Merchant Sales Podcast · The Best Merchant Portfolio to Build (Not Cash Discounting or Dual Pricing)

 

Thirty minutes before writing this edition of the Merchant Sales Insight, I closed a self storage merchant on a zoom call.  I own a software company that caters to these merchants with a self storage management solution.  This merchant found our YouTube video and reached out to sign up.

This merchant is going to manage an entire business within our software, and his/her customers are going to use our portal to add their payment method and establish recurring payments.  This merchant is never going to cancel.  

Thousands of other small software companies just like this self storage management company need to integrate payments.  This is a unique opportunity because these software companies add clients every month, and each new client means a new merchant account.  

Also, these software companies integrate the payments using automation / API and set up the client with their software.  Thus, if the account is set up correctly, there is no work required by the ISO / Agent to get these accounts going.

Imagine if you had ten software companies using your processing / gateway?  Each month, they sign up ten new clients each.  That means your portfolio would grow by 100 MIDs per month with zero effort from you  – no installation and no tech support.

 What really puts this opportunity over the top is that many software companies have integrated with a solution like Stripe that offers no rev share.  They are adding hundreds of merchant accounts each year, processing 10’s of millions in volume, and making no residual income.  With the right offer / solution, these software companies will jump.

 What do they need in order to work with you?  Something our sponsor, Tilled, calls “Payfac as a service.”

In this week’s edition, I discuss the three things software companies want from payment providers and why I believe Tilled is in a unique position to provide these services.  

 

#1 – Easy API

 

“API” stands for “Application Programming Interface.”  To sell software companies, you must have a high level of understanding what this means.  Let’s use my own self storage software company as an example.

When developing this software, we needed to provide our clients (self storage property owners) the ability to accept payments from their customers (people leasing a self-storage unit from them.)  

To provide that ability, customers must enter a payment method which is kept on file.  Do we keep this card information stored on our computers?  NO!  We need to communicate with a payment provider like Tilled via their API in order to send the card information securely. Then our software must notify Tilled when it is time to charge that card again for the monthly subscription.  

This and much more is accomplished via an API.  An API is a set of instructions that one computer can send to another computer in order to have some action performed.  In this case, the actions are to add and store a payment method, charge a card, etc.

Stripe has taken a commanding lead with software companies, not because they offer the best rates or rev share.  They are winning this battle because their API is very easily compatible and developers like using it.  When developers are making $140K+ per year, companies want them to build software integrations quickly.  Therefore, developers only work with a company that has an easy-to-use, well documented API.

 Tilled has a fantastic API!  

• Well documented 
• The type of system with which any developer would enjoy working  

While this alone is not enough to close the deal, it is a requirement in order to pitch the other two value propositions below.

 

#2 – Easy Onboarding

 

The number one issue facing software companies that rely on payment processing revenue to drive profits is an archaic merchant onboarding process.  

Signing up for software is easy; we have all done it.  You click, “Create Account”, enter your name, email, and a password – and you are good to go!  However, signing up for a merchant account using legacy system and documentation feels more like purchasing a home than signing up for a software account.

 Software companies hate this experience for their customers, especially when they depend on the payment processing integration for their clients to get the full experience from their software.

This is where the concept of, “Payfac as a Service” comes into play.  Before I can dive too deep into this, we need to define a “Payfac” or Payment Facilitator.  

 A Payfac is a payment processing company that takes on a portion of the risk, in order to simplify the enrollment process.  When you think about a Payfac, think Square or Stripe.  Signing up for a merchant account with them is easy and feels more like signing up for software.  

How are they able to do this?  They went through a long and expensive process to become a payment facilitator.  As a payment facilitator, they make their own decisions about underwriting risk and enrollment of new merchant accounts.  Therefore, they use sophisticated algorithms and automation to identify red flags with potential new merchant accounts, rather than requiring a new merchant to fill out a 19-page PDF document and wait three days to get approved.

 So, what is the solution for small software companies?  To become a Payfac is not a realistic option for most.  The time, expense, and operational requirements are way too much for them.  Instead, they just need some of the services that Payfacs can offer, while leaving the complex back office piece to someone else.

This is where Tilled comes in.  

• They can provide these software companies with Payfac services, such as easy onboarding.
• They allow the software company to use their onboarding API to create a simple web form process.
• Customers are instantly enrolled in their own merchant account.  

Now, rather than a two-step process – the client signs up for the software and then must complete a huge docusign merchant application – the steps are rolled into one seamless flow of web forms with minimal information required.  The new client signs up for the software and creates their merchant account all at once with no friction.

 

#3 – Easy Profits

 

Once the software company realizes you offer an easy API with which to work and an easy onboarding process, the profits will close the deal.

As already mentioned, thousands of software companies have integrated with companies like Stripe and legacy payment processors.  These companies offer no rev share, or a very limited referral override fee.

 By working with the software company to integrate the entire onboarding process and eliminate all or most of the payment processing overhead, they can now receive a large chunk of the margins on the account.

 In this scenario, there are three parties that get a percentage of the margin on each new account. The software company that is marketing and generating the new business will get a healthy share of the profits.  The remaining money is split between Tilled and the ISO / Agent that brought the software company deal to the table.

 While you might think this isn’t as good as a traditional merchant account because your percentage of margin will be much lower, think again!  What if you could add 20+ accounts to your book every month with zero effort?  Would you be willing to take a lower cut?  That is exactly what you would be creating with just one medium sized software company.  

 A portfolio of software companies will generate new MIDs every month, whether you work or not.  Also, keep in mind that these accounts rarely cancel.  These merchants are tied into a software system that helps them run their business.  They have data stored in this system and operating process tied into the software.  This is a future-proof portfolio!

 If this is an opportunity you would like to pursue, reach out to our sponsor for this edition: “Tilled” by clicking here.