In the dynamic realm of Software, the evolution of payment strategies has unfolded across distinct stages. However, in today's landscape, companies have the unique opportunity to leapfrog through these stages, bypassing traditional barriers to achieve full ownership of payments from the outset.
Let's explore these stages and why many companies opt to jump directly to the pinnacle of payment ownership.
Old Stage 1: SaaS gets integration partners --> Share of Payments = Zero
Traditionally, small to medium-sized SaaS businesses start with zero involvement in payment processing. Their focus was primarily on product development and customer acquisition, with third-party solutions handling payment transactions. However, this approach limited revenue potential and customer ownership and they make nothing from what they built.
Old Stage 2: SaaS realizes what they are missing out on --> Share of Payments < 25%
As SaaS companies grow, they recognize the revenue opportunity in monetizing payments. Negotiating with payment providers allows them to secure a share of merchant fees, albeit with the challenge of transitioning merchants to new platforms and navigating contractual complexities. But the payoff is still worth the work.
Old Stage 3: SaaS squeezes their partners --> Share of Payments ~ 50-70%
With increasing transaction volumes, SaaS companies seek better revenue-sharing agreements with payments providers. Integrating with additional payment partners becomes necessary to optimize revenue streams. However, the predominant ownership of merchant relationships remained with the payment providers, constraining the SaaS companies' control.
Old Stage 4: SaaS becomes the partner -> Share of Payments = 100%
Once a company gets big enough they replace the processor with themselves. Eventually the company joins Shopify, Lightspeed and a host of companies listed on stock exchanges by building their own payments infrastructure. This is very costly but gives them the control the traditional gatekeepers have been keeping for themselves.
But there is a revolution taking place... Introducing PayFac as a service --> Ownership from the start >70%
Instead of ignoring, catching up, or remaining at a disadvantage to their larger competitors, small to medium-sized Saas companies can own the payments themselves. This results in the following benefits:
Immediate Empowerment: By leapfrogging through traditional stages, SaaS companies can immediately own the customer relationship, fostering deeper engagement and loyalty right from the start.
Maximized Potential > 70% of Payments: Full ownership of payments from the outset unlocks maximum revenue potential, with economies of scale and cost efficiencies realized as transaction volumes grow.
Agility and Innovation: Immediate ownership enables SaaS companies to innovate and adapt more swiftly to market changes, seizing growth opportunities without traditional constraints. Each new customer is able to get immediately approved and start accepting payments in minutes.
Future-Proofing: By jumping directly to full ownership, companies future-proof their business, setting the stage for expansion into additional financial services or becoming a registered Payment Facilitator (PFAC) without the need for iterative changes.
In conclusion, the traditional path of SaaS payments had its time.
Now the option to leapfrog to full ownership offers unparalleled advantages. By prioritizing immediate ownership, revenue maximization, and future-proofing, SaaS companies can accelerate their journey to sustained success and leadership in the evolving SaaS ecosystem.
Contact us today to better learn how Kaarus can partner with you.