Let’s call this the mushroom treatment – they keep you in the dark and feed you a lot of manure. Payments companies know the inside game of fees and profits. Many of the deals they cut with new companies or outsiders are slanted their way. Unless you have an insider working the deal with you, you’re probably not going to get a fair shake.
Most payments companies want you to go to work for them. You bring them the merchant and the transactions – they process the transactions and collect the fees – they count the money, pay themselves – and you get what’s left. Does that sound like a fair deal? (See point 2 below.) How can you, the developer, get your fair share? (See point 3 below.)
Every developer should be focused on getting paid for the commerce they create. I’m not talking about monthly software license fees. I’m talking about developers getting their fair share of the transaction fees their software licensees incur. Fact is, their fair share of the transaction fees can often earn them more money than the software license fees. We call this monetizing the transaction fees.
Let me break this down with a fictional, but illustrative example. Let’s consider fictional developer D9999. Let’s assume D9999 knows everything there is to know about managing and running a family dentistry practice. D9999 creates and licenses enterprise software for dentistry office managers who are their users. These family dentistry practices use the software to manage their business and provide services to their patients. In the course of using these services customers schedule appointments, get dental services, and pay for these services using the D9999 software.
A family dentistry practice can process more than $100,000 per month in credit and debit card fees. These fees originate with the software in the dentist’s office but pass through a gateway and a processor who assess fees to the dentist’s office. These fees show up on the monthly processor statement, which the office manager receives. As stated in point 1 above, the processor takes out the fees from the dentist’s bankcard revenues and pays a cut to the developer.
Transaction processing fees are ten times more complex than your cell phone bill. There are over 500 different fee categories in interchange, the baseline fees that banks pay for credit and debit card processing. Processors add their own fees on top of interchange to arrive at the fees they bill the merchant. Very often processors don’t identify all of their fees in their processing agreements. And unless you negotiate a better deal, your processor partner may never reveal their costs, profits, or how they arrived at your share of the proceeds.
Are you beginning to see how the playing field can be tilted in favor of the processor?
As stated in point 1 above, many payments companies want you to go to work for them. They make it super easy to integrate to their transaction processing code and voila! Your users can process transactions and you get paid – well, you get paid something. How much did the processor earn and how much did you get? Do they give you a point-by-point breakdown of what they earned and what you earned? Do you have the option to audit their calculations to make sure they are correct? Have they disclosed their fees? Are the overall fees competitive with the fees your competition is charging? If they offered you a cost-plus deal, have they accurately disclosed their costs?
Here’s the bottom line: You need an insider coaching you whenever you deal with a payments company. It can be worth hundreds of thousands of dollars to your bottom line.
At FieldGuide, we have more than 30 years of experience in the payments industry and we know the inside game. We can guide you to a better deal. Email me at mark@gofieldguide.com
Next time: What qualifications should an insider have in order to be your coach?
