their home currencies.
Advanced Fraud Prevention. SaaS companies not only accept orders from customers but also retain some sensitive information related to customers for future payments. Because of this, it becomes extremely important for payment processors to offer advanced fraud prevention tools to merchants. The payment service provider that you choose for your SaaS business should use advanced tools like 3D secure authentication and must fully comply with the PCI DSS requirements. Keep in mind that the final processors have already started using AI-driven fraud detection technologies to enhance security.
Integration Capabilities. It is important that the payment gateway you select integrates smoothly with your software stack. Make sure that you confirm with the payment processor if they can offer integration with your website or mobile application. Ask them for detailed information about APIs, SDKs, and custom integration options. Some payment processors also offer integrations for CRM, accounting, and analytical tools. Check if your provider offers real-time payment event notifications.
Multiple Payment Methods. Your customers would like to choose the payment method of their preference. The merchant account provider should allow you to accept a variety of payment methods, including credit cards, debit cards, ACH payments, e-wallets, bank transfers, and even invoice payment options.
Advanced Reporting. SaaS companies operate in a highly competitive market, and that is why it is extremely important for these companies to have access to data related to transactions. The payment solution provider must offer a robust analytics and reporting system so that merchants can easily get information about real-time sales, churn analysis, and lifetime value (LTV) metrics.
KYC (Know Your Customer) List for SaaS Companies Needing Merchant Accounts
When SaaS companies apply for a merchant account, they are required to submit KYC documents. These documents are mandatory and help payment processors validate the legal entity of the merchant. Let us look at some of these documents that your payment processor will ask for.
The merchant account application form is an extensive application where the merchant is required to fill in important details related to the business. The purpose of this application form is to collect information and also make the merchant accept the terms and conditions related to the verification of the information provided by the merchant.
For business documentation, the merchant can produce the certificate of incorporation or any similar document. Basically, the processors want to confirm that the business is valid and is legally operating. The payment processor will also ask for the utility bills for the business address and the director’s address.
Additional documents that the payment processor may ask for include a tax ID number, VAT number (whichever is applicable), a letter from the bank confirming the account details, previous processing history, previous bank statements, and a certificate of domain ownership or domain purchase receipt.
Merchant account providers require SaaS websites to meet website compliance standards.
The merchant’s website should be fully functional with clear business details that include the address, phone number, and email. Merchants must ensure that the website has a clear description of the SaaS services along with subscription plans and pricing. All pages on the website should load using the HTTPS protocol, and that is why the website must have an active SSL certificate. Policy pages such as the privacy policy, refund policy, and data protection policy should be clearly visible.
By adhering to these website compliance standards, business owners can have better chances of account approval. It is important to understand that, in most cases, the first thing that the underwriter checks is the merchant’s website, and the first impression is the final impression here. Underwriters are extensively busy and have the right to accept or decline any application without giving any reasons. If the merchant website is not fully functional or does not reflect a professional image, then the underwriter will not take the pain to evaluate further in most cases.
Final Words
We hope that this extensive guide that we have prepared for business owners like you operating in the SaaS industry will benefit you. If you have any additional questions regarding how QuadraPay can help you with better credit card processing for your business, feel free to contact us by submitting the short form on our website or emailing us at [email protected].
