Payment processing platforms vs. cloud marketplaces: Which one should I choose?

The Introduction

Software sales payments are nuanced and complex, with multiple functions, pricing plans, and customization options. From a payments lens, complexity is further compounded by the fact that they are recurring, requiring careful tracking and management. This blog unveils how growing businesses can automate payments and optimize operational efficiency, reducing the need for significant investments in automation tools for collection, analytics, and taxation. 

Let’s begin the journey as we explore two platforms that facilitate easy payments. Payment processing platforms and cloud marketplaces: both channels help with software sales and achieve the same outcome. Let’s run deeper to understand the nuances of each and understand which one suits small and medium businesses better.

Payment Processing Platforms vs. Cloud Marketplaces

Payment Processing Platforms: Payment processing platforms enable businesses to accept customer payments and ensure a smooth billing process. E.g., Stripe

Hyperscaler Cloud Marketplaces: Cloud Marketplaces are ecosystems where software vendors can showcase and sell their products. Payment processing is a highly automated and convenient subset of the holistic marketplace function. E.g., AWS Marketplace

Factors to Consider During the Evaluation

Factor #1: Financial Motives

Fees and Charges

Marketplaces typically earn revenue through transaction fees. This means that they take a percentage of each transaction on their platform. Payment processing platforms are no different and charge usage-based billing or subscription fees. 

Payment processing platforms such as Stripe charge a basic uniform fee of 2.9% + 30¢ to custom pricing for enterprises.

Cloud marketplaces can charge anywhere from 1.5% to 3% per transaction. For example, AWS slashed their marketplace fees during the AWS re:Invent 2023. Here is the updated fee structure:

• For private offers under a million, it’s now a 3% fee.
• For deals between $1 million and $10 million, it’s now a 2% fee.
• For private offers greater than $10 million, it’s now a 1.5% fee.
• For renewal fees for private software and data, it’s now a 1.5% fee.

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Marketplaces take a much larger cut of the transaction. This could be a deterrent for a set of people who don’t understand the depths of it and the value it brings to the table. The little-known fact is that they provide an option to repurpose a significant portion of the infrastructure committed spend to purchase third-party software. This not only makes complete use of the already invested infrastructure funds but also foolproofs the risk of default as the buyer would be buying from the already existing pre-committed spend.

Investment Considerations

From the fees and charges section above, it seems clear that marketplaces are more expensive. Is it true? Absolutely not!

The Total Cost of Ownership on payment processing platforms may be higher, as it requires a full-time technical integration team and additional marginal fees for international transactions. Hence, marketplaces are a more feasible choice to begin with. However, as businesses scale and grow, they can gradually expand their investment to payment processing platforms to accommodate their advancing needs.

Another advantage of marketplaces is that they provide volume-based transaction benefits, so the higher the business, the higher the benefits. Marketplaces also offer the opportunity to upgrade to a partner from a mere seller and initiate Co-Sell. 

Factor #2: The People

Cross-functional Impact

Marketplaces have a broader impact on multiple teams within an organization. This is because marketplaces facilitate payments and provide access to new sales channels, co-selling opportunities, and valuable analytics.

• Partnership: Marketplaces can help companies build a deeper partnership with the hyperscalers.
• Finance: Marketplaces can give companies visibility to analytics and more substantial revenue recognition.
• Sales: Marketplaces can enable faster sales cycles and access to pre-committed spend.

Payment processing platforms primarily benefit the Sales Ops and Finance teams by automating the process of payments. 

Value Creation with Co-Sell

Marketplace teams focuses on helping GTM teams achieve holistic growth, from initial discovery to finding relevant growth opportunities that directly impact revenue. With a highly automated structure on the marketplaces, getting those payments is more effortless. The best part is that you don’t need to integrate a separate payment platform to receive payments from the buyer. The hyperscalers do it for you. 

Factor #3: The Growth

Stage of the Company

Marketplaces are an excellent choice for companies that want to build a consistent revenue stream with software selling. They facilitate 40% faster sales cycles. This is only possible by automating payment and billing cycles( known as metering in marketplaces). 

So, if you are a fast-growing organization, your first consideration can be marketplaces. If you are an enterprise looking for additional billing methods, payment processing platforms can be your second layer in driving seamless payments succeeding marketplaces.

ROI and Bottom-of-the-funnel Impact

Startups and early-stage companies often prioritize closing transactions with smaller investments. Marketplace transactions have a stronger impact with 27% higher win rates and 80% richer deal sizes, making them a more attractive option for companies with limited resources. With options like daily disbursements, the seller has more flexibility and control to choose the payment disbursement frequency from the marketplaces.

Factor #4: The Brand

Awareness and Trust

Marketplaces like GCP, AWS, and Azure are well-established brands that customers trust. Partnering with these marketplaces can enhance your company's brand recognition and credibility. Payment processing platforms foster a transactional partnership that may add little value to the brand.

Factor #5: Technology

Automation and DIY

Payment processing platforms often require manual integration, invoicing, tax calculations, custom EULAs (end-user license agreements), and manual payment interventions. This can be time-consuming and resource-intensive. With cloud marketplaces, all these operations are taken care of by the hyperscalers so that you can focus on more significant things.

Integration Needs

Integrating payment processing platforms often requires bi-directional sync between your native platform and payment gateways. This can be a complex and lengthy process. Platforms like Clazar will help you integrate with cloud marketplaces in a jiffy and speed up the payment process. Marketplaces also cut down on the custom integration setup to activate channel sales.

Speed and Efficiency

Hyperscaler marketplaces offer pre-built EULAs, automated invoicing, and payment processing, eliminating the need for manual intervention. This can significantly expedite the transaction process and optimize the revenue lifecycle. Payment processing platforms ensure that the transactional process is smooth and has little impact on the process expedition.

The Takeaway

Software sales are evolving rapidly, and tailored solutions are the need of the hour. Buyers demand solutions that meet their specific needs and preferences, and only SaaS-specific solutions are designed to offer the flexibility, ease of use, and cost-effectiveness to achieve this. Marketplaces are much more than payment processing platforms. They offer holistic solutions to complex Software challenges today. Payment processing platforms are designed to automate financial transactions but often fail to connect the missing pieces in the software puzzle.

Wrapping this up, marketplaces are a strong option if you are looking for a holistic platform to build a consistent revenue stream, increase brand awareness, and leverage co-selling opportunities. If you prioritize DIY integration and usage-based billing, payment processing platforms may be a better fit.