Choosing a payment gateway provider for a recurring revenue business can be a tougher task than you might assume.
There are plenty of companies out there selling payment processing services, but they can all seem…well, sort of similar.
Will it really make a difference to your subscription business which one you choose?
The truth is, most of the major payment gateways are similar when it comes to the product itself. That said, there are some important differentiators you should look for, such as
- the fees the processor charges and how transparently those fees are communicated, and
- how conveniently the payment gateway integrates with your recurring billing software.
These details can save your subscription business time and a lot of money as you continue to scale.
Payment gateway fees: what should your company be paying?
Payment gateway providers make their money by charging a combination of rates and fees. This is typically a percentage of each transaction plus a flat amount; for example, 2.9% + 30¢.
Something all too common for recurring revenue businesses, unfortunately, is they sign on with a gateway thinking they’re getting a really attractive, low rate. They don’t realize that—buried in hard-to-understand nomenclature in their statements—they’re also being charged a significant amount in hidden fees.
And ultimately, this cuts into your monthly recurring revenue (MRR) and your total revenue.
Here’s a quick run-down on some of the most common fees you’re likely to find on your statement. Some of these you should expect, while others should have you second-guessing your payment gateway provider.
Fees that are a-okay
Fees are inevitable—you’re going to have to pay some, and they’re not all bad.
Remember, the credit card companies (Visa, MasterCard, AMEX, etc.) all charge fees, too. Your recurring revenue business will incur a fee for simply accepting credit cards, as well as an extra fee for transactions where the card isn’t physically present.
These are standard fees that everyone has to pay, and there’s no avoiding them.
They should show up on your statement as:
- interchange fees and/or
- transaction fees.
These fees should cost the same amount no matter which payment gateway you’re working with.
Fees you might have to pay
Then there are some fees you may or may not have to pay, depending on the specifics of what your company does and the business model of your payment processing provider.
- Flat fees, monthly fees, mobile reader fees, or terminal fees—these fees are rarely hidden, but your gateway provider may use them as an opportunity to overcharge you
- Payment gateway fees—these tend to be applied to online transactions
- PCI fees—these fees are charged by the Payment Card Industry to fund its efforts to maintain security compliance
- Address verification service or AVS—these allow the bank to verify customer addresses
- Chargeback and retrieval fees—an additional fee charged when a customer disputes a transaction
- Non-sufficient funds (NSF) and IRS report fees
If you see any of these charges on your statement, ask questions!
Your vendor should be happy to discuss your fees openly and transparently. If they won’t or if you don’t feel comfortable paying these fees, consider looking for a payment gateway provider that will offer your company a more clear and simple recurring billing structure.
Fees that should make you run the other way
And then there are the fees that are almost certainly a rip-off. If you see any of these fees on your payment gateway statement, it’s probably time to look for another vendor.
- Early termination fees
- Setup fees
- Annual fees
- Statement fees
- Batch fees
- Customer service fees
If your recurring revenue business is overpaying or paying unnecessary fees, know it’s not the only one.
“Company owners know they’re paying an excessive amount for credit card processing, but they don’t actually know why the numbers are so high or they aren’t paying attention,” said Suneera Madhani, CEO and founder of payment processing provider Stax.
Merchant processing fees consume a continuous chunk of their bottom lines, but many business owners simply accept the myth there’s no way around it.”
The value of integrating your payment gateway with recurring billing software
Since recurring billing is so crucial for any recurring revenue business, the method you use to collect payments and earn your revenue is hugely important.
When it comes to choosing a payment gateway, you have two types to choose between: hosted or integrated.
- A hosted gateway transfers your customer back to the processor’s website, where the transaction is completed. This may be an easy starting point for recurring revenue businesses just starting out as it’s more of a plug-and-play solution that requires little programming work on your business’s end. However, it might not lend itself to a sustainable process as you scale.
- An integrated gateway uses API to—you guessed it—integrate with your business’s website and other software in your fintech stack, including your recurring billing platform. The right integration can also be a breeze to set up, and the benefits are worth it.
If you’re using a hosted solution, collecting customers payments is definitely not as efficient as it could be. Since your payments are coming in through another website, your billing team needs to switch back and forth between systems, inputting data from one software—your gateway—into another—your billing solution—and making sure the information matches.
This might be sustainable if you only have a handful of customers, but when you’re processing hundreds of invoices each week…not so much.
Not only is this back-and-forth process error-prone and manual-heavy process, creating a lot of work for your finance team—which, in turn, costs you more money—but, since the process is so lengthy, your company doesn’t actually get paid right away. Instead, you don’t see that money until the transaction processing is complete.
With an integrated payment gateway, though? Your recurring revenue company becomes a highly efficient, highly accurate, payment-automation machine.
Integrated payments eliminate most of the manual work that comes with accepting payments, such as:
- reconciling and compiling invoices
- posting payments, and
- tinkering with your ledgers.
Get paid faster and cut your costs
Working with an integrated payment gateway streamlines and automates the process of payment acceptance. In turn, this means your company gets paid as soon as a transaction is approved. No more waiting for processes to go through before you see that revenue in your bank account.
This real-time payment acceptance boosts your business’s recurring revenue cash flow. But that’s not the only cost benefit to working with an integrated payment gateway.
Integrated payments allow for additional automation. This means your finance team saves hours each day in manually processing and reconciling invoices and payments. While these tasks are definitely important to your recurring revenue business, they’re not necessarily the best use of your employees’ time.
This automation leaves them with more hours available to work on strategic projects that can help your business scale.
Get more insights into payment data
Okay, so the monetary benefits of the automation that comes with integrated payments all but speak for themselves. But that’s not the only perk.
Since your integrated payment gateway can ‘talk’ to your billing software, it’s able to facilitate other efficient, seamless processes beyond just collecting payments: it also collects data and information you can use strategically.
Some of the insights you might be interested in digging into include:
- the most popular payment methods used by your customers
- historical revenue data, and
- how well your different products are selling and which are your key revenue streams.
Having this data ready at your fingertips helps you make better decisions around planning for the future of your business.
Introducing Stax Bill’s payment processing solution
Trying to identify the ‘best’ option for a service that seems to barely differ from vendor to vendor can be tough. But delving into details like fee transparency and integration with your existing fintech stack reveals distinct differences that will help you figure out the best payment gateway provider for your recurring revenue business.
At Stax Bill, our mission is to truly simplify the billing process for our customers. So, when we launched our new payment processing solution, we wanted to make certain it was the most convenient payment gateway for subscription businesses working in the Stax Bill platform.
At the end of the day, with recurring billing operations and integrated subscription payment processing all happening in one software, under one roof, there’s no juggling multiple platforms. Your billing team can work more efficiently and you can easily analyze customer and payment data across the board.
And when that’s all wrapped up with transparent, easy-to-understand fees, your business is poised optimize its revenue model and scale without limitations.
