A Thing
The Green SheetGreen Sheet

The Green Sheet Online Edition

January 10, 2022 • Issue 22:01:01

Legal ease: Payment technology licensing - Part 2: What should and shouldn't be free?

By Adam Atlas
Attorney at Law

Once upon a time, everything had a price. Then, everything was free. Now everything has a monthly subscription fee. As a payments technology developer, how does the arc from fees to freemium to death-by-subscriptions inform commercial and legal planning?

The goal of this second article in a series on payment technology licensing is to consider the legal and business considerations for various pricing models. New revenue models are invented every day, so the ideas discussed here are by no means exhaustive. I hope they will jog your imagination so you can develop your own winning formula.

Payments gone free

Increasingly, card processing fees are being shifted to consumers through programs such as cash discounting and surcharging. In the cash discount model, consumers pay a posted price for goods or services and are entitled to a discount if they pay by cash. (The legalities of cash discount are best saved for another article).

What is important for payment providers to consider is that merchants are being sold on the notion that payment processing can be free—through cash discount and other creative approaches.

Even where payment processing is not free to the merchant, with some exceptions that are discussed in this article, there is a continuing compression of ISO margins, meaning that money to be made for the simple act of acquiring a credit card payment is decreasing.

Against this backdrop, payment technology providers can start building a case to charge for technology rather than the payment service. The opposite case can also be made: if payments are free, why should merchants pay for technology? The reality is that most payments technology providers are not Silicon Valley unicorns that can run at a loss for years and years.

Monetization of data

Payments providers have been hanging out at the POS for decades focusing on cards, chargebacks and cardholder data. Meanwhile, they have not known what was in the basket and countless other data breadcrumbs that consumers leave at the POS. First technology providers and now merchants themselves know, beyond any doubt, that one of the key assets of any business is the data set the business creates.

Setting aside public policy and legal issues associated with privacy, monetization of merchant data is core to many payment technology platforms. Indeed, payment technology platforms are lacking if they do not take into account the value of data for the merchant, the platform or the consumer. Depending on the scenario, the data may be of greater value than the underlying payment transaction and may open the door to creative pricing approaches.

To be clear, to monetize data, a payment processor does not need to access any more data than they are already accessing for their core service. For example, the processor for an online merchant can create analytics pertaining to transaction size, time of day, issuing bank and other core payments data points that would add value to the merchant. Where the merchant is willing to share a bit more data, the product becomes that much more valuable. In short, no pricing analysis is complete without monetizing the underlying data.

Proof of work

This term is drawn from the world of cryptocurrencies in which miners of cryptocurrency are entitled to a new unit of currency when they prove to the network that they have done a certain amount of work.

There is a lesson here for payments technology providers. If the technology creates an efficiency of some kind, the licensor should attempt to quantify that efficiency and consider weaving that proof of work into pricing. As a merchant, it’s appealing to buy something that proves its value—or that earns its value on the basis of verifiable data.

White label versus branded

Payments technology may benefit merchants, consumers or both. Licensors of such technology should reflect on whether they will reside behind the merchant—on a white-label basis without any consumer-facing terms—or as part of a direct relationship with the consumer.

Of course, investors will like the notion of a payment technology provider having a direct relationship with thousands or millions of consumers—but that direct relationship carries risk (data hack) and responsibilities (FTC-compliant disclosures, and so forth).

Payment technology providers are often hypnotized by the Uber model of being on direct terms with everyone and owning the whole network. Maybe, however, the provider’s value is more subtle and no less viable as a back-office function for the merchant who handles it on a white-label basis.


Payment technology models are more likely to succeed when they have a built-in culture of flexibility around commercial terms. This does not mean caving to merchant demands on pricing, etc. Instead, it means maintaining a healthy enthusiasm to revisit models and consider switching up the logic when that makes sense.

For example, a given payment technology may work best on a pay-per-use basis for a given set of merchants, but for another set of merchants, it might make sense to pay the merchants to use the service—because it yields data that will enrich the service for the paying cohort.

MBAs are taught to create business models and run with them on their theoretical purity. In the contemporary reality, however, dogged pursuit of a business model could mean the end of a business, as it might miss the opportunity to pivot into new ways of turning a profit.

From a legal perspective, flexibility is perhaps the most important aspect. Payment technology providers should consider baking into their terms of use a degree of flexibility such as the right to alter the model somewhat without having to fetch a new signature or consent. Naturally, the purpose in this type of situation is not to deceive but simply to maintain a relentless drive for frictionless added value.

Once upon a time, a business had a defined product and sold it for a defined price. Those days are long gone, and we are now in an economy with an elastic clockwork of relationships that we hope will add value for everyone. end of article

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. For further information on this article, please contact Adam Atlas, Attorney at Law via email at atlas@adamatlas.com or by phone at 514-842-0886.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

Prev Next
A Thing