Instant Payout Solutions for SaaS Platforms and MarketPlace Payments
Instant Payout Solutions for SaaS Platforms and MarketPlace Payments
SaaS platforms with embedded payments as well as MarketPlace platform with 2-sided commerce can both add an exciting new payment tool — Instant Payouts offer both platforms two major benefits.
The first benefit is that Instant Payouts are a proven client attraction tool. The major players in the gig economy are now all offering instant payouts. Offering a driver or delivery person the ability to be paid 5 minutes after job completion is a competitive differentiator.
The second benefit lies in the ability to create a new recurring revenue stream. Essentially platform participants pay a premium for instant funds access. In some cases, it could be a flat $ amount, eg $2. In others, a percentage is charged. The platform has a payout cost but there is significant margin potential.
1-What are Instant Payouts
2-Different types of instant Payouts
3-SaaS platforms and MarketPlace use case
4-SaaS platforms and MarketPlace monetization and customer attraction benefits
5-Instant Payout Risk Mitigation
6-Next Steps
Instant payouts are a way to pay an employee, contractor or gig worker as soon as the job is completed. Instead of having to go through the often laborious and time-consuming accounts payable process (and make the payee wait for their payment), you can make immediate, hassle-free disbursements using the recipient's preferred payment methods, including bank transfers via Real-Time Payments, push-to-debit-card, virtual credit card, Same-Day ACH and remote printing of a paper check.
For SaaS platforms and MarketPlace providers looking to embed an Instant Payout solution as part of their product offerings, it is important to understand the various payout options, how “instant” they are, and very importantly how Instant payouts can bne used to both attract new platform clients and generate a new payments driven recurring revenue stream.
In a business climate where workers, sellers and contracts aren’t always local, getting to grips with the best way to make payouts isn’t easy. For businesses working in the gig economy and marketplaces, understanding and offering instant payouts is critical for success if you’re looking to build loyalty with contractors and gig workers. That’s especially true for those located in another country, or competing for talent in new and existing markets. The ability to offer instant payouts can be the make-or-break factor in your success.
2-Types of Instant Payouts
a-Push to debit card
b-Real-time Payments (RTP)
c-Same-day ACH
d-Virtual Credit Cards
e-Remote check printing
a-Push to debit card
Both MasterCard and Visa offer push-to-card payments. For all of our payout examples, we will use the example of a home service platform that connects independent contractors with homeowners. The platform sources the customer and takes payment for the completed job. The platform could say to their independent contractor “You can be paid in 2–4 days, or we can move money now to your debit card”. There is a cost to the platform to do this. As an example, we will use $1.00. The platform could say “you can receive your $ within 15 minutes for an added fee”. That fee could be $2 or like QuickBooks, 1%. On a $1000 job, the platform sees $9 in revenue.
You may be thinking, how does the money flow? Essentially in all of our Instant Payout schemes payout risk must be mitigated. Typically if the platform wants to push out $1000 or $991 in our example, they will pre-fund an escrow-like account with their payments partner. This covers the risk exposure of the payment processor pushing money out and not being to collect from the platform. There are are other risk mitigation measures that we will address in the risk section.
b-Real-Time Payments
Real-time payments (RTP) are payments that are initiated and settled nearly instantaneously. A real-time payments rail is the digital infrastructure that facilitates real-time payments. Real-time payment networks provide 24x7x365 access, which means they are always online to process transfers. This includes weekends and holidays.
In the US, the most dominant provider of a real-time payments network is The Clearing House’s RTP network. The Federal Reserve’s anticipated real-time solution will also fall under the definition of a real-time network. The Federal Reserve is projecting to launch FedNow in 2023.
There are a number of different payment “rails”. We have ACH, credit card and now real-time payments.
The advantage of real-time payments are that they are super fast and funds are known to be good and the transaction is final. In addition, transaction data can be passed and captured for sophisticated reconciliation.
The downside? Not all banks participate in the RTP network. Here is a list of participating banks.
Depending on geography the coverage rates can vary. Estimates range in the 60% range.
What happens when you try and use the RTP and one of the banks is not in network? Typically, the fallback is Same-Day ACH.
c-Same-Day ACH
ACH payment transactions typically take 2–4 days to settle. Same-day ACH uses the ACH rail, but the bank involved in the transaction must comply with funding the receiving bank account. The caveat is that the origination of all Same Day ACH files, transactions and batches must be received by 11 a.m. CT to process as a Same Day. The receiver’s bank posts credits to their customers bank multiple times per day. Again your payments partner will likely force the platform to pre-fund an escrow account.
d-Virtual Credit Card
With a Virtual Credit Card (VCC), the payee is sent a 16 digit credit card#, expiration date and cvv code.
That card can then be used like a physical card. The receiver could in turn fund an ewallet, use it on Amazon etc.
e-Remote Check Printing
In this case, the payee is emailed an electronic check. They can then print and deposit this check at their bank or remotely.
There is also the option to physically print and mail a check and of course standard ACH transactions.
3-The Benefits of Instant Payouts
Increased loyalty –whether it’s a 1099 contractor, gig worker, or marketplace seller, the fact they know they’ll get instant payments will boost loyalty and adoption of your platform. Lyft started offering instant payouts in 2015, and by 2018, close to 60% of its drivers opted to receive their payouts that way.
Increased productivity –the thought of receiving payment as soon as the job is completed is definitely a great motivator!
Instant funds from sales - Merchants can benefit from instant payouts. When you make a sale, the money can be sent immediately to a connected account’s debit card, bank account or digital wallet, simplifying accounts payable.
The reality is that gig workers, independent contractors and marketplace participants tend to have more immediate cash flow needs.
4-SaaS platform monetization and increased market share potential
There is a hard cost to the platform for initiating an Instant Payout. We will use $1.00 as an example. The platform can assess a flat fee, eg$2.00 and make the difference. Or like Square and QuickBooks, charge a %.
A $500 payout at a 1% rate equates to $4 of revenue.
Starting to get the picture? There is SIGNIFICANT revenue potential.
5-Risk mitigation and economic considerations
The vast majority of the time your platform or business will need to pre-fund an escrow-like bank account that your Instant Payment solution partner has access to.
If you were asked to send your money to another entity and you were relying on being paid back those funds you can see how that could make you nervous. What if you were not able to get those funds you had irrevocably paid out? It happens and when it does it creates financial loss. This is why pre-funding is the preferred method of risk mitigation.
There are other potential solutions eg using a letter of credit. A public or very strong company may be offered additional options.
This means you need to be comfortable and capable of pre-funding an account for your disbursement needs.
6-Next steps
Whether you are a SaaS platform automating commission payouts or a Marketplace paying participants, InstantPayouts make your product or service more attractive to the participants. The vast majority of people in the gig economy or independent artists want faster funds access.
You can give it to them, making for happier, stickier clients while at the same time adding a potentially lucrative recurring revenue stream.
Visit Instant Payout Solutions to see how you can use elegant, simple API’s to add an Instant Payout option to your platform.