6 SaaS Payment Processing Obstacles and Solutions

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There’s little doubt that SaaS is an ever-expanding industry, with thousands of new startups appearing around the world annually and a global market valued in 2021 at $123 billion. Yet, despite the increasing growth of subscription businesses, how many of these SaaS startups take their organization's payment processing for granted?

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When it comes to payment solutions, there are common pitfalls which companies operating in the SaaS space need to be aware of. Failure to address these issues can result in unnecessary churn, potentially hurting the organization in an already fragile and competitive marketplace.

Typically, SaaS companies will offer customers a way to pay for their service through a recurring or subscription billing arrangement. Their pricing models may differ from business to business; for example, one SaaS company may require a flat monthly direct debit, while another may prefer invoicing based on usage amounts.

In a standard e-commerce sale, a one-off online payment is taken for a product via a payment gateway, culminating in a payout to the business. In SaaS billing, however, there are many more moving parts working together throughout the customer lifecycle.

It is vital that the payment process is as optimized as possible. On the one hand, the process needs to be seamless and unobtrusive for the end-user; on the other, it needs to ensure the business itself is collecting its expected payments and maintaining steady revenue.

In this article, we’ll take a look at some of the common payments obstacles faced by SaaS companies and how they can be resolved.

1. User experience

In a competitive market, SaaS organizations need to do everything in their power to attract and retain customers. From a customer’s perspective, a thoughtless user interface or a lack of convenient payment methods is frustrating.

With subscription billing models, there are multiple steps involved in accepting card payments from customers, and, therefore, a number of opportunities within the customer lifecycle for those payments to go wrong.

At checkout, customers will enter their credit card details into a payment gateway. The online payment will be collected in a merchant account. However, unlike a standalone purchase from an e-commerce shop, subscription businesses need to store the details of the purchase in order to process a recurring payment.

This creates a requirement for a subscription management system or CRM, to track which customers have subscribed to which pricing plans and charge them the correct amount, whether by invoicing, direct debit, or automatic credit card payments.

It would be almost impossible for any growing SaaS business to manually track their billing and invoicing; automation is necessary to ensure that the business is able to collect their recurring payments.

However, should the functionality of any of these interconnected systems not be up to par, the user will have a poor payment experience, which could easily result in loss of valuable revenue for SaaS companies.

All in all, it is important to tailor the payment process to meet a customer’s expectations, taking into account all aspects of their journey.

Consider the diversity across the customer base, from the range of devices at their disposal to the availability of varying payment methods in their location. Offering a wider choice of payment options and customizations, such as allowing users to add multiple credit cards when subscribing (also reducing the potential for failed transactions) or ACH/Direct Debit transfers, also creates a frictionless experience for the end-user which will help customer retention in the long-term.

2. Failed transactions management

According to Jessie Hagen of U.S. Bank, 82% of small businesses fail due to poor cashflow management skills. In the SaaS business model, one potential barrier to reliable cashflow and consistent payouts is the number of unsuccessful transactions, which can cost time and money to resolve - if they’re noticed at all.

When trying to grow a SaaS organization at scale, the idea of manually checking every single transaction is impractical. The best solution is to implement a system that provides a complete overview of all your transactions and pricing plans, and allows for easy real-time identification of any failed transactions which may have taken place - a solution such as the CardPointe platform provides this to businesses.

3. Collecting electronic payments across borders

With SaaS companies offering their products to customers stationed around the world, finding a global payment processing service that handles the regulations and preferences of different countries is an obvious challenge.

In the US, credit cards and eWallets were the most popular payment methods for online purchases in 2020, each category accounting for 30% of the total payment count. By contrast, online shoppers in Germany prefer paying with PayPal or AmazonPay (75%), with credit cards being only the fourth most popular option (40%).

The importance of understanding local preferences but also offering a range of currency options for SaaS payments is vital. CardConnect now supports over 150 currencies in 37 countries, and integrates with hundreds of third-party apps.

4. Encryption and secure payments

SaaS organizations are in a continuous battle to secure their products and customer data online and in the cloud. This challenge also extends to the payment process for users.

Ensuring online payment processing is secure and encrypted should be a top priority for any organization. A leading example of secure payment processing, CardSecure, is backed by PCI-certified Point-to-Point Encryption (P2PE) and patented tokenization to replace sensitive information. This provides peace of mind for end-users and businesses alike, bringing a level of confidence to the payment process and removing the risk of sensitive information being lost or stolen.

5. Churn reduction

Although it varies from company to company, the average churn rate for a subscription business is between five and ten percent. The main problem from a payment perspective is involuntary churn, where customers are lost because card details have expired or the payment process fails.

Considering the higher cost of acquiring new customers for SaaS businesses compared to keeping existing ones, creating a billing solution which reduces the likelihood of losing existing customers is extremely beneficial.

By adding suitable customization to the user experience, in addition to adopting a platform that is both secure and easily manages the payment process, SaaS organizations can mitigate any risk and provide customers with a simple way of making payments.

6. Integrations

When a startup is in its infancy, a founder may not be able to forecast exactly where the business will be in a year’s time. When it comes to payment processing, it is vital to keep options open and explore the possibilities for the future growth and size of the business.

For a SaaS, choosing a payment solution that integrates seamlessly with third-party applications will be hugely beneficial as the organization grows.

Whether it is useful add-ons like analytics tools, accounting platforms, or dunning software, the CardPointe API can integrate with third-party apps to simplify the day-to-day running of a business.

How to overcome SaaS payment obstacles

When it comes to payment methods, the obstacles - particularly in the SaaS businesses - mean the process is always likely to be complex.

The best way to overcome the challenges is by choosing a trusted SaaS payment provider with cutting-edge security, straightforward subscription management and billing solutions, and compatibility with third-party apps. An ideal way forward is with a payment solution that will integrate and grow with your organization.

CardConnect is committed to help its SaaS partners grow. If you’re interested in our payment processing solutions, connect with us via the form below.

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