Friday, February 25, 2011

Recurring payment provider options for a UK start-up

As many of you will know, we're currently in the process of launching a new online service -Crisis Cover which is a digital safe for your business' digital assets. A week before the launch we ran into a  slight hiccup in regards our payment gateway. The problem is simple:

The trouble with this: to trade for a year, we need some way of taking payments for the service; so we had to start looking into alternative payment gateways.

Our requirements

• Low processing fees as the lowest plan is only £4.99
• UK based payment gateway
• Offer (or didn't require) a merchant account number
• Billable in GBP
• Handles the recurring element of the payments (so we didn't need to write a custom handler)
• Trusted brand
• Allows on-site payments (though this wasn't too much of a priority)

The payment gateways we looked into were:

• PayPal (www.paypal.com)
• Google Checkout (http://checkout.google.com/sell/)
• PayPoint (www.paypoint.net)
• SagePay (www.sagepay.com)
• Zuora (www.zuora.com)
• Recurly (www.recurly.com)
• AlertPay (www.alertpay.com)
• CheddarGetter (www.cheddargetter.com)
• Spreedly (www.spreedly.com)
• Chargify (www.chargify.com)
• Authorize.Net (www.authorize.net)
• Xylyx (www.xylyx.com)

Skip Our findings and jump to our conclusion.

Our findings

PayPal

For

• Quick setup
• Known and trusted brand
• Wide market penetration
• Simple integration
• Fully managed service
• No merchant account number required

Against

• High monthly charge for a business account with montly recurring payments
• Perceived as a B2C service rather than a B2B service
• Constantly tries to upsell it's payment system to the customer (although the Website Payment Pro onsite option should work around that)
• A large number of mix-and-match services it's hard to identify which one you need

Verdict

Although PayPal's offering is very appealing, it is still perceived very much as B2C service which is the main reason we decided against it. In addition to this, their monthly charge for the service we need and processing fees make it a potentially unviable solution to launch with.

For recurring payments, you will need Website Payments Pro with their monthly subscription upgrade which is currently an additional £20pcm (it's buried deep but you can learn more on this page -click the "Reporting & Back Office" tab).

Google Checkout

For

• No setup charge or monthly fee
• Quick setup
• Known and trusted brand
• Simple integration
• No merchant account number required

Against

• Offsite payment (thought they suggest you can do onsite too)
• Recurring payments are in beta
• General "feel" of the checkout experience is clunky
• Not clear how to checkout if you don't have a Google Account

Verdict

Google's offering is certainly very appealing however the lack of non-beta subscription services meant that we didn't explore it further.

SagePay

For

• No setup charge
• Simple billing model
• Known and trusted brand
• Simple integration
• No merchant account number required

Against

• No recurring payment facility
• Potentially slow setup

Verdict

SagePay's offering is a good solution that we have integrated with many times. Their API makes taking payments onsite quick and simple however there is currently no recurring payment system built in so we initially discounted them^*.

^* See conclusion

Zuora

For

• Complete solution (apparently)

Against

• Overly flashy website that doesn't tell you how much it costs
• Appears to be predominantly US based

Verdict

Although it may seem petty, if you can't find out even the most basic information on the company website it makes me think that they're massively overpriced or not ready to take clients. So sadly, Zuora were ignored due to the lack of useful information.

Recurly

For

• Handles recurring payments
• Quick setup
• Simple integration
• Fully managed service
• Invisible to the customer

Against

• Not a payment gateway
• Another additional monthly cost

Verdict

We've come across Recurly before and we initially discounted it as we didn't understand what it was/did. On revisiting their service in more detail however we realised what it does -and it's actually pretty good/helpful.

Recurly is not a payment gateway. Now I've got that out of the way, I should explain what it is. Recurly is a system that integrates with third party payment gateways e.g. SagePay and enables you to use these third party payment gateways to take recurring payments without requiring Continuous Authority with the acquiring bank.

This is massively important because Continuous Authority is usually what a start-up gets rejected on. Continuous Authority is basically a contract between the acquiring bank (the one "taking" the money) and the customer's bank which allows the acquiring bank to charge the customer (in theory) whenever -and however much- they like. This is obviously seen as a trust issue -especially when the company is a new entity with no trading history.

So Recurly opens up a whole new potential avenue of payment providers (within their group of partners of course!) which is when we took another look at SagePay.

AlertPay

For

• No setup charge or monthly fee
• Handles recurring payments
• Active development community

Against

• Appears to be a similar concept to PayPal (encourages the user to have an AlertPay account)
• Lots of very small small print (check their prices page and "Some industries may be subject to a fee of 3.90 % + £0.59 GBP or equivalent for receiving funds from e-wallet and 6.40 % + £0.39 GBP for receiving funds by credit card")

Verdict

The offering from AlertPay looks good however because it encourages users to sign up for one of their accounts and they've not got enough market penetration yet to be a known/trusted brand which is a key factor in our decision.

CheddarGetter

For

• Handles recurring payments
• Quick setup
• Simple integration
• Fully managed service
• Invisible to the customer

Against

• Requires a Merchant Account
• Very costly
• Not a payment gateway

Verdict

CheddarGetter is very similar to Recurly, just more costly. It's also not clear if your Merchant Account requires Continuous Authority.

Spreedly

For

• Handles recurring payments
• Quick setup
• Simple integration
• Fully managed service
• Invisible to the customer

Against

• Not a payment gateway

Verdict

Spreedly is very similar to Recurly as well. We would need to compare them side by side sperately but although the website was clean and clear, the price reasonable (for 200 customers it would be $10pcm cheaper than Recurly). The lack of "pretty" information without signing up put us off. We read through the gumph however we were still left feeling it wasn't quite up to the same standard as Recurly.

Chargify

For

• Handles recurring payments
• Quick setup
• Simple integration
• Fully managed service
• Invisible to the customer

Against

• Monthly charge
• Requires a merchant account

Verdict

We came across Chargify very early on and again is very similar to Recurly, they've recently changed their pricing structure which has made it completely unfeasible to even consider them.

Authorize.Net

For

• Handles recurring payments
• Quick setup
• Simple integration
• Fully managed service

Against

• Primarily US based
• $99.00 setup fee
• Monthly fee of $30

Verdict

Authorize.Net offer the entire solution for what is a relatively low monthly fee however as they're mainly a US based company, this raises complications for us as a UK based company.

Xylyx

For

• Quick setup
• Simple integration
• Low processing charges
• No setup fee
• Based in the UK

Against

• Doesn't yet handle recurring payments
• Backed by www.moneybookers.com so encourages the user to sign up for an acount

Verdict

We immediately signed up to Xylyx having spoken to Robert Atkin who overviewed their offering to us in some detail. It's a very good service all in all however the one thing that let it down for us was the fact that they don't yet have recurring billing built in (though it's due to launch this month).

If we were looking for a standard payment gateway (or when they've rolled out their repeat payments) we'd look at Xylyx again. Despite a somewhat bland website, Robert was very helpful.

The Conclusion

After carefully reviewing the options available to us, if you're looking to setup a service in the UK with recurring payments and minimal fuss I recommend the following order of options:

• Recurly with SagePay
• Spreedly with SagePay
• Recurly with Authorise.Net
• Spreedly with Authorise.Net
• Recurly with PayPal Website Pro
• PayPal Website Pro with recurring billing

Recurring payment provider options for a UK start-up

Useful Links:            Comments [22]  Trackback

Tags: Business | Business Start-up Advice | Expanding Your Business | Development | eCommerce | Payment | The Site Doctor

Sunday, February 27, 2011 8:06:50 AM (GMT Standard Time, UTC+00:00)

You may be interested to know that SagePay do actually offer recurring transactions, the term they use is "Repeat Payment". You just need to make sure you mark the initial transaction for repeat payments and reuse the initial transaction id from memory. You do however have to initiate the repeat transactions from your own system I think each month though which may not therefore suit your needs.

Simon

Simon Dingley

Monday, February 28, 2011 8:38:56 AM (GMT Standard Time, UTC+00:00)

Hi Simon,

Thanks, I'm aware that the token based system has recently been rolled out however as you've pointed out, this needs to be initiated by our system.

I believe it also requires Continuous Authority which is what many start-ups will be rejected on (as they often need to have been trading for a year).

Tim

Tim

Monday, February 28, 2011 8:07:08 PM (GMT Standard Time, UTC+00:00)

Nice review Tim! I've been looking for a UK-focused article on this for a while.

Yet another reason why UK tech startups are discouraged: banks not providing the necessary merchant accounts on favourable terms.

We've partnered with Spreedly and have quite a bit of experience with theirAPI - it's very easy to use. The one problem with third party recurring billing solutions is the "too many middle-men" syndrome - the true cost of sale being the total of merchant account fees (bank), payment gateway provider fees (e.g. SagePay) and then the billing handler fees (Spreedly, Recurly etc).

And this aside from cost of acquisition! :(

Timing is also important. These services will all charge whether you have paying customers or not. Arguably you need all the parts in place by launch, but if you don't start covering those costs with sales soon, you'll end up chasing your tail. This can lead to desperation in customer acquisition which can lead to bad marketing strategies, cutthroat sales and self-defeating partnerships.

Simon Hamp

Friday, March 04, 2011 7:04:35 PM (GMT Standard Time, UTC+00:00)

We heard that PayPal's merchant account is quite buggy and often times out. That's why Chargify don't use them, they actually had it up and running for a few weeks then withdrew support because of the poor user experience.

We're now set up using Chargify and a Barclaycard Merchant Account, using Payment Express (aka DPS) as the glue between the two. Kind of crazy that all our transactions go from USA to Australia and then to the UK for processing but it works.

We were lucky on the merchant account, we had a year's trading history from consulting and managed to successfully play HSBC and Barclaycard off against each other to get a good rate. Watch out for them trying to add another 0.5% on top at the end of negotiations because you won't be supporting Verified by Visa etc on recurring payments.

Jonathan Markwell

Saturday, March 05, 2011 11:12:01 AM (GMT Standard Time, UTC+00:00)

Thanks Jonathan, that does sound a little interesting. What's irritating is that the two companies involved with developing the project have both been trading for over 5 years (we've been going 8) and were willing to back the project to whatever level the banks felt necessary but they still weren't interested (though that said we didn't push it as hard as we could have knowing that we have other avenues to explore first).

The nice thing about systems like Recurly, Chargify, Spreadly et al is that when it's up and running it should be fairly easy to swap between the gateways which is another big plus side for using a service such as this.

Tim

Saturday, March 05, 2011 11:16:57 AM (GMT Standard Time, UTC+00:00)

Thanks Simon, I couldn't find much of use by way of review so figured I'd share, I've got a calculator I wrote too which I'll post when I get a moment to.

I couldn't agree more, getting a start up going in the UK certainly is harder than it should be. I can understand banks being reluctant to fund companies but not even allowing them to take payment, it's very short sighted. I have a feeling this is why many UK start ups end up setting up with US banks... Somewhat ironic if you ask me.

In regards charges, thankfully we're in a lucky position that we have accounts/existing working relationships with most of the gateways/providers so have access to test environments etc so we can code against those if they're that set on not supplying demo access (there are a couple). Thing that amazes me is how much information you need to give them just to find out more, one wanted the passports or all directors, driving licenses, bank details and copies of recent utility bills -just for access to the dev area. Thanks but no thanks...

Tim

Wednesday, March 23, 2011 6:16:54 PM (GMT Standard Time, UTC+00:00)

Tim,

While you were correct about CheddarGetter being similar to Recurly, it is actually not more expensive. It is less expensive than its similar competitors, including Recurly, Chargify and Spreedly.

Katie

Tuesday, March 29, 2011 7:36:56 PM (GMT Daylight Time, UTC+01:00)

Thanks for the discussion and especially for this follow up blog post on recurring payments/subscription services, Tim.

I'm still a little way away from implementing anything myself - got the core code to write first before I add the SaaS accounting. However, that hasn't stopped my looking, and I also talked briefly with Robert from Xyxlx at the BizSpark event last week - seems very friendly and all seems straight-forward - will know more when I get my hands on some documentation and example code.

I'm also wondering if you found anything out there for doing the whole SaaS user/account management. I've looked at the Ruby offering and found there's a full SaaS account management RailsKit - and I'm feeling a bit jealous!

Stuart

Wednesday, May 04, 2011 9:54:07 AM (GMT Daylight Time, UTC+01:00)

Thanks for the overview Tim. Very thorough. We had been looking at Recurly and Paypal recurring payments and after reading your post, we are going to focus on Recurly. It is a pity about the extra fee but much simpler to implement.

Still one comment / question: I fully understand you share these with your clients but can you please remove your Partner ID from the SagePay URLs in this blog post? I thought (wrongly) that it worked like a normal affiliate link but it actually hardcodes "the site doctor" as technical contact on accounts created using the above links. Afterwards, it is impossible to change the technical contact details in the signup process. I called Sagepay and the only solution was to create a new application (without the Partner ID).

Kevin

Friday, December 09, 2011 7:41:20 PM (GMT Standard Time, UTC+00:00)

Thanks for the analysis. I've been going through much of the same pain researching a payments solution for our startup.

CheddarGetter seems to support Paypal Standard and Pro these days, so perhaps your evaluation that you need a merchant account is no longer true.

Michael

Michael

Monday, December 12, 2011 3:48:56 PM (GMT Standard Time, UTC+00:00)

@Michael - possibly, it was a while ago that I wrote this and things have moved on a fair bit. We did look at PayPal, but their fees basically made it a crippling option.

I’ll try and write a follow-up article as the various offerings have changed a lot.

Tim

Wednesday, May 02, 2012 8:44:26 PM (GMT Daylight Time, UTC+01:00)

Tim,

Just stumbled across this fantastic analysis of the options available to take recurring payments. I work for GoCardless, where we're trying to make recurring payments as cheap and easy as possible - it'd be great to hear your thoughts on our offering.

Grey

Saturday, May 05, 2012 3:35:16 PM (GMT Daylight Time, UTC+01:00)

Hi Grey,

Yes thanks I had, we were also a beta tester, over the coming weeks I'll update this post as it's a little out of date and we're integrating GoCardless into a couple of sites so will be able to give more feedback.

Tim

Tim

Monday, July 02, 2012 9:52:22 AM (GMT Daylight Time, UTC+01:00)

Thanks, we've been looking for some proper feedback about these kinds of payment services as a lot of the information about them on forums etc seems to be pretty out of date. A great break down of the pros and cons of each service, the time you've taken to share your findings is much appreciated!

Was also very interested to read your comments about SagePay and the continuous authority as this will probably apply to the client we've been investigating for.

Again, thanks for taking the time to share!

Signature Digital

Wednesday, August 08, 2012 5:31:43 PM (GMT Daylight Time, UTC+01:00)

Sagepay does require a merchant account, doesn't it?

Troi

Wednesday, October 31, 2012 3:43:30 PM (GMT Standard Time, UTC+00:00)

That's a really useful article.

I've been going is circles trying to find a good recurring billing option. We already use SagePay but on it's own, we'd need our developers to carry out a lot of custom coding to handle automating of recurring billing and sending copy invoices wtc. It looks like Recurly may the the one for us as it works well with Sagepay.

A lot of facilities such as Braintree in USA seem to work well but it was the 100 Euro monthly standing charge that put us off this one.

Thanks again :-)

To answer the question above - Yes, Sagepay does require a Merchant Account.

Paypal Business Pro will automate recurring billing and provides a merchant account, but the monthly charge may be high for some - £40 for the package including a virtual terminal to handle telephone payments.

Dave Glynn

Monday, April 01, 2013 3:21:05 AM (GMT Daylight Time, UTC+01:00)

Great article. I'm dealing with many of these issues as well..

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