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How Payments-as-a-Service Is Changing an Industry

March 23, 2015 by Jeremy Almond

What happens when you apply SaaS principles to payment processing?

You may not realize it, but you probably depend on multiple SaaS (Software-as-a-Service) products to get through your work day (and at home in the evenings, when you tune into your favorite streaming service). SaaS refers to an Internet-based service for which you pay a monthly subscription fee, and in return receive access to the latest improvements and technical support.

The best SaaS companies bring more than just convenience and spread-out fees, however. When you think of the big SaaS players—Salesforce.com, Box, and more recent entrants like Zenefits—these are companies that applied a technical architecture (cloud) and business model (SaaS) to a stale business process (managing customer databases, sharing files etc.), and revolutionized entire market segments in the process.

 

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Rethinking payments

When PayStand was just a glimmer in the eye of founders Jeremy Almond and Scott Campbell, they wondered what would happen if you took the payment industry (one of the complex and bloated industries out there), and approached it as a problem to be solved with SaaS. That is, what if you treated the movement of money as a software challenge, instead of a finance-industry challenge?

All of the usual assumptions change when you look at financial transactions through the lens of SaaS. First and foremost, the focus switches from the transaction itself to your customers, the merchants—the ones you’ll be asking to pay a monthly subscription fee. How can we deliver the most value to merchants so that they’ll sign up for and stay with our service? Right off the bat, PayStand had an opportunity to align incentives between payment processor and merchant, which historically had been at odds.

The answer to “how do we deliver value to merchants and keep them happy?” touches on other key ways the SaaS model is capable of disrupting old businesses. In PayStand’s case, we took a long look at what merchants like and dislike about their payment processors. They like the convenience of Internet and mobile payment gateways, but hate how transaction fees eat into their profits. So, we decided to buck the usual tactic of taking a cut of merchants’ sales, and instead deliver tools and support for a flat monthly subscription, with no markup on transactions. This means that as our customers’ businesses grow, their profits increase, instead of their fees.

The power of numbers

Being a startup in a competitive space, we knew we’d have to go one step further than just convenience and low rates, so we started to look into ways to dramatically lower fees for our customers. The solution came from another unique attribute of SaaS—the ability to leverage the power of numbers in your subscriber base to achieve a critical mass greater than the sum of its parts. We partnered with a back-end credit card processor that would reduce our baseline transaction rates every time we hit a threshold of users—and promised to pass those reductions on to all PayStand customers automatically (which we have done four times in the past twelve months).

We also looked into alternative payment methods that might save our customers money, since the banks that issue credit cards will only lower their rates so far. Only a few months after our launch, we rolled out support for eCheck, a 0% direct bank debit option that our customers could offer along with credit cards.

Support as a core principle

Finally, after spending a lot of time talking to everyday business owners, we spotted an opportunity to make a big difference in their experience with payment providers—by providing real, responsive, personalized support. We were surprised to hear just how hard it is to get someone on the phone at most payment processors, even the new, hi-tech kids on the block. When a company is standing in between a merchant and their money, we think support should be a top priority. And as a SaaS company, it’s essential to our own success—our above-and-beyond support is the number one reason our customers stay with us.

We’ve been gratified by the positive response we’ve gotten from our early customers to PayStand’s payments-as-a-service approach. Many of them have never experienced the level of helpfulness our success reps provide, certainly not from a payment processor. Our SaaS model has given us the opportunity to build long-term relationships with our customers, with a vested interest in their success. Ultimately, that means we can focus on the things that excite us on the PayStand team—building great tools and leveraging new technologies to fundamentally change the payment landscape as we know it today.

 

Tags:   Bitcoin, ecommerce, Payments, payments-as-a-service, SaaS, eCheck