Payment Pulse – Ep. 15.2

Payment Pulse: The Power of Social Proof: Learn how influencer endorsements, online reviews, and peer behavior shape our buying habits.

Status Spending and Luxury Psychology: Understand why consumers use high-end payment methods to signal prestige and how brands capitalize on the “Keeping up with the Joneses” mentality.

FOMO and Impulse Purchases: Explore the role of limited-time offers and BNPL services in reducing purchase friction and triggering rapid spending.

Digital Trends on Social Media: See how platforms like Instagram, TikTok, and YouTube are revolutionizing product discovery and checkout experiences.

Cultural Influences on Spending: Discover how global payment preferences vary and why adapting to local norms is key for businesses expanding into new markets.

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Episode Transcript

Steve: Welcome back to Payment Pulse. This is part two of our conversation around embedded surcharging, cash discounting, and dual pricing for SaaS platforms. In part one, we defined the models a bit and discussed the legal landscape. Today, we’re going to explore how platforms can safely implement these pricing models and benefit financially from doing so as well. We’re here with Matt. We’re here with Chris.

Going to jump right into this and get some of the questions. If you haven’t listened to part one, go check it out to set the stage for part two. Let’s jump into why this matters for SaaS platforms. We’ll start with the business case: why are pricing models like these such a big opportunity for SaaS platforms offering embedded payments?

Matt: I think it’s an opportunity to deliver what their customers are looking for. It’s an opportunity to help their customers be more profitable, and it’s certainly a revenue opportunity for them as well.

Steve: Yeah. From a revenue standpoint, how can these models impact take rate or overall payment profitability for a platform?

Matt: So we tend to see a take-rate increase. Let’s talk about what that metric is really quick for those that aren’t familiar. It’s certainly used for SaaS KPIs, but it’s definitely a payments KPI. The take rate is the amount that the customer is charged—think the small business accepting cards—how much they’re charged divided by the volume they processed in that same period. By taking the merchant charge, or what they’ve paid in fees, and dividing it by volume, you get a very small percentage usually measured in basis points, and we call that a take rate.

We usually subtract out interchange expenses. This is really the cost of accepting a payment above interchange, and that gives you an idea of what kind of card-acceptance fees your portfolio is being charged—typically applied by an ISO, a software vendor that has a portfolio, or a payment processor like us. We’re looking at it to say, okay, what are we earning off the volume we’re processing after we net out things like association fees and card-issuer interchange?

It’s usually presented in basis points, which is a fraction of a percentage—100 basis points being one full percent. What we see is portfolios that have adopted surcharging or dual pricing tend to have a much higher take rate. In some cases it could be 10–20 basis points higher; in some cases it could be 30 or 40 basis points higher. That indicates how much less sensitive a business becomes to price when they’re able to pass a lot of that cost on to the cardholder who’s presenting the card in the first place.

What that means, net-net, is that take rates can be improved with these programs being live. If I could, I’d like to caveat that a little bit, Steve. In our research, we’ve seen that in some industries, it can have a negative effect for the software provider and the card processor like us. That’s specifically when there are very few but very large transactions. Think of a contractor doing equipment installs to residences. That new HVAC system is going to be $8,000. When presented with a surcharge of 3%, consumers will often say, “Hang on, I think I have a check in the house. I’ll just write you a check.” What that means is you go from a higher take rate to not having some of those transactions at all, and that can be a problem.

Steve: So yeah, that’s an interesting point. Is it industry-specific, or do you think it’s more ticket size that causes that? Because $8,000 with a 3% surcharge is drastic, but 3% on a cup of coffee—not so drastic. Is it industry or ticket size that dictates that?

Matt: I think it’s a lot of different factors. We can say average ticket is a driver. For large purchases, the consumer is going to think about that surcharge differently because the number is large. I do think in environments with a lot of transactions—high-throughput like quick-service restaurants—many people aren’t carrying cash and don’t have a best alternative tender to grab. They’re not going to pay for their burrito with a checkbook. So they’ll pay the fee and not worry about it.

When you start talking about transaction size, there are certain industries like auto repair, auto dealerships, or contractor services where there will be a lean away from surcharging from a consumer perspective—meaning they might still be accepting the same payments and the business revenue might be fine, but fewer transactions are processed electronically because of the cost associated with that. There’s a balancing act, and I don’t think we have a hard-and-fast rule for it.

Steve: Gotcha. That’s a helpful detail. Let’s get into building for compliance a bit. We talked about some of the mistakes in the last episode—SaaS providers trying to implement this themselves and missing compliant pieces. Let’s break it down model by model, starting with surcharging. What technical requirements should developers keep in mind to stay compliant?

Chris: I think the aspect of: what state is the customer in? Know what you should be doing and how that logic tree should be formed within your software. Disclose to the customer before purchase that a surcharge may be applied. Make sure your provider is setting up your customers’ accounts correctly and populating the required fields from the card brands to register the customer as a surcharging merchant. Recognize the state, understand the receipt requirements with surcharging—you have to show the fee—and understand where to place the fee (pre-tax vs post-tax). Sub-state considerations can also matter. All of those points should be considered whenever anyone’s looking at a surcharging program.

Steve: Great. How about dual pricing? To my knowledge, dual pricing requires a heavier lift from a development perspective. If that’s true, why does it require more lift and how should platforms structure it to be successful?

Matt: I think the best implementations we’ve seen are when dual pricing is native to the software. Think about all of the inventory or menu options being natively dual-priced within the software. Modifiers and add-ons are as well. Once it’s set, you can kind of forget it and just run the business. But there is work up front to make sure everything’s set up accordingly, and the software provider has to ensure there’s a database where all of that can be properly housed and managed cleanly.

Then you have the issue of disclosure that Chris was talking about. It’s not enough to have just one price on all the items. This is where businesses have a challenge because they’ll put one price on—and it’s the lower price to stay competitive. Once they do that, they’re essentially running a pseudo surcharge, and that’s what we’re trying to avoid.

What we’ve seen to avoid that, especially for businesses with limited services or quick-serve restaurants, is moving to digital menus. That allows them to update pricing clearly in one place and not have tags on items throughout the store. Some of the best point-of-sale implementations can also provide a digital menu environment. That digital menu can be projected physically on a screen in the restaurant or be the same menu used on their website for online or mobile orders. If you can create an ecosystem built off a dual-pricing environment, it can be done. I’ll just say: it’s difficult. In the last podcast, we talked about the truck stop example with two prices on the billboard. They can do that because when you pull up to the pump there are only a few products, so they disclose a handful of dual prices. If you go into the convenience store, they’re probably not dual-pricing the Snickers bars. For businesses with many SKUs, dual pricing becomes pretty difficult to achieve in a compliant way.

Steve: Okay. A follow-up that pairs with cash discounting and your points about disclosure: what’s the right way to apply and communicate a discount in the cash-discount realm? Actually, before that, let’s redefine the differences between dual pricing and cash discounting, because you said something interesting about merchants wanting to display the lower price, which becomes a pseudo surcharge. Can you redefine the differences and how they relate?

Let’s talk about it in terms of consumer disclosure—what is the merchant communicating to the cardholder? In dual pricing, the disclosure is both prices: the cash price and the card price, clearly next to each other with no ambiguity. In cash discounting, you only present the higher price—the card price—and you might have signage that says, “We’ll give you an X% discount if you pay with cash.” There’s a restaurant near here my family likes that has a sign: if you pay cash, we’ll give you a 5% discount (not applied to alcohol). They can do that—that’s fine. What they can’t do is an undisclosed surcharge. In other words, they can’t show up at the end of the bill and say, “Because you’re paying with a card, we’re marking it up 3%.” That’s what we’re trying to stay away from. So: dual pricing is both prices clearly marked; cash discount is the higher price with a notification that paying cash yields a discount on the stated price.

Steve: Gotcha. Super helpful. Anything to add there, Chris?

Chris: I think Matt’s point about SKU management is important. ISVs with software that manages to that level won’t have as big a challenge getting dual pricing installed across their customers’ accounts. You can almost talk about dual pricing and cash discounting in the same breath, but the biggest delineator is where you start. With cash discounting, start at the higher of the two. Make it feel like a discounted experience—cash discounting should feel like a discount to the consumer.

Steve: That’s a great point—what might push a merchant or a software provider to offer one versus the other? It really comes down to the experience, and to some extent it’s sales and marketing because the customer feels they’re getting a discount.

Matt: The simplest implementation is to raise all your prices and present a cash discount. But you’re asking the business to raise all prices in a competitive environment. There are restaurants down the road with similar products. It’s easy for us to say, “Just raise prices and offer a cash discount,” but often they have loyal, price-sensitive customers—especially these days. It can be cleaner implementation-wise, but there’s a cost to it, and you don’t want to push loyal customers. Many small businesses are loyal to their customers, too, so raising prices is a last resort. They may have already raised prices last year when inputs went up. It’s a balance of implementation ease and the psychological impact of raising prices.

Steve: Would you say that’s another reason why surcharging has gained traction—because it avoids raising list prices? Surcharging is the reverse experience of a discount, but is that another reason?

Matt: I’ve talked to business owners about this—it’s not a statistically significant survey—but there’s a stark difference between “raise all my prices and discount for cash” versus “keep prices and implement a surcharge for cards.” The math can work out the same—assuming the merchant is in a location where surcharging is allowed—but the psychology is very different.

Steve: Gotcha. Helpful insight. Let’s move on to guardrails and platform flexibility. How can a platform’s design choices—like limiting fee types or guiding merchant settings—help prevent non-compliant use?

Matt: I have some ideas—not a definitive list. One feature we’ve seen used and abused is generalized fee categories. Somebody creates a kitchen fee or a service fee—we’ve seen creative names. If the software allows an upcharge that can be selectively added to some transactions and not others, you’re giving the merchant tools that can create a problem without training and explanation. They might say, “Every time someone presents a card, press the +3% fee button to offset cost of acceptance.” That’s where mistakes are made.

So how can you create an environment where the merchant is more curious to do it right? Warnings or tooltips in the back office can help: “We notice you’re turning on a percent-based fee. Here’s what you need to know. Click here for our blog post about card surcharging.” Then it’s on the software provider and their card-processing partner to keep the most current, accurate information about the program they plan to deliver. They need to be upfront about it, especially if they’re boarding new accounts or advertising it. They need the requisite education in the background to make sure it’s done correctly.

You’re putting tools out there, and there should be safety guidelines in the packaging. Before the merchant “unboxes” the tool—fees, surcharging, dual pricing—they should go through a brief orientation on safe use so nobody gets hurt.

Steve: Great. That brings up another question to help wrap up this episode and this trend for SaaS providers. Chris, what support should SaaS platforms expect from a payments partner to help manage these models successfully?

Chris: During the provider-selection process, test the provider’s knowledge. Look at what they’re offering in terms of cash discount, dual pricing, and surcharging. How much do they know about the compliance factors of each? Your partner can lead you to develop great software, stay current, and keep up with changing state laws. Selecting a partner that keeps you informed and understands the landscape—and how often it changes—is one of the most important factors. I can’t stress it enough.

Steve: Yeah, appreciate that. Matt, anything to add? You mentioned the sales piece as a big support item—what else?

Every vertical SaaS provider has to choose whether to be in or out of the payments business. They can provide payments tech in their software, but will they be payments experts? We work with companies on both sides. Some want to own it. In that case, the expectation is they get trained and understand disclosure because they’re representing payments from within their organization and software. Where software providers don’t want to become payments experts, find a partner who will help. We do that a lot. And that organization, to Chris’s point, needs to pass the bar—put them to the test.

Lastly, be intentional about your contract review with your payment processor and the indemnification you’re providing them. There are financial implications to non-compliance. If not done properly, a software provider could sleepwalk into taking responsibility for their payments program, not be equipped to do it, and end up financially on the hook if something goes awry. Like everything in financial services, there’s risk to be managed and partners to help mitigate it. Make sure you’re using partners properly to mitigate the risk associated with your program. We’re always happy to have a conversation about these programs and how we can help, and in many cases we can be the right partner to take someone’s payments program to the next level.

Steve: That was a great wrap-up, Matt. As I mentioned in the last episode, education and being a consultative partner is super important to us—from surcharging and cash-discount programs through everything else we do. If you have questions or want to strategize, get in touch with us. There are links in the description to reach out directly and connect with Matt and Chris on LinkedIn. Thanks for listening—join the conversation in the comments; we’d love to hear what you think. Like, comment, subscribe—all that good stuff on YouTube, Spotify, and Apple Podcasts. That’s going to wrap it up for Payment Pulse this week. Matt, Chris—really appreciate you taking the time.