Card payments account for less than 15% of total B2B supplier revenues. Although card payments have guaranteed funds and fast settlement, many B2B suppliers with thin margins cannot profitably take on high card fees. When looking for a way to solve this dilemma for its Fortune 500 enterprise suppliers, one B2B Accounts Receivable Automation SaaS turned to surcharging for a solution.
Surcharging was a win/win for suppliers and the SaaS. It offered a way for suppliers to improve cash collections without the cost, and the opportunity to expand card payments volume. Finally, fully compliant, omnichannel surcharging was a key differentiator against competitors – the SaaS began winning nearly all new customers who required new payment acceptance.
Challenges
The SaaS needed a flexible technology solution capable of working with its sophisticated, highly integrated platform. It also needed to maintain its seamless customer experience and risk/compliance controls. Of course, it also needed to generate revenue from this new value-added service. Only InterPayments met all these needs, providing value to the SaaS, its B2B merchants, and the merchants’ customers.
- A complementary solution to their existing technology – All other surcharging solutions require switching to a new payment technology platform and payment terms to offer the feature. But in this case, where the SaaS was both the technology and payments platform, any solution had to complement, not compete. It would have to integrate not just into the technology platform, but into the user experience of the products the platform provides. To achieve this, maximum flexibility was needed.
- Limit compliance risk exposure – The SaaS and its Fortune 500 suppliers were rightfully risk averse. They wanted to be able to mitigate any risk from non-compliance for their merchants but couldn’t take that risk themselves. This position required a partner that offloads compliance risk and offers full transparency for audits and monitoring.
- Gain and retain card-accepting customers – The SaaS knew that a low-cost way to accept credit cards would be of incredible benefit to the merchants they serviced. By expanding their customer base with a service whose value exceeds its cost, merchants often recover the cost of implementation in just days or weeks. The right solution would not only win new customers but help them keep existing ones.
Building In-House Added Extreme Cost and Risk
The company first investigated building a surcharging solution itself. Being a technology company that already thoroughly understood the world of payments, it seemed like a natural fit. As they were researching, however, the scope of the challenge ballooned.
Compliance challenges were extreme – Surcharging is rife with unique compliance issues. There are over 67 governing bodies that control the who, when, where, and amount of each surcharged transaction. US State, Canadian province, and national regulations are different across regions and evolve over time. Card network rules change often, and conflict with the rules of other networks as well as states/provinces. The SaaS did not have surcharging expertise in-house and would have had to bring on new talent to understand this complex landscape.
When the company researched how other SaaS built surcharging, they found these complexities were often ignored, resulting in major compliance risks that were passed to the merchant. For this company, that was an unacceptable option.
No way to offset risk – Even if the company did manage to create a compliant solution, they would have to deal with the risks of a version 1.0 product that would undoubtedly have issues. With fines from card networks and states/provinces starting at $5,000, the problem with shipping issues in a surcharging product is compliance enforcement is aggressive. The company didn’t want to add this significant risk to its books, but it also didn’t want to pass it on to merchants who trusted the SaaS to protect them.
Maintenance costs exceeded estimates – Surcharging products need to be constantly updated. Rates and rules change frequently, and each transaction has the potential to reveal an issue or edge case that must be handled automatically in the future. For the company, this meant bringing in new resources to understand and monitor the surcharging environment. It also required ongoing, precious development hours that could be used on other products. These significant costs cut deeply into the product’s potential margin. Eventually, it became clear that a solution built in-house was not viable. The price and risk were just too high.
Why the SaaS Chose InterPayments
After a few conversations, it became clear the SaaS should partner with InterPayments. InterPayments exceeded the requirements of the product through:
- Contractually assured compliance: InterPayments offers full compliance with state and American Express regulations. For an added layer of protection, InterPayments provides contractual guarantees and indemnification, significantly deflecting risk from the ISV and its customers. The company was also able to customize additional surcharge compliance that it needed to satisfy its own internal risk standards.
- Omnichannel integration, not replacement: No rip-and-replace is necessary with InterPayments’ API-driven solution. It’s built from the ground up to integrate with existing systems, leaving the SaaS in full control of its products and the user experience.
- A robust new revenue stream: InterPayments created a new revenue stream for the company. They also offered their experience and best practices to the SaaS sales teams, allowing them to get into market rapidly. By leaving the risk and management of the surcharging solution with InterPayments, the SaaS was also able to keep implementation and maintenance costs far lower than if they built the solution in-house, so the margin on this revenue stream was high.
As a result of their partnership with InterPayments, the SaaS was able to sign dozens of net new customers to their surcharging offering within just the first year of implementation. As these merchants started to use surcharging to give their customers more payment choices and offset their own fees, the SaaS saw an early return that quickly covered the cost of implementation and kept growing as eager merchants continue to sign on.
Everybody Wins with Fair Surcharging
Customers get to choose payment methods to avoid the fee, but if they choose to pay with a credit card, they will always get the lowest surcharge possible based on requirements set by the SaaS.
Merchants don’t have to spread the cost of card acceptance across all their customers with a price increase – the business cost of credit card acceptance stays where it’s incurred.
SaaS Companies get a new, revenue-generating business line that encourages adoption and increased usage of their services.
