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HERE'S YOUR GUIDE

How to use payments to make

your software more attractive

to customers & investors

Chapters

If you’ve been in the industry for long enough, you’ve probably helped your software business expand its portfolio of services through a variety of integrations.  While a payment integration can be an incredibly reliable way to diversify revenue streams, misalignment or lack of support can quickly lead to a poor customer experience and missed revenue expectations. In this guide, we’ll cover the feature-functionality, go-to-market, and onboarding best practices you can use to realign your integration with customer and investor expectations so you can achieve your goals.

 

Re-Evaluating Functionality

As you probably already know, by integrating payment acceptance technologies  into your software, your business can offer a convenient payment experience while reducing the scope of PCI audits, minimizing costs, and eliminating manual reconciliation efforts.  With so many benefits baked into a payment integration, what should you do if there is a lack of customer adoption or you’re experiencing high attrition? 

 

The truth is, every integration is different and there are a variety of challenges that could cause customers to avoid your offering. To identify the core challenge, it is best to start back at square one and simply ask customers why they are choosing another option. You might be surprised to find that the payment technologies offered are not meeting the day-to-day needs of their business. The good news is, new product offerings or small adjustments can make all of the difference.

 

For example, when Spot Business Systems, a leading business management software provider for the textile industry, discovered adoption rates lacking and attrition rising, its team interviewed unsatisfied customers. This allowed their team to uncover a 10-second lag in the transactional processing. It doesn’t sound like a lot, but these delays caused the dry cleaners that Spot serves to lose customers. They also noticed some of the leading-edge solutions they initially bought weren’t needed or used by their customers. To rectify the situation, Spot interviewed new payment processors and ultimately selected Clearent to deliver sleek and secure countertop payment devices that could process transactions in 2-seconds or less. Working together, Spot was able to convert 93% of its customers in seven months.

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Pricing Considerations

If you’re confident that your team is delivering the payment functionality that your customers need, pricing could be the reason your integration is under performing. Here a few things to consider when you evaluate this aspect of your integration:

 

Customer Pricing Structure:
The first aspect that you’ll want to evaluate is the payment structure that is offered to customers. Does your payment processor give you the flexibility to bundle pricing with other premium features, offer flat rates, deliver interchange-plus or offer “meet or beat” pricing? If not, you may want to partner with another processor that will allow you to adjust your pricing structures from a volume and feature perspective.  Having this level of flexibility will give you the ability to test and implement programs that will maximize your returns.

 

Processor Mark Ups:
The second aspect of pricing you’ll want to keep an eye on are extraneous merchant fees like large upfront account set up costs, unexplained monthly fees, the cost for incidentals (like chargeback fees), frequent rate hikes, and any other PCI-related maintenance fees. Some processors don’t share these fees or rate increases with the software partner and if left unchecked, these costs can eat into your customers’ earnings causing them to seek out alternative options. What’s worse: depending on the structure of your partnership contract, your processor could actually be raising your customers’ rates in a manner that’s not even shareable with you.

 

Residuals Versus Rev-Share:
In addition to customer pricing, your team should have a firm grasp of what makes up your earnings. Residuals and revenue sharing phrases are often talked about interchangeably, but they are not the same. 

Revenue sharing refers to the distribution of revenue (typically a percentage) that is generated by payment services and is split among key stakeholders or contributors. Overtime, revenue sharing percentages have normalized across the industry for the most part. Although, there are still outliers. To validate your offer, you can research what typical revenue share percentages are based on the type of partner model you’re operating (i.e. Referral, ISA/ISO, PayFac, etc.). 


A residual refers to the total dollar amount that software providers can earn. Said differently, this is the size of the check that hits your bank account. Your team can increase your residual pool by ensuring that customer pricing is balanced, payment attachment rates are high and attrition is low. Only after those three key metrics are maximized does Revenue Share come into play, as it’s merely a percentage of a pie that could vary dramatically in size. For instance, it’s entirely possible that one ISV could have a Revenue Share that’s twice the percentage of another ISV, but actually make less than half of the residuals based on the margin that their program creates (see example below). It’s critical to understand that the Revenue Share percentage is simply the last piece of the equation that drives what you really care about: your residual. 


Enhanced Pricing Programs:

In recent years, enhanced pricing programs such as surcharging, cash discounting, non-cash adjustments, and convenience fees have been growing popularity with merchants and ISVs alike. Adoption of these pricing programs has increased because when these  programs are implemented correctly, they can offer merchants and ISVs a way to offset credit card costs by sharing processing fees with customers in a legal and compliant manner. This strategy is a “win-win” for both the ISV and their customers, as the customers are minimizing their monthly merchant processing costs while the ISV enjoys exponentially enhanced margins. These programs eliminate the natural friction between the ISV’s processing partner and their customer, which traditionally exists as the customer desires to negotiate the best cost possible and subsequently reduces the available margin to monetize. When the customer is passing their processing fees on to the end consumer, that friction is eliminated, driving higher margin into the ISV’s residuals.

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Go-to-Market Strategies

If you’ve locked in the payment technologies and pricing your customers need, sometimes a little marketing magic might be all that your business needs to dial up your adoption rates. Luckily, there are a few ways you can kickstart this engine.


Partnership Programs:
There are several payments partnership models available to ISVs. Choosing the best one for your business will ultimately come down to the time and expertise your business wants to invest into supporting the full lifecycle of payment acceptance.

Referral Models:
Are the most common because they offer the smallest cost and most support for ISVs. With this model, the processor will lead and help you deliver all of the marketing deliverables and sales strategies needed to drive adoption rates. They’ll also own customer and technical support so your team doesn’t need to take on the additional headcount or infrastructure to support the added functionality.

Hybrid ISO/ISA Models:
Allow ISVs to own more of the payments lifecycle, including go-to-market pricing, branding, onboarding, and customer support. This model is better suited for companies that already have in-house payments expertise, or have carefully considered and decided to invest in adding headcount to provide such expertise. 

 

PayFac Models:
Allow ISVs to act as a “master merchant,” boarding each of their customers underneath their merchant account as “sub-merchants.” This model has grown in popularity over recent years due to the level of control it gives the ISV over the payments experience, but it comes with significant investment in the form of licenses, headcount, infrastructure, and exposure to risk.

For example, when FieldEdge first started out with payments, the field services software company offered credit card processing as an ancillary service. After speaking with customers, FieldEdge realized that payments actually helped them complete their value proposition as an end-to-end business management software for contractors. To fully monetize payments, the team knew it would need to be more hands-on. In the end, FieldEdge signed on with Clearent as a hybrid ISA partner and brought on a payments expert full-time to increase its retention rates. After the integration, Clearent and FieldEdge worked together to develop a seamless sales and lead transfer process which helped them increase payment attached rates from 11% to 60% and reduce the sales cycle from 90 to 45-days.

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Evaluating Support

In the world of payments, support can be the most critical but under-appreciated tool available to ISVs. If you’ve got the right technologies, pricing, and marketing strategies, but still have high attrition rates – support is probably your culprit. Below are a few considerations you should evaluate when you review this aspect of your partnership:

 

Customer & Technical Support:
The key component to remember about customer support is that it should be proactive. High volumes of calls or emails from frustrated customers are lagging indicators that demonstrate a lack of customer support. Luckily, white glove merchant onboarding, proactive training materials, FAQs, and live support can help you reduce friction and boost customer satisfaction.

 

Account Management:
Having a dedicated point of contact at your processing partner can make all of the difference with support as well. A great Account Manager serves as your liaison into your partners’ organization, and will be available at your fingertips to help you identify all of the touchpoints that invariably arise as you grow your payments portfolio. They should also be equipped to help you prepare and execute a customized go-to-market strategy to drive adoption of your payments product. Additionally, they should be able to help you identify the parts of your portfolio that are most at risk of attriting and recommend remediation plans, should you need them. Anything less will cause your team to miss out on service or revenue-based opportunities over time.


Risk, Approvals, & Boarding:

For some ISVs, having the ability to pre-approve and automatically board merchants based on predefined risk factors or seasonality can be a game changer. That’s why we recommend looking for payment processors that have Automatic Boarding APIs. This tool set can help your business deliver a seamless customer onboarding experience by submitting application information in the background via API, while maintaining your desired user interface. 

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More to explore.

FieldEdge


Drastically improved its payment attach rates through a seamless lead transfer process & tight feedback loop

Get the Case Study

How COVID-19 Changed Payments


Uses Clearent’s integrated technologies to boost customer retention rates and satisfaction.

Read the Article

Spot Business Systems


Uses Clearent’s integrated technologies to boost customer retention rates and satisfaction.

 

Get the Case Study

About Clearent

Learn More

Clearent is a full-service, payments provider. Over the past decade, we’ve helped more than 55,000 businesses process $20 billion in volume. Our ISV program is designed to help software companies reduce processing costs, minimize risk and create a unified payment experience ​​​all while putting more money back in your pocket.

© 2021 Clearent, LLC is a registered agent for Central Bank of St. Louis, MO and Wells Fargo Bank, N.A., Concord, CA.
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