Three Building Blocks of Integrated Payment Revenue

How to Create a Sustainable and Growing Source of Income from Your Payment Integration

In Brief: While revenue share agreements have long been a standard in the world of integrated payments, the focus on it has jumped to the forefront over the last few years. A 2021 Wind River Payments survey of independent software providers indicated that only 36 percent of respondents felt that a payments revenue share was a “must have” from their payment partner. By 2024, that number more than doubled to 77 percent. But recognizing the need for a share of payment revenue is one thing. Actually realizing its full potential requires three program fundamentals be firmly in place. In this article, we review those three essential elements and provide best practices to help you transform your program into a growing and sustainable source of income.

There can be a huge disconnect between the revenue a software provider expects from its integrated payments program and the revenue that actually materializes. This often happens when SaaS providers and ISVs get stuck in a payments stagnation mode. A mode that prevents them from realizing the true revenue potential of their integrated payments program. As a result, a significant amount of income is left sitting on the table year after year.

Moving payments revenue from the table to your bottom line requires three program fundamentals be in place:

1. Your payments partner(s) must offer an equitable revenue sharing program.
2. Your customers must adopt your integrated payments capability.
3. Your customers’ payments experience must meet or exceed their expectations.

Having just one or two of these won’t cut it. Each of these components fit together tightly to form a rock-solid foundation for your integrated payments program.

Equitable Revenue Share Program

Beware: Revenue share programs aren’t always what they seem

It is very common to see some pretty large numbers on the Schedule A of revenue share agreements of payment facilitators and processing partners. Some agreements can go as high as 90 or 100 percent of payment revenue. That looks like an incredible deal, and you may feel compelled to jump on it quickly. Often in reality, though, that high percentage applies to only a portion of what your customers are charged for payment processing. So, it’s important that you consider a few things before taking a revenue share percentage at face value.

1. Know what’s in and what’s out
   Make sure it is clear which fees are shareable and which fees are excluded. The best payment partners are the ones that are transparent with customer pricing and their revenue share agreement.
2. Find out how much of the risk falls onto your shoulders.
   Credit card processing is a higher risk business – particularly if your customers have advance sales, such as subscriptions, memberships, or retainers. A trend we are seeing in the industry is for payment providers to offload some of that risk onto the shoulders of their software partners. The more risk you assume, the higher your revenue share percentage. Consider this carefully as these financial risks can very quickly outweigh the benefits of a high revenue share percentage.
3. How competitive is your buy-rate?
   Many payment processors will provide you with a “buy rate” for credit card processing. Then, revenue is shared on the mark up your customers are charged above the buy rate. Weigh how competitive these buy rates actually are before accepting them. If your mark-up pushes those fees above market averages, your customers are less likely to adopt your payment program.

Driving Customer Adoption

It doesn’t matter how rich the revenue share from your payment partner, if your customers don’t adopt your program, your income suffers. Look out for these common culprits that can stagnate your program adoption rates.

1. Software Pricing Bundles
   Software companies often use tiered pricing: basic features are the lowest cost, then add-ons like payments are charged a higher price. But what if you flipped it and offered the payments integration in the lowest priced tier and charged more for users who don’t use your payments functionality. This may provide an added incentive to adopt your payment integration, potentially generating more revenue from their ongoing processing than from a higher price tag upfront.
2. Payment Processing Fees
   In many revenue share models, higher payment processing fees equal greater revenue for the software provider. If processing costs and added fees from your payment partner become too high, your revenue boost may be short-lived as your customers will seek more cost-effective alternative options.
3. Payment Features
   Payment technology is evolving rapidly so if you want your software customers to use your integration, it is important that your solution has the latest features they need. This may involve customization of your payment integration, but it will be well worth the added investment of time and resources.

Meet or exceed your customers payments expectations

This is an important component of maximizing your payments-related income because customer retention, customer acquisition, and payments adoption are all influenced by the experience you and your payments partner deliver.

Your payment partner’s technology is only one part of the overall payments experience. The processing fees your customers are charged, the timeliness of service and support they receive, the security of their transactions and data, and the stability of your payment partnership work closely with the payment technology to form your customers’ experience.

Cracks in the quality of any of those elements or if any are missing, the efficacy of your payment solution suffers, the customer experience suffers, and as a result, so does your revenue.

In conclusion, unlocking the full revenue potential of integrated payments requires a three-pronged approach: securing an equitable revenue share model, driving customer adoption, and exceeding their payment expectations. By focusing on these core elements, you can transform integrated payments from a convenience feature to a powerful revenue generator for your software business.