How much can a UK software platform earn from payments?

Every estimate of payments revenue, from a board paper to a back of an envelope, is the same sum.

Annual payments revenue = volume × share moved × margin.

• Volume is the money your customers take from their customers through or beside your product in a year. Card in person, card online, Direct Debit and invoices paid by bank transfer all count, whoever processes them today.
• Share moved is the portion of that volume running on your own payments rather than a provider your customer chose. On the day you launch it is close to zero. The work of moving your customers is the work of raising this number.
• Margin is the difference between what you charge your customers for each payment and what the payment costs you. It is a decision, not a given, and it is the number platforms are most often coy about.

Worked as examples, on £100m a year of volume with half of it moved: a margin of 0.3 percentage points gives £150,000 a year; 0.5 points gives £250,000; 0.8 points gives £400,000. These are illustrations of the arithmetic, not quotes. The same volume with a fifth moved gives £60,000, £100,000 and £160,000. That is why the second number matters more than the third.

Most platforms underestimate their volume because they only count the payments they can see. If your product raises invoices, runs bookings or issues memberships, the money that settles those invoices, bookings and memberships is your volume even when it lands in a terminal you have never heard of.

A quick way to size it: take your customers' turnover as they report it to you, or as you can infer it from the invoices, bookings or orders in your product, and apply the share that is paid by card or Direct Debit in their sector. A platform for trades businesses will have a bigger share paid by bank transfer than a platform for gyms. Then look at the top of the distribution. On most platforms a small number of customers carry a large share of the volume, and those customers get a conversation rather than a campaign.

There is no UK-specific benchmark for how much of its volume a platform moves. The published figures are North American, and they should be read as a ceiling to aim at rather than a UK norm.

Two things to take from the table. First, the gap between the share platforms want (71% and above) and the share most have reached is the whole opportunity, and it is a go-to-market gap, not a technology gap. Second, these figures describe platforms that added payments to a subscription business and then got their customers to use them. They are not a promise for any one platform, and they assume the customers move.

The margin is the gap between what you charge your customers and what processing costs you. One large payments provider's own guide to revenue models gives the plain version: if the processor charges the platform 2.5% on a transaction and the platform bills its customers 3.2%, the platform keeps the 0.7 points in between. The same guide lists the other ways to earn, including a flat fee per transaction and a share of a provider's revenue on referred customers, and notes that a revenue share typically earns less per transaction than a markup.

What processing costs depends on the rail. In the UK, interchange on consumer debit cards is capped at 0.2% of the transaction and on consumer credit cards at 0.3%, under the retained Interchange Fee Regulation; scheme fees and the acquirer's margin sit on top. Direct Debit through Bacs has no interchange at all, which is why a platform with large Direct Debit volumes is sized differently from one that lives on cards.

Three things decide what margin your customers will bear:

1. What they pay today. A customer on a small-business rate from a high street acquirer is often paying more than you would need to charge. A customer who negotiated a large-volume deal is not.
2. What they get. Reconciliation into your ledger, deposits at booking, a refund from the order screen, one statement instead of two. Features justify a margin; a rate comparison does not.
3. Whether you can set it. Under a referral model the acquirer sets the price and you earn a share. Under a model where your customers sign up inside your product and your customers are settled in full and you are paid your margin monthly, the margin is yours to set.

These are example figures, chosen to show the method, not a client's numbers or a forecast.

A scheduling platform for 800 service businesses. Their combined turnover as seen in the product's bookings is £320m a year. About 70% of that is paid by card or Direct Debit, so the payment volume is roughly £225m. Today 10% of that volume, £22m, runs on the platform's own payments at a margin of 0.5 points: £110,000 a year.

After a year of moving customers, with new customers on the platform's payments by default and two planned groups moved, the share reaches 45%: £101m of volume. At the same 0.5 point margin that is £506,000 a year. At 0.4 points, if the platform chose to price lower for its larger customers, £405,000. The subscription revenue of the same platform, at an example £150 a month per customer, is £1.44m, so payments has gone from about 7% of revenue to roughly a quarter, which is in line with the pattern the benchmark studies describe for platforms that treat payments as a product line rather than a feature.

The three-number sum is a revenue figure, not a profit figure. Against it sit the costs of running payments: the people who answer customers' payment questions, the chargebacks and disputes, the cost of your developer's time on the integration, and the cost of whoever runs the go-to-market to move the customers. A platform that earns a margin but has to build an in-house payments operations team to keep it has a different return from one whose partner carries the operations.

It also leaves out the second-order effect, which is often larger. The BCG work above found a 2.5 times lower attrition rate for embedded payments than non-embedded. A customer whose money runs through your product is a customer who has to think hard before leaving. That shows up in retention, not in the payments line, and most platforms do not count it.