Recently, I was rewatching the Emmy-winning “Three Stories” from the House M.D. series and suddenly one striking parallel occurred to me: there is a similarity between medicine in this episode and the way digital startups select a payment platform. I’ll explain.
Every digital startup eventually faces the need to integrate billing and payments into a product. With my 10+ years of experience in developing backends for billing systems for apps and platforms, I cannot stress enough how vital the selection of a proper payment system is for a business. Even more so for a startup.
As a billing system professional, I try to keep an eye on the industry. I follow trends, observe promising financial startups, and pay close attention to new product launches. Often, thanks to my expertise I can clearly see that a startup’s choice of a payment system is what holds back its success. If I were a startup owner, I would certainly consider an expert’s advice on how to choose a payment system for my venture.
And this is where the TV series episode comes in.
In the episode, three patients are hospitalized with the same symptom: leg pain. As the plot develops, it turns out each patient has their own disease and needs specific treatment.
This closely resembles the process of selecting a payment system by a startup owner.
Startup Funding Types
Self-funded startups
Anne is our first character. Her startup project is a small self-funded business, or a bootstrap startup. As a small business owner, she values autonomy, but has to constantly “juggle” production expenses, operation and marketing costs, and investments to further growth.
Hence, Anne’s requirements to the payment system are:
- Startups on a tight budget expect bundled functionality: if the platform includes invoicing and reporting out of the box, they don’t need to buy extra tools, which increases overall value.
- The same goes for time resources. A solution has to provide as much automation as possible to deliver everything the startup needs with minimum hassle.
- Nothing kills trust faster than hidden fees. A founder wants to know exactly how much of a customer’s $10 payment will reach their account.
- As long as the payment solution takes the PCI compliance burden off the startup, not only does the owner feel more secured, they also have more time for what’s really important for the business right now;
- Every small startup is unique. Therefore, a simple API to quickly tailor the payment system to the startup's specific needs and effortlessly incorporate it to their app is also a must.
Anne’s “treatment” is affordable yet feature-rich payment platforms offering a lot for relatively low money, even if not as in-depth and powerful as their enterprise cousins.
Not every startup needs to develop their own billing system. Sticking to out-of-the-box solutions is ok at this stage as it gets you fully covered and fits your limited budget. RevenueCat, Stripe, and PayPal are good examples.
VC-backed startups
Meet Simon. He is a founder of a fintech startup with the first round of $4 million in investments already confirmed. While he has the same symptom as Anne — he is looking for a payment platform to build into the solution — Simon’s diagnosis is different.
Venture-backed startups strive for fast, preferably exponential growth, both technically and financially. In fact, the pressure to grow is one of the biggest caveats and challenges of such businesses. The “diagnosis” is tricky: grow too fast and the stacking heap of operating discrepancies and inefficiencies will bury the startup altogether; grow too slow and face the wrath of venture investors.
Simon surely knows that, and therefore looks for a “treatment” like this:
- Scalability of a payment system is a must for VC-backed startups as this means the startup will not end up stuttering under the increased load of customers.
- Going worldwide requires easy adaptation to various national and local regulations. The payment platform should comply with local laws and offer a way to accept payments with all major ways popular in each country.
- With robust API a startup can remain flexible and leverage emerging trends such as BNPL or easily embrace various integrations for even more business flexibility;
- As the business grows, its operating costs go up. Hence, flexible pricing structure is a desirable feature of a payment system for a startup so it would retain cost-efficiency on the later stages.
- A powerful antifraud system including AI-backed usage pattern analysis and anomaly detection helps to reduce losses as well as to reveal and eliminate financially harmful usage scenarios.
Simon’s cure would be enterprise-level solutions such as Adyen, Braintree and others. They combine nearly all the merits of “casual” payment systems with strong focus on high-load payment processing and deep customization for specific needs.
Global players
What if it’s lupus? Specifically, what if boxed solutions do not provide the required flexibility, scalability, and security a startup wants for the product? In fact, most startups do not need to develop custom billing systems. But those that do, need a very specific “treatment”.
Our third character is Morgan. He’s the head of a worldwide financial startup with planned loads of about 10+ million transactions a day. Developing billing systems for financial institutions is hell on earth. Been there, done that. Here is what one should consider when developing a custom solution:
- The system must deliver complete control over the entire billing system allowing for more accurate brand identity match and better customer satisfaction which result in higher LTV rates;
- Scalability is also a must. Morgan’s product should easily process millions of transactions without delay;
- Enterprise-level products rarely work solo. There are but a part of the entire business ecosystem, and as such should seamlessly integrate into other systems (ERP, WPS, CRM and others) to automate workflows and provide all kinds of business reports with a click;
- High reliability and uptime are crucial to prevent losses and to comply with banking and government requirements;
- With a custom payment system, the startup bears full responsibility for PCI DSS compliance.
A custom billing processing system is literally a second product in addition to the main one you have to develop. And it requires the same or higher commitment due to PCI compliance and regulator requirements, especially if the product targets worldwide markets.
Plus, there are high HR risks. Hiring specialists for billing development requires lengthy and complex onboarding. Partly due to complexity, partly due to legacy. Hence the risks. And there’s always PCI DSS with its non-compliance fines up to $100,000 and potential legal issues.
Pushing the medicine analogy further, ready payment systems for startups are ibuprofen pills, while custom payment solutions are neurosurgery. Not every product needs it, and not every startup is ready for that.
Conclusion
Choosing a payment platform for a startup has nothing to do with watching a TV series, of course. But just like in House M.D.’s “Three Stories”, the same problem often requires different solutions. The real “diagnosis” depends on the type of the business, strategic goals, and funding type. A bootstrapped founder might need an affordable, “one size fits all” solution; a VC-backed startup requires scalability and compliance; and global financial players sometimes need to build custom systems from scratch.