Santa Cruz Tech Beat


How Payments-as-a-Service Is Changing an Industry

By Diana Holm

March 26, 2015 — Scotts Valley, CA

What happens when you apply SaaS principles to payment processing?

You may not realize it, but you probably depend on multiple SaaS (Software-as-a-Service) products to get through your work day (and at home in the evenings, when you tune into your favorite streaming service). SaaS refers to an Internet-based service for which you pay a monthly subscription fee, and in return receive access to the latest improvements and technical support.

The best SaaS companies bring more than just convenience and spread-out fees, however. When you think of the big SaaS players—, Box, and more recent entrants like Zenefits—these are companies that applied a technical architecture (cloud) and business model (SaaS) to a stale business process (managing customer databases, sharing files etc.), and revolutionized entire market segments in the process.

Rethinking payments

When PayStand was just a glimmer in the eye of founders Jeremy Almond and Scott Campbell, they wondered what would happen if you took the payment industry (one of the complex and bloated industries out there), and approached it as a problem to be solved with SaaS. That is, what if you treated the movement of money as a software challenge, instead of a finance-industry challenge?

All of the usual assumptions change when you look at financial transactions through the lens of SaaS. First and foremost, the focus switches from the transaction itself to your customers, the merchants—the ones you’ll be asking to pay a monthly subscription fee. How can we deliver the most value to merchants so that they’ll sign up for and stay with our service? Right off the bat, PayStand had an opportunity to align incentives between payment processor and merchant, which historically had been at odds.

The answer to “how do we deliver value to merchants and keep them happy?” touches on other key ways the SaaS model is capable of disrupting old businesses. In PayStand’s case, we took a long look at what merchants like and dislike about their payment processors. They like the convenience of Internet and mobile payment gateways, but hate how transaction fees eat into their profits. So, we decided to buck the usual tactic of taking a cut of merchants’ sales, and instead deliver tools and support for a flat monthly subscription, with no markup on transactions. This means that as our customers’ businesses grow, their profits increase, instead of their fees.

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