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Recurring Billing For Web Apps
Kieran MastertonJuly 27, 2010
Increasingly web application developers and entrepreneurs are turning to the “Software As A Service” (SaaS) model to monetize their products.
Together with this growth has come the need for reliable recurring billing systems and in turn a number of enterprising folks have built said solutions and fittingly used the SaaS model to monetize their efforts.
In this article we will look at how these services work, why you’d want to use them, the various options available, and how they differ from one another. Hopefully it should give you a better idea of which service is right for you and how you plan to use it.
Why do I Need this Service?
There are many tools that are making web application development easier and easier, whether that be development frameworks such as Rails and Django or services like Amazon Web Services and Google App Engine, recurring billing systems are no different.
Building a billing system can be a complicated process with issues such as how to handle failed transactions, when and how to recharge cards, and not to mention all the data protection issues surrounding storing financial information and PCI compliance etc. These services allow you to abstract these concerns and let you focus on building the software you care about.
How do They Work?
The services all have a number of core functions in common. They provide a web application interface where you can create different products and configure pricing options. The service then deals with taking and storing your customer’s credit card details (normally with a PCI compliant third-party).
The information about customers, products and subscriptions is then exposed via a secure API which allows you to hook your app into the service. A fairly simple, elegant and, in my experience, reliable solution to something that could potentially be a major headache for app developers.
Essentially as a developer you have two options:
Option One
You choose to forward paying customers to the service’s hosted payment pages. This is the quickest and simplest way to get started. These pages are secure and accept query string parameters to pre-populate fields such as name and email address.
Successful payments will then be forwarded to a callback URL and any change to a subscription’s status will be posted back to your app via a post-back URL.
Both of these URLs are specified by you in the product settings of the billing service. Obviously, you would be mad not to validate the callback with a API query and likewise you will also need to check the nature of the subscription status change upon post-back notification.
Option Two
The process is almost identical to option one, however, you do not send users to the service’s hosted page to take payment. Your application collects (but does not store) all payment details and that data is then delivered to the billing service via their API.
In this instance the onus is upon you to take the user’s credit card details securely and handle the API’s response appropriately. However, the obvious benefits of this option is that the user’s experience is seamless, you have complete control over user interface design and user’s are unaware you’re using an external billing service.
Billing Systems vs. Payment Gateways
Amidst these technical decisions it is also important remember that these billing services are not payment gateways, they do not carry out the card transitions. They purely deal with the business logic of charges, re-charges, charge backs and data storage. In order to charge the card and for the money to end up in your account the billing service provider hooks into the API of your payment gateway of choice.
This means that it is important to check which payment gateways these service providers support. Some support more than others and until recently some have had a very limited choice of gateways.
Some common payment gateways include:
- Authorize.net
- Worldpay
- TrustCommerce
- Payment Express
- PayPal Website Payments Pro
There are also differences in these gateways and it is important to choose the right one for you and the billing service you choose.
Something to consider is that most of the gateways mentioned above require a merchant account which you would have to arrange with your bank. However, a lot of people avoid this by using Paypal Payments Pro where the money is transfered into a Paypal account ready for you to withdraw.
If you’d like to know more about merchant accounts hear what Ryan has to say about his experience in this arena on Think Vitamin Radio Episode 7.
What’s on Offer?
There are a good range of providers to choose from and unlike some services they do vary in their cost, features and pricing model. Here’s a breakdown of a few of the big players in the space.
Chargify
Chargify is seemingly the solution with the richest set of features and the lowest barrier to entry. They offer a free account which is limited to 50 paying customers plus 1,000 non-paying customers.
Their pricing model is clearly designed with the thought that those first 50 customers are the hardest to acquire and once you have those customers paying X amount per month you can afford to pay for their higher volume service.
These start from $49 a month for up to 500 customers and is graduated there on up to $2,499 per month for unlimited customers. As a result of these graduated monthly fees Chargify does not add any per-transaction cost, so within their pricing brackets your costs are fixed.
The people behind @chargify on Twitter are extremely helpful both in explaining their own service and in offering advice about merchant accounts and receptive banks in both the UK and USA.
This is unsurprising as Chargify is brought to you by the guys behind Grasshopper and if you’re a Rails person it is also worth noting that Chargify’s CEO and Founder is Lance Walley who was also Co-Founder of Rails hosting provider Engine Yard. Both these companies are known for their excellent software and, in my experience, great customer service which bodes well for Chargify.
Read the rest of the article here.