As vertical SaaS platforms expand, offering integrated payments has become a strategic way to provide additional value and unlock new revenue streams. However, implementing payments can pose unique challenges, especially when catering to larger-scale merchants accustomed to interchange-plus pricing. These merchants often demand competitive rates, leading to thinner margins in the short term. In this blog post, we’ll explore strategies for managing these initial challenges, highlight the importance of choosing the right payments partner, and identify key metrics to drive long-term success.
Understanding the Margin Dilemma for Larger-Scale Merchants
For vertical SaaS platforms targeting larger merchants, the excitement of adding payments can quickly turn to concern when faced with the reality of steep discounts needed to compete with their existing rates. Larger merchants familiar with interchange-plus pricing are highly price-sensitive, making it harder to generate meaningful profit immediately.
This is where the strategic approach becomes critical: rather than focusing solely on upfront profitability, vertical SaaS platforms should view these accounts as long-term investments that can drive significant revenue over time.
Turning Thin Margins into Growth Opportunities
Here are strategies to help vertical SaaS platforms navigate the challenges of catering to larger-scale merchants used to interchange-plus rates:
- Focus on Volume and Customer Retention
For larger merchants, payments often become a volume game. Offering competitive rates—even if it means undercutting their current provider—can help secure them as a customer. The focus should be on retention and increasing transaction volumes over time, as these accounts tend to bring consistent, high-volume payment processing opportunities. - Upsell Premium Payment Features
Once you’ve secured the merchant, the next step is to offer value-added services that justify higher fees and increase profitability. Examples of premium features include:- Apple/Google Tap-to-Pay on Phone Functionality: Enhancing convenience and reducing friction at checkout.
- Network Tokenization: Improving transaction security and approval rates, reducing fraud, and, in some cases, offering interchange savings through partnerships with certain card brands.
- Automatic Layer 2 (L2) Payment Optimizations: Offering faster, more cost-effective processing for high-volume merchants.
These features not only enhance the merchant’s experience but also position your platform as a differentiated, value-driven solution.
- Track the Right Metrics
A critical KPI for vertical SaaS platforms is the relative take rate—the additional revenue generated from payments relative to the platform’s SaaS fees. For larger merchants, the target should ideally be 30% or more. Tracking this metric helps ensure that payments are contributing meaningfully to overall revenue.
The Importance of Partnering with the Right Payments Platform
One of the most critical factors in navigating these challenges is ensuring that your vertical SaaS platform is partnered with a payments provider capable of supporting steep discounts without compromising profitability. Many vertical SaaS companies are hindered when their payment partnerships only offer retail-based or flat-rate pricing structures, which make it nearly impossible to offer competitive rates to larger merchants.
In addition to offering competitive rates, the payments partner must also be a deep tech stack company that enables the vertical SaaS platform to offer cutting-edge innovations in the payments space. This includes advanced capabilities like:
- Apple/Google Tap-to-Pay on Phone: Allowing merchants to accept payments directly on their mobile devices without additional hardware.
- Network Tokenization: Enhancing transaction security and approval rates, reducing fraud, and taking advantage of interchange savings with certain card brands.
- Auto Layer 2 (L2) Optimizations: Streamlining high-volume processing to minimize costs and improve efficiency.
A forward-thinking payments partner with robust technological capabilities ensures that the vertical SaaS platform can stay ahead of industry trends and consistently deliver value to merchants. Without these innovations, even competitive pricing strategies may not be enough to differentiate the platform in a crowded market.
Collaborative Problem-Solving: Partnering with Merchants
Navigating the challenges of payments for larger merchants requires a collaborative approach. Here are a few steps to consider:
- Regular Case Reviews: Set up recurring touchpoints to review merchant accounts, evaluate profitability, and identify areas for optimization.
- Customized Solutions: Offer tailored pricing structures that balance competitiveness with long-term growth potential.
- Strategic Communication: Keep merchants informed about how additional features, such as tap-to-pay or tokenization, can benefit their business and justify premium fees.
By working closely with merchants, vertical SaaS platforms can build trust and create opportunities for sustainable growth.
Key Takeaways for Vertical SaaS Platforms
- Play the Long Game: Focus on securing larger merchants with competitive pricing and plan to grow revenue through premium features and increased volume over time.
- Partner Wisely: Ensure your payments platform partner provides interchange-plus or wholesale pricing options and has a deep tech stack for cutting-edge capabilities.
- Measure Impact: Use KPIs like the relative take rate to ensure payments are contributing at least 30% more revenue than software fees.
- Upsell Smartly: Introduce premium features that solve real problems for merchants, such as fraud reduction, operational efficiency, or faster payment processing.
