3 Ways Payments Drive Growth for SaaS Companies with Adyen | SaaStr Software Community

to take it away.

Thanks so much, and hi everyone. Thank you for joining our chat on 3 ways payments can drive growth for SaaS companies. I'm Emily Villani, and I work on the commercial side at Adyen, and I'm joined by Gary Yang, our SVP of Global Payments and Partnerships.

Yes, thank you for joining us here. We're super excited. We're from Adyen, which is a payments company, but we're going to focus this conversation more broadly about payments and of course not just about us. So very excited you're making time for it. Would love to, you know, go through some stuff here and answer any questions at the end.

Yeah, so in the next few minutes, we'll cover the significance of authorization rates and recurring, and then Gary's going to walk us through why local payment methods matter and what it means to take payments in-house. So if you guys don't mind going ahead and muting yourselves, but feel free to unmute if you got a question or drop it in the chat. And we'll get started. So as you're aware, it's a huge investment on your part to get customers to hit the pay button. It's an investment of time and resources that involves many departments, including IT, marketing, product, and developers. The journey starts when customers visit your website or app, view a product, start a purchase, and click to pay. However, 1 in 5 payments is declined. And this means that 20% of the time, all this investment is getting customers to the checkout and ends in a declined payment. But the good news is that's something you can change, and that's where authorization rates come in. So what are authorization rates? Auth rates are the percentage of transactions that are accepted by the cardholder's bank. And why do they matter? They matter because auth rates directly affect your revenue. If your business pulls in, let's say, $10 million a year and you can increase your auth rates by 2-4%, that's an additional $200,000 to $400,000 worth of revenue. But if your business does a billion dollars a year, you could be leaving $20-40 million on the table by not optimizing. And the best way to optimize auth rates is with the right payments partner. A good payments provider gives you a value-add service that allows you to reduce involuntary churn by improving the acceptance of those transactions and using your whole toolbox of features to make sure all those KPIs improve your ROI. So how can payments partners help increase auth rates? There's a lot of different variables that affect whether a payment goes through, and all of these variables call for a dynamic approach to reducing decline transactions. Sometimes a decline happens because of outdated card details or technical errors. But I'm going to ask a question to you guys and drop it in the chat if you know. Does anyone know the number one reason why payments get declined? I'm not seeing a lot of answers in the chat here, but I also can't see the chat. So I'll tell you. The number one reason for declined payments is fraud. Okay, I see fraud as an example. The number one reason for declined payments is actually insufficient funds, and that becomes even more critical with SaaS merchants. So what can you do? First, you can understand why your payments are getting declined, which is information you can get from your payments provider, and from there you can adjust your payments logic, which is what I'll talk about next. But first, I want to take a quick poll. So if you can see this on your screen, what are your current credit or debit card authorization rates? Watching the answers come in. 0 to 25, 26 to 50%, 50, 75%, or maybe you don't know. All right. We've got some good engagement here. I'm going to go ahead and end the poll in the interest of time, but it looks like the majority of people are not sure what their current credit or debit card authorization rates are. So it's good to know what you don't know, and that's something that you're able to know and change with the Right Payments provider. So as you know, Many SaaS merchants offer software through a membership which charges a card on a recurring basis. And as you may also know, when cards expire or when shoppers make changes to their card information, payments can fail. So having good payments logic around failed transactions makes a huge difference in auth rates and ultimately in your revenue because it helps you reduce involuntary churn and gives your customers a better experience. In fact, industry-leading payment service providers have recovered up to 30% more than pilot merchants using basic retry logic. One real example of this is Pinterest, who was able to significantly improve recovery rates on retried transactions. Smart logic retries payments with consideration to things like decline reasons and scheduling considerations such as day of the month, day of the week, and time of the day. So in conclusion, for my end, a best-in-class practice we recommend is figuring out what makes sense to invest in with regard to finding the right payment partner and optimizing authorization rates. And now I'll hand it over to Gary to talk about local payment methods.

Great. Thanks, Emily. So some additional things to think about regarding payments. So I was born in Minnesota and grew up on the East Coast of the US. I always assumed everyone around the entire world paid with debit and credit cards. I mean, why would they not, right? Doesn't everyone want, like, sweet points and kickbacks? And then I found out when I moved to London for a job to run parts of a global marketplace including payments, the world is not that simple. And there's some examples here I'll run through quickly. In the Netherlands, you see that green bar, 70% of online payments are done with this thing called iDEAL, which is a Netherlands-specific banking transfer payment method that most people other than people, other than Dutch folks, have even heard of. In China, you've heard of Alipay and WeChat Pay, And to illustrate the prevalence, if you go there and you buy street food there off a vendor, you buy like a jianbing or some, you know, some tasty treats off the street, a lot of them don't even take cash. They have the QR code there where you have to scan with Alipay or WeChat Pay, and that's how you actually pay is through your phone, not with cash to a street vendor. In Germany, they use payment methods called Sofort, SEPA direct debit, JaroPay. In South Korea, you see that blue bar there, people do use cards often to pay, that is a dominant payment method, but a lot of the cards they use are not Visa, Mastercard. They're going to be local payment methods, local rails like Shinhan, Samsung Lotte, some you may not have heard of before. And so we share this because if your business is a purely domestic business in North America and you have no foreign customers, sure, credit, debit card, ACH wire, that's fine. Focus on those, get those right, optimize those as Emily mentioned before. But if you're doing business in other countries, it's not gonna cut it, right? You're gonna be missing out. And also a lot of SaaS businesses are headquartered and set up in the US, but actually attract a lot of global customers. So this is all incremental revenue that you could be getting. And so some things I would suggest is understand where your, what countries you're present in today, understand also where your customers are coming from. And are you offering the right payment methods per your customers, right, given their country of origin? And if you're planning global expansion, then think about— that's like part of your roadmap planning with your senior team about, hey, what countries do you want to go into? You got to imagine, and you got to think about payments as one of those dimensions. Otherwise, you're going to do all this great work to get live in the country but not be able to accept payment. Evernote, for example, I'm sure many of you had used them before. Mobile-based, great note-taking service. They did a lot of work to really localize their product. For example, for China specifically, they did all sorts of work— China country manager, localized language product. They thought about how the button should fit and all sorts of stuff around there, but they hadn't thought about payments until later on in the process. And when they did move to doing so, when they added Alipay as a payment method, it really unlocked like 40% of the market that they could then get access to. They could not previously access. And so what we talked about so far is really kind of payments 101, 201. And so I would say this is more about advanced payments, payments 301. And so this isn't relevant for all SaaS businesses, but some SaaS businesses are in a position where they can be in the money flow and actually take payments in-house. And what I mean by that is, let me give you an example. So if you go to a dermatologist's office, there's a software the dermatologist or their, you know, office administrators are using behind the scenes There's like a CRM to manage the customer information, there's online booking tools, there's, you know, all sorts of insurance handling software, all very HIPAA compliant, and there's also a payments piece of it of how you pay the dermatologist. So there's a company called Modernizing Medicine that basically provides a suite of services to dermatologist offices to take care of all of that, and historically they weren't directly— they were helping facilitate payments but weren't actually taking payments in-house. They were just connecting to an external provider. But they wanted to— they made the decision at one point to take this in-house, to really say, hey, we want to provide a better merchant experience. When a dermatologist signs up with us, we want them to sign up with us for Modernized Medicine, the CRM suite, and everything else, as well as ModMedPay. We don't want them to have to worry about a third-party payment— third-party payment provider. By doing this, we can make it a sweeter, slicker experience for these— for these dermatologists to get on board. But also they can make a lot of margin off of it, right? Because you imagine if you're a SaaS business and you're charging like $200 a month to a customer or $1,000 a month, that's great revenue. However, if you can also charge them 2.9% or something like that for payment processing and then get a buy rate from a payment processor for like 1.9%, you can make a 1% spread on all of that volume going through that platform, and it can add up. I'm sure many of you probably heard of Mindbody. They provide a lot of software to like yoga studios and whatnot, 40% of their net revenue is from payments margin. 40%. Shopify, which I'm sure many of you have also heard of, which provides, you know, power small businesses and e-commerce, 60% of their net revenue is from payments margin. So you can literally double your profit by doing this. Now it's not trivial, this definitely is a complex thing, there's a lot of elements to it from knowing your customer, from anti-money laundering things, funds control, payoffs. So there's a lot of nuances to this. You know, definitely there's other companies that can help you understand and navigate, and you can actually outsource pieces of this to them. It's a big strategic decision because it is an investment, but there's a lot of upside. So I realized that was quite a lot of information to drop in just less than 10 minutes, but wanted to re-summarize a couple points. You know, the key point we want to share is that payments is not a commodity. It's not just an enabler, it's of course necessary, but it can also be strategic. It can have a dramatic impact on driving your LTV, right? I'm sure as SaaS businesses, a lot of you think, and I used to be at a SaaS business myself too, I'm sure a lot of you think about lifetime value, right? How do you minimize cost of acquisition? Well, a lot of that's done by optimizing your payment funnel up front to make sure you're not losing people in the initial conversion rate. How do you make sure you lower your churn rate with customers? Well, if you have a good recurring billing setup, you can lower your churn rate and make sure that you're not forcing your customer to enter their payment information, which then can trigger a, oh gosh, do I really need to be paying for the service? Maybe I should stop paying for it, right? So it's really important from an LTV perspective. A lot of ways to optimize here. There's thinking about what payment methods you want to accept, thinking about your customer needs, how do you optimize this payment method and that funnel, how do you think about your billing cycles. Last point for SaaS businesses that can be an opportunity to be in a payments flow, you can think about taking payments in-house. And you can tell by the numbers you shared earlier, you can literally double your business by doing so. But, you know, again, it is a strategic decision. It is an investment. So realize that was pretty quick. Happy to stop here, take any questions you have. And of course, Emily and I are, you know, I believe the organizers may share contact information afterwards, or you can find us on LinkedIn. Always happy to chat afterwards as well. We are nothing except— if not paying their dues, so happy to always talk about it.

Gary and Emily, I saw that there's a question in the chat about what are the newest best practices and learnings in dealing with churn due to credit card expirations, and what sort of processes and grace periods are standard?

Yeah, definitely happy to chat about that. So it comes to credit card expiration, there's a couple ways to handle it. There's a bunch of technology that the cards team, so Visa, Mastercard, have built called account updater. So there's a couple variations of this. There's like a batch version and a real-time version. The real-time one is more recent. It is actually one of the things that we were first to market with, with Visa on. And basically you can use this technology that behind the scenes You can use this technology. It's like an API call to them. They can say, hey, look, is that card still valid? Great. If so, you can use it. If not, oh, here's an updated number. And you can do all of that behind the scenes without the customer ever having to do anything. That is by far the most seamless and slickest way of doing so, so that you can continue doing your recurring billing without the customer having to do anything on their end. And therefore, of course, you know, reduce customer churn. So it's called— there's two variations to be aware of. One's called batch account updater, second one's called real-time account updater. And a lot of payment processors, ourselves included, can do this for you.

Cool.

And then we have another question. How smart do SaaS and software companies have to be about taxes now, global and US?

That is a very loaded question. I'm sure many of you have seen the G20 and their agreement on like a global minimum tax rate.

I will punt on this and say you have to speak to your own tax advisor about how your business is set up in terms of where you have local entities and whatnot. I will say there's—

from international, there's obviously a lot of considerations to think about.

One of them certainly is the tax piece of it. It's huge.

And that depends on the nature of business. But there's also a lot of things to think about when it comes to payments on a global perspective. There can be huge benefits to having local entities in different areas 'Cause that can increase significantly by like sometimes like 20% what your credit card acceptance rate is. Like Brazil, for people that process credit cards in Brazil, if you have Brazilian customers and you're processing credit cards cross-border, your acceptance rate could just be like maybe 40%. But if you have a domestic entity and process locally, you can increase that acceptance rate to 70%. So it's like a 30% delta. So definitely tax is huge in terms of how you think about localization. But for certain countries, payments can also be huge in terms of how it impacts your ability to provide a great customer experience.

Thanks. And then we have another question about what are the top 2 or 3 issues startups miss as they try to bring payments in-house?

I think one thing is not understanding the full value chain and the full set of things that need to be done. And I touched upon that in one of the slides earlier, but there's a whole bunch of stuff around like onboarding and knowing your customer. Like there's, we're in a very highly regulated space, right? For a good reason. And so there's a lot of rules around knowing your customer, around anti-money laundering, about pieces of documentation you need to get from your customer and checks you need to do from a regulatory perspective to make sure that you're not accidentally becoming a money laundering machine, right? Because if you think about like a marketplace, If you're a marketplace with zero controls, like there's buyer-seller collusion, you could have a fraudulent buyer buying, posing as a seller, buying stuff from themselves and flushing stolen credit cards through your system. So there's definitely a lot of considerations to think about when it comes to, you know, onboarding KYC, how you think about payouts. Fraud is a big piece of it as well too. And again, a lot of these pieces you can work with a great payments company to outsource. So you don't have to do yourself. But you of course need to be aware.

And then a question about if my customers are mostly domestic, when should I prioritize multi-currency payments?

Yeah, it depends on where you're prioritizing growth, right? Where you see growth coming from as a business.

You know, I—

and a couple things to think about is there's a difference between multi-currency because you could potentially depending on your jurisdiction or whatnot, process multi-currency payments without expanding new global entities. So you could keep a US entity and through a US entity accept currencies and multiple currencies, or you could go truly local.

And then like I mentioned in Brazil example, open a Brazil local entity.

So these are two separate decisions. One advantage of multi-currency is there can often be additional margin in there for you, because in theory, you control the FX rate.

So instead of—

you charge like, say, $100, or I don't know what the FX rate is right now, but let's say it could be in theory like, you know, €85 or something like that. You could bake in some margin spread within that FX rate.

It's called like multi-currency pricing, right?

And basically vary your pricing a little bit to capture more margin in different currencies. So just things to think about, as well as obviously FX optimization can be complex too.

And then I know we're almost at time, but I did have another last question I wanted to ask. So how do best-in-class businesses manage their payments?

Yeah, I'd say a lot of that comes down to really the size of your business and the nature of what you're in, right?

I mean, if you're a small startup doing $5 million revenue, I mean, your key question is, How do you accept payments? How do you get the right payment methods? And the reality is you're probably focusing on other parts of your business, right, like growth.

But as Emily mentioned earlier, if you're a billion-dollar business and you think you can improve your authorization rates and acceptance by, say, like even 2%, I mean, that's $20 million of incremental revenue that easily justifies hiring a full team, right, in both between product, between development, and between people that manage the flow, between people that handle the commercial relationships.

So I mean, there's a lot of money at the table, especially as you think about LTV. So I think best-in-class SaaS businesses see payments not just as a commodity, but as a real revenue driver and enabler of growth.

And moderate investments accordingly.

Let me check and see if there's any other questions. Let's see. And then along those lines, it looks like, what are common challenges you see with SaaS businesses and how they handle payments?

I think that goes back to the prior one, which is— and Emily, definitely, please, of course, I've really been talking a lot, and please jump in. I think the biggest challenge is not thinking about payments as a real lever. Just assuming that, oh, I can sign up with any payments company. Let me just get the cheapest price and like, it'll work fine. And by doing that, you know, you're really missing out, right? That's basically saying like, oh, I don't care about office space for employees that much. Let me just get whatever the cheapest office space is, right?

There's obviously a lot of considerations that go into there and a lot more opportunity to really optimize and drive improvements.

So that's probably the biggest mistake.

It's like viewing it as just a commodity.

Wonderful, Gary, Emily, we're out of time. But thank you both so much for sharing your insights and asking and running through some of those questions. Really appreciate it. We have one more SaaSTR money session to wrap up. So hope everyone will jump over to that. But thank you again for joining us, Gary, Emily.