Software providers like independent software vendors (ISVs) and Software as a Service (SaaS) typically operate in a niche market for a particular kind of business. While this serves as an effective business model, it also leaves potential revenue on the table.
These companies can benefit from adding the payment facilitator function to what they do. Not only does this create additional value for the customers, but it provides key advantages for the ISVs and SaaS providers as well in ease of operating within the client systems and added revenue for the providers. The following benefits make it difficult to justify not exploring this model:
ISVs and SaaS providers already create and build software platforms for their customers. One of the headaches of adding software is merging systems while working around any glitches or compatibility problems. Since every customer needs to be able to process payments for its activities, providing this service as part of the platform makes integration smoother and easier.
Rather than working with a separate company, software customers and their ISVs or SaaS providers all benefit from seamless interactions. The overall user experience improves, and the software provider reduces its administrative and tech support burden by providing payment facilitator services.
When ISVs and SaaS providers function separately from the payment processing service provider, they have little control over who they approve and sign up. Further, the lines between software providers and customers can create security concerns; any seam in the process leaves potential gaps in security protocols.
When an ISV or SaaS provider operates as a payment facilitator, though, it not only keeps the transactions in one place, but can also build underwriting decisions based on the ability to charge fees on each transaction. The payment facilitator model serves here as a built-in collections mechanism, allowing the software provider to take on more risk than it might normally be able to do.
Simply put, functioning as a payment facilitator creates revenue for ISVs and SaaS providers. According to Statista, total revenue for payment facilitators doubled from $200 million in 2016 to $400 million in 2017 and is estimated to reach $4.4 billion in 2021.
Payment facilitators generate revenue every time a merchant uses their software to process a payment transaction. For multiple customers running hundreds of transactions per day, these transaction fees add up to a potentially lucrative revenue stream.
ISVs and SaaS providers often start by serving a small part of a merchant's business needs. While this approach enables a sharp focus on doing one thing very well, it leaves money on the table--in a way that also makes other aspects of their operations more complicated.
For savvy software providers, the legal and regulatory steps required to become a registered payment facilitator presents short-term hurdles that, when cleared, can create long-term benefits. This market space provides a powerful opportunity for ISVs and SaaS providers to improve their business interactions and their bottom lines.
Shannon is currently the SVP Sales and Business Development for GlobalOnePay, a division of Pivotal Payments Inc. His goal is to establish strategic partnerships with sales organizations that specialize in the eCommerce space globally. As commerce shifts online, there is exceptional growth potential that Shannon can help ISVs, SaaS, Marketplaces and platforms tap into, to drive payments into profits.