There are three phases of a SaaS company’s journey to getting the most out of their payments. As you move through each of these phases, your opportunity to grow revenue and fully control the product experience expands.

Three payments models to consider:

• Subscription Billing: Charge customers on a recurring basis for use of your software.

• Platform Payments: Move beyond subscription-only revenue by processing payments between your users and their customers.

• Payment Facilitation: Payments ownership allows you to customize the funds flow and fully control the product experience.

If customers using your software already accept payments from their customers—through another provider, via check, or paper invoice—you have the opportunity to offer platform payments to your customers by embedding payments processing directly into your platform.

By processing payments on behalf of your customers, and marking up transactions as they flow through your system, you can make life easier for your customers and drive a brand new revenue stream. This strategy of marking up payments is generally unique to platforms vs. those software providers whose customers (usually small and medium businesses) are not processing payments related to the software they’re using.

Let’s explore an example:

Imagine there’s a transaction taking place on Passport, a parking and mobility management platform. Someone is paying for parking. The consumer sees a certain amount, but behind the scenes, the transaction is actually being split between the merchant and the software platform, in this case, Passport.

The merchant, say, the City of Atlanta, gets the majority of the payment amount and the platform takes a small cut.

This is very straightforward, but as thousands and, eventually, millions of transactions take place on your platform this strategy adds up into substantial revenue. Companies like Bill.com and Shopify are using this strategy to drive billions of dollars—more than half of their total revenue—from payments.

Once you start monetizing platform payments, it is time to take it a step further.

This next strategy is a bit counterintuitive as it involves giving away your software for free. That product you’ve spent years building, we’re asking you to give it away, and instead make money from payments alone. This strategy allows you to capture market share faster, create a stickier product, and maximize your revenue over time.

• Increase lifetime value with usage revenue

• Lower customer acquisition cost by subsidizing your growth with the value of your software.

• Become the system of record, which not only lowers churn but opens up opportunities for other payments-centric offerings (i.e. a wholesale marketplace for your merchants) in the future.

Let’s look at another example:

Imagine a restaurant with $1M in annual sales pays you $5k per year for software. At the same time, they’re paying at least 5 times that ($25K+) per year to someone else for payments. That could be you.

And you don’t even have to go as far as giving away your software for free. We’ve seen customers develop a nice flywheel where they lower software prices to get more customers, which leads to more payments revenue, which allows them to lower prices even further.

Once you’ve started to harness the benefits of these first two strategies, it may be time to think about taking things further and taking ownership of your payments (aka becoming a payment facilitator).

A payment facilitator—sometimes referred to as payfac, aggregator, or master-merchant—is a specialized merchant account that has many of the privileges of a payment processor. Payment facilitators can underwrite sub-merchants, process transactions, manage disputes, and make payouts on behalf of those sub-merchants.

Bringing these benefits in-house allows you to lower costs further and increase revenue while allowing for more control over your customer and product experience.To make this a bit more concrete, let’s use a real Finix customer as an example:

• Clubessential provides software to health and wellness clubs to manage their day-to-day operations. Clubessential is the payment facilitator and a golf club is one of their types of sub-merchant.

• Historically, the clubs would have to do business with three different providers:

  • One with Clubessential to do things like book a tee-time (software)

  • One relationship with a bank or ACH processor to collecting member dues

  • And finally one with a hardware point-of-sale provider for taking in-person payments at the club’s restaurant or club shop

• By embedding payments with Finix, Clubessential was able to make life easier for their customers by giving them a single solution to deal with for payments and software while adding a completely new revenue stream.

Effectively, Finix helped Clubessential become a vertically-specific version of Square, tailored to the unique needs of health and wellness clubs.Finix envisions a world where companies give just as much love and attention to the flow of money through their platform as they do every other element of user experience. This is why we’ve worked hard to let our customers easily embed payments into their software and get on the path to payments ownership today.

As the self-proclaimed payments facilitation people, we think owning your payments makes sense for companies of all shapes and sizes. Our enterprise offering is likely the best fit for larger clients who are looking to negotiate their own rates with processors and build custom funds flows. For organizations making a bet on the future of software requiring a payments component, our newest integrated payments offering, Flex would be our recommendation of choice.