Limitations of the Agnostic Payment Model for Software Companies

As we work with our software partners to implement integrated payment solutions that best fit the needs of both their software and their customers, we are finding that there is a particular philosophy that is pervasive amongst software platforms. This viewpoint (known as the agnostic payment model) revolves around the idea that software companies want to provide their customers choice over their payment processor in order to create the best experience for them and their clients.

Contrary to that, we are actually finding that nothing can be further from the truth. While the agnostic payment model paints a pretty picture for software companies of a universally accessible, plug-and-play platform, the relinquishing of control, user experience, and most importantly, revenue, is almost never worth the benefits. In fact, while the agnostic model tries to play into the idea of a better user experience for the end user, the result can be quite the opposite.

In our opinion, the limitations of an agnostic partnership far exceed any perceived benefits. We’ll take a quick walkthrough of three areas that we see as being negatively affected by this strategy.

1. Economics

The agnostic payment model (or one-to-many model) creates a bidding war among payment processors, resulting in price pressure that devalues the true usefulness of a feature rich payment integration. This type of fee commoditization significantly shrinks the revenue opportunity for software companies.

Additionally, because processors are forced to price themselves below market to win new business, the risk of “rate creep” over time is significantly higher, causing unfair treatment to your customers. This fee increase can lead to customer attrition, which again hinders software companies’ revenue.

2. User Experience

Competitive saturation in the payment industry over the past 10 years along with cyclical mergers and acquisitions have created fee commoditization like no other time and less focus on creating unique value for clients. The previously mentioned “rate creep” narrative is an example of that, and we’re finding that software customers desire guidance through this already confusing payments maze.

Unfortunately, the agnostic approach fertilizes payment industry complexity. Since no checks and balances are in place with this type of partnership, an inconsistent customer experience is what can be expected. Everything from customer underwriting, boarding, training, hardware deployment, device management and ongoing support workflows will vary with each payment processor.

This fragmentation creates challenges and confusion for many software clients as they try to determine which payment processing partner is the best fit for their company, and the result is often wasted time and uncertainty for the client.

Additionally, you might think that offering a single payment gateway leads to a more uniform customer experience, but that is not the case. Features and functionality can differ based on the specific processing platform a software customer chooses, such as First Data or TSYS, thus creating a confusing and inconsistent experience, or worse yet, a “gotcha” that a customer didn’t see coming.

3. Integration

With an agnostic payment model, each gateway and processor integration has its own nuances. Software companies are forced to dedicate unnecessary time to manage the various certifications, some of which are more prone to have failing points. This creates added overhead and expense for the software company to build and maintain the payment infrastructure while supporting multiple gateway and processor requirements.

Less Hands, More Chocolate Chip Cookies For You

A More Strategic Partnership for More Strategic Growth

Partnering with the right payment company can really help you harness the power of your platform and put you on the path for more predictable revenue growth. For example, an intimate relationship with a preferred or exclusive payment partner allows them exposure to the unique and evolving customer payment challenges. This partnership model also enables you and your payment partner to resource identified customer challenges in a repeatable fashion, which adds even more value to your clients while creating new revenue possibilities.

Our core focus is to understand our software partners’ various customer segments and to highlight where there are similarities or differences. Sifting through customer data and analyzing their behavior leads to observations that helps you identify and solve complex customer problems, whether payment related or not. These customer challenges would never have been identified, let alone resolved, in an agnostic payment model environment.

Some of these scenarios have resulted in AR Automation tools (one of our top trends in B2B payments) to help software customers improve cash flow. In others, we have implemented payment reminders, mobile apps and client portals which allow payers to self-serve. And maybe most importantly, security has consistently been a primary concern, so we’ve created and implemented security tools to help our clients find easier PCI compliance and minimize their risk beyond the payments ecosystem.

Hopefully this helps give you a clearer understanding of the risks and pitfalls of the agnostic approach. If any of this sounds familiar or you’re considering payment integration for the first time, we’d be happy to share how a more strategic partnership approach can help you generate more impactful revenue, minimize internal costs dedicated to payments, as well as create the unique user experience to differentiate from your competition.