Paynetsecure Blog

SaaS billing is effective for stabilizing cash flow and providing a predicable income stream.  But, as is the case with any recurring payments model, SaaS providers must be concerned with recurring billing revenue leakage.

The biggest cause of loss of revenue from recurring billing is card declines.  During each recurring payments billing cycle, a lot of cards used for recurring payments are declined.  A declined recurring payment transaction means there is no money realized for that transaction, which endangers cash flow.

Recurring Payment Card Declines are Expensive to SaaS Billing Merchants

Jupiter Research reports that almost 30% of consumers have had card reissued in the past year due to security breaches.  In addition, cards can be replaced due to upgrades or expiration dates on cards can simply expire.

Whatever the reason for a recurring payment card decline, the loss of income has serious repercussion for any SaaS solution provider. In addition to the lost revenue for the service, companies have the additional costs associated with obtaining updated recurring payment card information from the customer in order to rerun the transaction.  .

But, just as importantly, each contact a SaaS solution provider makes with a customer for updating recurring payment card information provides an unnecessary opportunity for the customer to cancel the service.  Manual intervention for updating recurring payment card information can creates a risk of losing the customer, reducing the average lifetime value of a customer to the SaaS provider.

Protect SaaS Billing Recurring Payments

How can a SaaS solution provide company avoid contacting consumers to update payment processing information?   It’s easy with the smart use of technology.

Automatic account updating is specialized payment processing technology for recurring payments.  The technology allows SaaS providers to transform 50-70% of declined recurring payment transactions into authorized recurring payments.

If a recurring payment card transaction is declined, updated card information is automatically retrieved from the issuing bank.  Records are updated and the declined recurring payment transaction is resubmitted for authorization.  This is an automated process and requires no intervention from the SaaS provider.  There no need for manual intervention of any kind.

A new report issued by Javelin Strategy & Research reveals that 28% of all consumers received a replacement debit or credit card in 2009 due to security concerns.  And many of these consumers had more than one card replaced or more than one card reissued.

This data is particularly relevant to merchants with subscription billing, SaaS providers, or merchants with a recurring billing model.  When a card is reissued, the updated information for the new card must be acquired or else the recurring payment transaction will be declined.  Declined transactions mean no revenue is generated.

How can merchants get updated card information?  Well, the old-fashioned way is to contact customers directly by email, phone or other means and request the updated card information.  This is ineffective and expensive.  And gives customers an unnecessary opportunity to cancel the recurring payments.

A smarter approach is to use a payment processor who has an account updater feature.  When a card is declined, the processor automatically contacts the issuing bank and gets the updated card information.   There is no need to contact the customer and no manual intervention is needed on the part of the merchant.  The updated cards are resubmitted and approved transactions which generate revenue result.

It’s an easy way to increase profits and decrease costs.

Recurring billing is a great way to stabilize cash flow while making it easy and affordable for customers to buy from you.  Recurring payments are a great way to sell products or services and are particularly valuable for SaaS service providers, subscription billing, or membership sites.

But, recurring billing can also lead to revenue leakage which can cause loss of profits if not properly controlled.  The most common reason of revenue leakage from recurring payments comes from card declines.  Card declines are caused by a lot of reasons such as reissuing of cards due to loss or theft, card upgrades, card expiration dates, or security breaches that require new cards to be issued.  Regardless of cause, card declines are expensive to merchants.

Using specialized payment processing technology, merchants can automatically transform declined cards into authorized transactions.  When a card is declined, the processor gets the updated card information from the issuing bank.  The file is updated and the card can be resubmitted for approval.  As a result up to 80% of declined cards turn into authorized transactions.  All without manual intervention of any kind from the merchant or the consumer.

Only certain processors offer this innovative service.  Smart merchants will take advantage of the technology to increase profits quickly and easily.

According to research firm Gartner , revenues from Saas billing will be $7.5 billion worldwide for 2009, a 17.7% increase from 2008 revenues of $6.4 billion.

While this is moderately impressive, keep in mind that we are at the very beginning of the growth in the software as a service market. Recurring payments with SasS billing will reach tidal wave proportions in the coming years. By 2013, a scant 3 years from today, the SaaS billing marketer will be over $14 billion.

The content, communications and collaboration and customer relationship management segments are the largest SaaS billers. For example, the customer relationship management applications account for about 24% of the market. But, other software application markets will experience rapid growth in the coming years and SaaS billing becomes the de facto recurring payment option for software.

Software vendors are pushing the SaaS billing model heavily which will increase demand as software partners resellers, and affiliates begin to embrace the recurring payments model. The development of platforms as a service model is another extension to SaaS billing which will expand the market even further.

For info on SaaS billing go to paynetsecure

Research organization Aite Group released results from a survey of merchant acquiring banks and independent sales organizations about payment processing opportunities and challenges for the coming year.

The biggest problem being faced by payment processing acquirers in 2009 was the attrition of merchants, with 24% of the respondents placing this issue as number one. Close behind, 22% of respondents were concerned about the continuing compression of payment processing margins. And 17% of respondents said PCI compliance was a challenge.

Acquirers say merchants are keenly aware of pricing issues. Lower pricing is the main reason merchants will change to another merchant payment processor.

Promising emerging markets for 2010 are mobile payments, business-to-business payments, and ecommerce. Most payment processors have little experience in mobile and are still trying to position themselves correctly in the market.

Business-to-business payments are gaining some penetration for those companies with lower ticket transactions. But, higher ticket business transactions incur payment credit card processing fees that are too high for most businesses to be able to absorb.

SaaS billing and recurring payments are a growth industry for payment processors that are expanding ecommerce operations. SaaS billing is sub-genre of subscription billing where consumers establish recurring payments for software rather than a one-time purchase of the software.