What is monetizing payments, and is it right for you?
Most software companies generate revenue by charging for their Software-as-a-Service in a monthly or annual recurring fee to the user. This business model was an evolution of a prior era, when software was sold as an upfront license with an annual maintenance package. The business model innovated because customers churned when they were required to make a new upfront payment for the next version.
Fast forward 15 years, and a new way for software companies to generate revenue has emerged – monetizing payments. This does not work for every software use case, but if the software you built (or are building) needs to integrate to a payment gateway to facilitate a payment on behalf of your customer – it applies to you. Think of it as monetizing your exhaust.
As you build your software and acquire users/customers that pay you for the software, there is an opportunity to monetize the payment volume running through your platform.
For example, perhaps you are building software to be used by pool cleaning companies. One of the needs of the pool cleaners is to collect payment after providing service. You can enable the pool cleaner to accept a credit, debit, or ACH through your application – making the processes easier for your customers to get paid and faster to reconcile. On average, small and medium businesses pay 3% on credit cards, and the cost is roughly 2%, meaning you can add up to 1% of the payment volume sent from your software to the payment networks (Visa, Mastercard, etc) as new-found, high margin revenue.
Now, your software company has two streams of revenue – licensing and payments. Well executed, this can double your ARPU (average revenue per user) fueling your ability to invest in new customer acquisition further growing the business. Naturally, if you have a competitor that has internalized payment revenue – while your customers are paying it to a third party processor – they are going to have a distinct advantage.
That’s monetizing payments, and most of the time when we meet a software company, the revenue opportunity is equal to or greater than what they are charging for their software today.
