Doug Caviness, Head of SaaS Solutions at cleverbridge, gave a presentation on payments and subscription commerce. Some key points from the presentation include: - cleverbridge is a full-service e-commerce provider that helps software and SaaS companies with subscription billing. - Global markets, especially Asia-Pacific, are growing rapidly for digital products sold through subscriptions. - There are various transaction models for digital products including perpetual licenses, subscriptions, and usage-based billing. - It is critical for subscription businesses to have successful payment processing to avoid revenue losses from failed transactions. - There are different merchant and payment models as well as considerations for international payments. - Strategies can help manage

1. Payments and Subscription Commerce
Doug Caviness
Head of SaaS Solutions
cleverbridge

2. Speaker
Doug Caviness
Head of SaaS Solutions,
cleverbridge
 20 years of experience in
technology & software industries
 Responsible for cleverbridge’s
e-commerce solutions for B2B &
B2C SaaS / cloud providers &
other digital product companies
with subscription billing

3. cleverbridge
Full-service, cloud-based e-commerce provider
for software & SaaS companies
• Founded 2005
• 200+ employees
• Offices:
Cologne
Chicago
Tokyo

4. Topics
Global Markets
Transaction Models
Payments
Why successful payment processing is critical for subscriptions
Merchant Models and Payment Solutions
Additional Payment Considerations
Tactics to Manage Payments Costs
Q&A

5. Global Markets

6. Think Global
In $billions
APAC:
• 23% global mkt
• 9% y-o-y growth
• Equivalent to
today’s America’s
mkt by 2020
Source: Forrester Research Inc.
IT Global Market Share
(business and government)

7. Transaction Models

8. Perpetual License – pay before consumption
Common Online Purchase Models
for Digital Products

9. Subscription – pay before consumption
(monthly, quarterly, annually)
Common Online Purchase Models
for Digital Products (continued)

10. Usage-based and Other Recurring Billing –
prepay and/or pay after consumption
(monthly, etc.)
Common Online Purchase Models
for Digital Products (continued)

11. Payments

12. What Are Payments?
Definition: The exchange of legal tender for goods

13. Customers Want to Pay in their Local Currency
Australian Dollar
Brazilian Real
Canadian Dollar
Swiss Franc
Chinese Yuan
Czech Koruna
Danish Krone
Euro
British Pound
Hong Kong Dollar
Russian Rouble
Swedish Krona
Singapore Dollar
Thai Baht
Turkish Lira
Taiwan Dollar
US Dollar
South African Rand
Hungarian Forint
Indian Rupee
Japanese Yen
Korean Won
Lithuanian Litas
Latvian Lat
Malaysian Ringgit
Norwegian Krone
New Zealand Dollar
Polish Zloty
cleverbridge supports 28 payment currencies

14. Popular Online Payment Methods
B2B Bill Payment
Price quote, invoice, and more
Real-Time Bank Transfer
Sofortbanking, iDeal, Nordea
Country Specific Debit Cards
Carte Bancaire, Carte Bleue,
Switch Solo, Maestro
International, Maestro UK, and
more
Traditional Payments
Cash, check, invoice, wire
transfer
Visa, Master Card, American
Express, Discover, JCB, and more
Credit Cards
e-Wallets
PayPal, Alipay, WebMoney,
and more
Direct Debit
ELV (Direct Debit Germany),
Direct Debit Netherlands, and
more
Cash Payment Slips
PayNearMe, Boleto Bancário,
PayEasy, Konbini, and more
B2C Bill Payment
Klarna, and more
cleverbridge supports 30 payment types

15. Sample vendors: BillMeLater and Klarna (Europe). Sophisticated on
risk management (payment and income habits). Not prevalent with
digital goods. Two models: deferred and installment payment.
Fees: 4% to 8%, plus $1.00 per transaction
App Stores, Mobile Payments,
Micropayments and Deferred Payments
Deferred Payment
Micropayments (<$5.00)
Mobile Payments
Sample Vendors: Boku, Fortumo. SMS or carrier-based billing.
Transactions typically capped at $50.00.
Fees from 15% to 50%.
Sample Vendors: PayPal, Boku.
Fees: 10%, plus $0.15 per transaction
App Stores
Sample Vendors: Apple, Google, Samsung.
Fees: 20% to 30%

16. Payment Use Varies by Geo and Demographic
Sources:
Payment type usage: aggregate client data
[Redo this matrix and focus on only a 3-4 geos that are
relatively well established and mature.]

17. What e-Commerce Payment Methods are
Used by Japanese Consumers?
1%
11%
14%
31%
34%
48%
56%
0% 10% 20% 30% 40% 50% 60%
Cash / Cheque
Carrier Billing
Internet Banking
ATM or Teller @bank
Konbini
COD (incl. CCOD)
Credit Card
Source: The Ministry of Internal Affairs and Communications of Japan
Japan is a cash-oriented
society

18. Common Reasons Subscription
Transactions Fail
Expiration date of card is expired (25% of cards expire annually)
Insufficient credit / funds (10% to 15% of cards might be maxed out)
Fraudulent transaction (4% to 8% is common)
International transaction (up to 25%+ of Intl declined, depending on
country)
issuing bank declines with an Intl acquirer (avoid fraud)
international acquirer declines with an Intl issuing bank (avoid fraud)
card does not allow Intl transactions (common in BRIC)
Recurring billing is not supported by payment type (e.g., pre-paid Visa and
MC in the USA and Italy)

19. Transaction Failures Can Kill
Subscription Revenue
Transaction Type Interval
Total
Potential
1 2 3 4 5 …
Perpetual License $60 $60
Annual Subscription
(on auto renew)
$60 $60 $60 $180
Monthly Subscription
(on auto renew)
$6 $6 $6 $6 $6 $6 $216
Scenario:
avg. potential life
of 3 yrs.
Potential cancellations due to transaction failures

20. Merchant Models and Payment Solutions

21. Merchant of Record
Definition: The entity that holds legal title to goods or services and from
which the customer purchases these goods or services.
The entity whose name appears on the credit card charge and to whom the
applicable credit card company shall reimburse for the amount of the credit
card charge.
Two Common Models:
Service Provider
Reseller Model

22. Merchant Account
A type of bank account that allows businesses to accept payments by
payment cards, typically debit or credit cards
Established under an agreement between an acceptor and a merchant
acquiring bank for the settlement of payment card transactions (Source:
http://en.wikipedia.org/wiki/Merchant_account)
Sample Vendors:
WorldPay
Chase PaymentTech
Bank of America
Fees from 1.8% to 3% per transaction

23. Payment Provider
An entity that provides payment processing services, typically for a single
proprietary payment method.
Sample Vendors:
PayPal
Amazon Payments
Skrill-Money Bookers
Fees from 2% to 3%, plus $0.35 per transaction

24. Payment Service Provider (PSP)
Combines acquiring and alternative payment processing (e.g., Google
Wallet, Yandex in Russia, Alipay in China) in one interface and facilitates the
settlement of multiple payment methods.
Sample Vendors:
WorldPay
GlobalCollect
Cardinal Commerce
Fees from 4% to 10%, plus $0.30-$0.50 per transaction

25. Payment Gateway
Payment Gateways provide:
 a unified API for processing transactions with multiple Payment
Providers or payment methods
PCI compliance
You are still required to:
Establish contracts directly with individual Payment Providers
Receive and reconcile payments directly from the Acquirer or Payment
Provider
Sample Vendors:
Ogone (full service provider)
GlobalCollect (full service in USA -- includes PSP)
BrainTree
Fees for Gateway-only services: $0.50 to $0.70 per transaction, but in
substantial volumes can get as low as $0.08 per transaction

26. Payout
Fitting the Payment Pieces Together
Merchant
Gateway
Payment
Provider 1
Payment
Provider 2
Payment
Provider 4
Payment
Provider 5
Payment Svc
Provider
API
Payment
Provider 3
Payout
API
Payout
Payout
API
Direct
integration with
Payment
Provider
Integration via
Payment
Service
Provider
Integration via
Gateway

27. Considerations with Payment Solutions --
General
Integration of payment method
Easier if you use a Gateway or PSP as an intermediary
Gain more control and lower fees with direct integration, but incur
higher maintenance costs
Cost structure – variable and fixed costs
Look for hidden costs (currency conversion, etc.)
Ask for tiered pricing based on volume and AOV
System availability / SLA
Historical downtimes
Backup of transaction processing
Quality of service – can you speak with someone?

28. Considerations with Payment Solutions --
International
Benefits of local processing:
Higher card authorization rates (up to 25%+ better)
Ability to process non-international cards
Avoidance of FX and foreign currency transaction fees (1% to 8% additional)
that can hit you or your customer
Ability to handle some offline payments (e.g., Boleto Bancario)
Fee reduction from PSP for local processing (e.g., German bank transfer)
Repatriation and settlement of funds

29. Considerations with Payment Solutions –
International (continued)
 Is a local entity needed to process some local payments?
Examples: Konbini, Boleto Bancario, Dankort (Danish debit card).
 Can your PSP facilitate local payment methods?
Example: Global Collect can enable Boleto Bancario and some Konbini
payments (7-Eleven is excluded).
 Are taxes included in your payment fees?
Tax withholding: 30 % in India and up to 30% in Brazil. Example:
Boleto Bancario (Brazil) costs 25%, plus $1.00 to $3.00 per trans (incl. up
to 25% for tax on Intl trans). Generally when selling from outside the
country and the customer pays with an Intl credit card, there is no
withholding of taxes for the merchant. But, in Brazil, the customer would be
assessed a 6.38% tax on their CC statement.

30. Additional Considerations with Payments

31. 6%
12% 14%
19%
33%
44%
52% 54%
59%
70%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Order non-Completion Rates
Sources:
Order non-completion rates: aggregate client data

32. Strategies to Manage Processing Costs

33. • Delay processing credit card for 3 days to
increase AOV
• Virtual goods: sell prepays of $10+
• Offer incentives to convert monthly
subscription to annual subscription
• Optimize balance of direct integrations and
third party integrations
Tactics to Manage Processing Costs
10% of APAC
70 7.9% growth

34. • Global market
• Payment requirements vary based on:
• product
• business model
• customer demographics
• Subscription businesses rely on successful
payment processing
• merchant and payment models
• Weigh costs / benefits and implications of your
payments solution
Summary

35. Q & A

36. Thank You

37. Custom
er
instates
order
Custome
r
receives
goods
Order is
processe
d
Customer
receives
info on
successf
ul
transactio
n
Transactio
n is routed
to
Acquirer/P
SP
/Bank or
Payment
Transactio
n is
authorised
by PSP/
Bank or
Payment
cleverbridge
consolidates
fund flow
and
reporting
for client
and
subtracts
comission
Client
37
Transaction Information
Flow
Payment Flow
Reporting Flow
Financial Services
Authorisation/BAFIN
PCI Compliancy
Money Movement
cb reseller model

38. cb payment gateway – Service Provider
Model
38
Transaction Information
Flow
Payment Flow
Reporting Flow
Financial Services
Authorisation/BAFIN
PCI Compliancy
Money Movement
Custom
er
instates
order
Custome
r
receives
goods
Order is
processe
d
Customer
receives
info on
successf
ul
transactio
n
Transactio
n is routed
to
Acquirer/P
SP
/Bank or
Payment
Transactio
n is
authorised
by PSP/
Bank or
Payment
Client
Client
pays
Service
-Fee
Payment
Gateway
provides
reporting

39. Market Research Payments Brazil
Statistics Brazil
1. eMarketer, Canada B2C eCommerce: a Work in Progress, 12/22/2008
2. ibid
3. ibid
4. ibid
5. ibid
6. Nielsen Canada, “Online Shopping”, 11/2008

40. • Monthly billing creates challenges for
customers who use offline payments
• Enhanced recurring billing capabilities:
 Direct Debit
 PayPal
• Consider providing customers incentives to
pay for subscriptions quarterly or annually
Evolution to Subscription Creates Conflict
with Offline Payments
Example: