How to choose a reliable payment gateway provider for your SaaS business

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How to choose a reliable payment gateway provider for your SaaS business
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Software as a service (SaaS) has been growing as an industry segment over the past decade, with an estimated market of 197 billion U.S. dollars in 2023, up from 31 billion in 2015. Propelled by the rise of cloud computing technology, SaaS describes a subscription model for software, which is hosted not on the customer’s own computer but centrally. 

It is usually accessed via a web browser; that’s why SaaS can also be known as web-based or web-hosted software, as well as on-demand software. Popular SaaS businesses in the eCommerce sphere include Shopify and WooCommerce.

The pricing model for SaaS is usually a choice between a monthly or annual subscription, and these transactions must be secure and seamless. When it comes to payments, it is crucial to ensure that no friction is introduced to the customer experience so that users are retained, and operational efficiency must remain high to maintain maximal profitability.

For this reason, choosing the right payment gateway provider is an important part of running a SaaS business. This article will go in depth on how to find a reliable payment gateway provider that will help keep your business on track for success.

Understanding payment gateways

Payment gateways are the last step that shoppers take before completing a transaction, and they are often part of the service offered by a payment gateway provider. Get the payment gateway experience  wrong, and potential customers will end up abandoning the cart, never bothering to return to the site again.

In more technical terms, a payment gateway is the technology that transmits payment data between customers, merchants and financial institutions. If sufficient funds are available, it will facilitate the transaction. In physical stores, payment gateways are built into point-of-sale (POS) systems and card readers, but online stores typically use payment gateway providers via cloud-based software.

The three types of payment gateway

Different types of payment gateway are designed for different types of business. Some offer more customisation but require more resources, while others are simpler, out-of-the-box solutions which may work better for quickly growing businesses. These are generally the types of payment gateways that are available in the market.

Types of payment gateways Pros Cons
The customer is redirected away from the merchant’s website to a separate payment page hosted by the payment gateway provider. For this reason, this can also be known as a hosted payment gateway. It’s on this page that the customer enters their payment details, such as credit card information.
Redirect payment gateways are easy to set up. They also remove the burden of responsibility for handling or storing sensitive payment data from the merchant, reducing their compliance requirements. On the other hand, this type of gateway results in a disjoined user experience. Customers have to go through the extra cognitive effort involved in navigating a different type of page as they are redirected away from the merchant’s website, and merchants have limited control over the design and branding of this page.
The payment form is hosted directly on the merchant’s servers, and the merchant has full control over the payment process.
Merchants have full control over the design, functionality and security of the payment process. This allows customisation according to the business’s specific needs. It is typically more expensive and requires more resources to set up and maintain a self-hosted payment gateway, and merchants are responsible for ensuring that their payment processing meets the relevant standards and regulations.
API-hosted gateways provide a simple checkout process on the merchant’s own website, and the payment details are collected by the payment provider via an application programing interface (API).
Provides a seamless customer experience, while being simpler to set up than a self-hosted payment gateway. There are more security requirements involved than a redirect payment gateway would require.

How payment gateways work for SaaS businesses

When a customer buys an item from a merchant in a one-off transaction, they may be given the option whether or not their payment details are saved to make future purchases easier. With subscription-based models, there’s typically no such choice. Payments must be automated on a regular basis until the end of the subscription lifecycle, and this requires the storage of customer payment information.

Payment gateways manage this process, facilitating automatic recurring payments and ensuring payment security. Payment gateways often include additional features for managing subscription lifecycles, such as handling upgrades, downgrades, cancellations and renewals. These enable a flexible and seamless customer experience that doesn’t require time and resources from the merchant.

Payment gateways may also offer analytic tools that allow merchants to gain insight into customer behaviour. This can be useful for creating pricing strategies and subscription plans that maximise revenue.

Automating recurring payments: challenges and solutions

Choosing the right payment gateway provider can help solve the challenges that can come with automating recurring payments. These include:

  • Failed payments: Automated recurring payments may fail if customers use expired cards, or have insufficient funds in their account. There may also be technical issues or declines due to suspected fraud. Failed payments can lead to involuntary churn and revenue loss, and handling them can be time-consuming and resource-intensive.

  • Subscription changes: Setting up a customer with a subscription is not a simple one-and-done process. Customers need the flexibility to change or cancel their subscription plan, and the payment gateway provider needs to be able to handle this complexity.

  • Security and compliance: Accessing and storing sensitive customer payment information is a responsibility that must be taken seriously to avoid fraud and data breaches.

A reliable payment gateway provider will have technological solutions in place to deal with this type of problem. Tools that can be used to maintain a smooth customer experience and enhance customer retention include:

  • Automated payment retries: Sometimes referred to as “smart retries,” this technology allows failed payments to be automatically retried at optimal intervals, increasing the likelihood of successful transactions.

  • Card account updaters: Payment gateways may offer a card account updater (CAU) service to automatically update expired or replaced cards, reducing the likelihood of failed payments.

  • Automated dunning management: Dunning is the process of asking customers for money they owe to a company. Payment gateways can offer automated dunning software, which may involve sending out personalised payment reminders to customers to prevent cancellations.

How to choose the best payment gateway provider for your SaaS business

There are several key considerations that will help you decide which payment gateway provider will work best for your business:

Pricing and fees

When considering payment processing for SaaS businesses, it’s important to understand the cost structure involved, which can include the following elements:

Subscription fees: Payment gateway providers usually charge a monthly or annual subscription fee, which can include reporting tools and customer support alongside access to payment processing services.

Transaction fees: In addition to subscription fees, there are typically transaction fees you’ll have to pay for each payment processed. These can vary based on factors like payment method, transaction volume and geographic location. 

Hidden costs: Carefully review the candidates to uncover any costs that may not be immediately clear upfront, such as setup fees, chargeback fees, or additional fees for premium features. 

Look into different pricing models to find out what works the best for your own financial operations. It may be possible to negotiate a better rate with payment gateway providers, especially if the SaaS business processes a high volume of transactions or if you can show that a competitor is offering a better deal. 

Security, data protection and compliance

A reliable payment gateway provider will be fully compliant with global security standards, such as PCI DSS, and ahead of the curve when it comes to new regulations. Look for providers that use up-to-the-minute technology to protect customer payment data and eliminate security breaches, using measures such as encryption and tokenisation to reduce the risk of data theft. 

Integrations: Compatibility with other SaaS tools and platforms

Payment gateway providers should offer flexible APIs that enable seamless integration with other SaaS tools and platforms. By syncing your business’ transactions directly with your accounting software, for example, you can streamline bookkeeping and put yourself in a strong position to mine transaction data for operational insights to maximise revenue.

Which payment gateway provider is best for your business?

To sum up, you should look for the following when choosing a payment gateway provider for your SaaS business:

  • A payment gateway that ensures a seamless customer experience, without being excessively resource-intensive for your business

  • The ability for your merchants to manage subscription lifecycles, including changes to the service and cancellation

  • Management of failed payments that optimises successful transactions while eliminating fraud and unnecessary cancellations

  • A fee structure that works for your business, with no surprise fees that weren’t clear up front

  • The highest levels of security and data protection, as well as global compliance

  • Seamless integration with other SaaS tools and platforms

It may also be worthwhile to consider testimonials from companies that already use the service.

Payment processing for SaaS with Airwallex

Make your SaaS business more valuable by integrating payments. The best payment gateway provider for your SaaS business should enable a frictionless global pay-in and payout experience for your customers, unlock new lines of revenue for you, and cut down on implementation time and costly ongoing maintenance.

Airwallex Payments offers all this and more, ensuring SaaS businesses have the tools they need to maximise their revenue. With Airwallex, you can collect both one-time and recurring payments from your customers in their preferred currencies and local payment methods. This ensures the checkout experience is seamless no matter where in the world customers are based.

Airwallex allows you to reduce chargebacks with built-in fraud prevention, eliminate costly FX conversion fees with like-for-like settlement, and minimise FX risk with multi-currency pricing. There are powerful out-of-the-box features to boost conversions, such as adaptive success-rate optimisation, a smart 3DS engine and adjustable risk thresholds, to maximise global acceptance while staying compliant with local regulations.

If you’re ready to elevate your SaaS platform with a reliable payment provider, explore Airwallex Payments today.

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