Choosing the best international payment gateway

Payment gateways check a buyer’s credit card details then pass that information between their bank and the business’s bank to authorize the transaction. When a buyer or their bank is based in another country, international payment gateways are necessary to handle this process.

Processing transactions is easy for domestic sales, as you only need one language, one currency, and (typically) one jurisdiction in which to declare sales tax. 

But SaaS sales go far beyond just one country. The inherently borderless nature of SaaS means that users can sign up from anywhere in the world. That's where things get complex.  

To serve a global market, you need to accept payments from pretty much any country, and ideally support different languages and currencies. International payment gateways help you do just that. 

Let's take a closer look at how domestic and international sales processes compare. 

Selling in your home market 

Selling goods or services in your home country is a straightforward option. For example, let’s assume your business sells only to customers within the US, who pay in US dollars.  

Your payment needs would probably look like the following: 

• Support for a single currency. 
• Support for a single payment method, e.g. accepting credit card.
• No need for localization – everything’s in English. 
• No need to deal with foreign banks or handle international payment routing. 
• The main challenge is dealing with US sales tax compliance, which is different in every US state (you’ll need to register, file and remit sales tax separately in every jurisdiction – and payment gateways don't usually handle this for you). 

Now let's look at how international selling compares.  

Selling to international markets 

Let's say you're a SaaS business based outside the US, selling your software products to global customers who prefer to buy in a wide range of different currencies.  

SaaS businesses working on a global scale must be ready for international payments from the very beginning. Your payments process should be as efficient for international customers as it is for those down the street. 

But handling the international payments process is not easy. At Paddle, we talk to hundreds of SaaS founders each month about their struggles with international payments.  

Selling SaaS worldwide comes with a set of unique challenges and needs. 

First, software is borderless, so you'll have to serve customers in multiple languages, currencies, and tax systems.  

Another major pain point is handling sales tax liability. As of recently, sales tax is now collected according to the location of the customer, regardless of where your company is located.  

Let’s take a closer look at what all this requires of your setup.

The unique challenges of selling internationally create particular needs that you need to be aware of so you choose the best payments solution – one that will see the highest possible conversions while also keeping you on top of your tax liabilities. 

1. Add local payment methods 

People get attached to their favorite payment methods, so how you sell your software should reflect this.  

For example, buyers in Germany prefer to avoid credit. They also prefer to use PayPal. In fact, 70% of our transactions in Germany under $50 are processed through PayPal.  

In states that have experienced authoritarian governments in relatively recent times, people tend to avoid subscriptions entirely, because they don't trust recurring payments. 

In countries like Brazil, local cards don't work internationally due to certain restrictions. 

And in certain local currencies, payment methods may be restricted by transaction size. 

Being mindful of customers’ preferred payment methods will increase your conversion rates and improve your customer experience globally. 

2. Localize pricing for each market 

Localizing pricing involves matching your prices to local conventions in each market. It includes several key considerations. 

Firstly, there’s cosmetic pricing. This is where you adjust the prices, so they look neater in each different currency, despite the exact currency conversion.  

Also, using local pricing conventions (such as rounded off ‘00’ prices in Japan and Korea) is a way to build trust in each market. 

True localization means taking into account the economic context of the market you’re selling into. For example, $99 is over 7000 Indian rupees. That's a high amount compared to a typical Indian monthly salary, which is on average 16,000 rupees. 

Adjusting prices based on each market’s willingness to pay helps you maximize the value of your worldwide customers. 

It's worth noting here that some SaaS founders are skeptical of the geographical pricing approach. They expect some customers to take advantage of this by using VPNs to spoof their geographical location and secure lower prices.  

At Paddle, our experience has shown us that this problem isn’t very common. The requirement to enter a billing country at the checkout tends to solve the problem. 

When country spoofing does happen, it merely leads to a minor rounding error among hundreds of millions of dollars worth of transactions – not much to worry about. 

3. Reduce payment failures  

Compared to domestic payments, international payments are much more likely to fail. The main reason is communication difficulties between the business's acquiring bank and the buyer’s issuing bank.  

For payments to be processed successfully, it’s essential that these two sides communicate, meaning that acquiring and issuing banks need to have relationships with each other.  

Things get more complicated with international transactions because of intermediary banks used as middlemen between the business and buyer’s banks. These added steps all require risk assessment and may lead to data loss.  

One solution is to route payments through local acquiring banks. That way, you can skip the intermediaries and work directly with the strongest inter-bank relationships. The result – better payment success rates.  

The difference is significant, and it’s best illustrated with an example. In Brazil, some businesses report that their card authorization rates jumped from 30% to 85% when they routed payments via local banks.  

4. Handle global sales tax compliance 

Last, but not least, global sales tax compliance is a major issue for SaaS companies.  

When selling software around the world, it's essential to use local sales tax rates. 

Crucially, you must file and pay sales tax where your customers – not you – are physically located. Take a look at this guide to global sales tax has all the details.  

Your international payment gateway needs to integrate sales tax calculation functionality for use at checkout, in recurring charges and in any adjustments to subscriptions.  

This calculation must happen for every transaction, every customer and every product –according to the specific rules of each jurisdiction where you have customers.  

On top of that, your finance team must deal with registering for taxes in each jurisdiction, filing them, and paying them. This must all happen on time and without error – otherwise you and your business may face severe penalties, ranging from large fines to jail time. 

Handling the different requirements of selling SaaS internationally is beyond the remit of a typical payment gateway. They’re only designed to deal with the problem of multiple currencies.  

Let's explore what features the best international payment gateways need to include to minimize your struggles with global payment processing. 

1. Adding multiple currencies 

No matter whether you're handling B2B or B2C, all customers will expect to pay in their local currency. For B2B transactions, finance department preferences typically dictate currency choices. 

Supporting multiple currencies has several benefits: 

• High conversion rates. People are more likely to start the checkout process and more willing to pay when using their own currency. 
• Better payment acceptance. 
• Enable localized pricing. This saves your buyers from being charged currency exchange fees by their banks, which can in turn increase conversion rates. 
• Avoids confusion and manages expectations. For example, Canadian buyers being charged a higher value in Canadian dollars when compared to US dollars. 

Offering multiple currencies can attract extra costs for currency conversion, but the benefits listed above tend to outweigh these. 

2. Introducing new languages 

Offering customers the ability to go through the payment process in their native language can have a powerful effect on their overall experience. It builds better understanding and boosts trust. Implicitly, it conveys that they are a part of the intended audience for the product. 

In turn, this improves conversions, while reducing potential misunderstandings that can lead to more support tickets and chargebacks.  

3. Managing payouts from foreign revenue 

The usual practice when taking revenue in other currencies is to have it converted into a currency that matches your main business bank account. But this can be cumbersome, limited, and incur high charges. 

Improving how you manage payouts from foreifn revenue can be invaluable for companies with offices around the world. You can use revenues in a local currency to handle your outgoing costs in different regions.  

By doing so, you also help save your finance department from the hassles of converting currencies back and forth. 

4. Tackling international fraud  

As your company handles growing numbers of international payments, its exposure to potential fraud increases. 

Fraudulent transactions are problematic because they can cause high chargeback rates (when cards are stolen). They can also lead to high bank charges from credit card verification attacks. This is where stolen cards are charged to verify that they can be used. 

A good international payment gateway should be able to detect and stop fraudulent transactions from anywhere in the world, while ensuring genuine customers can still complete their purchases. 

Now we've looked at the four most common changes, let's find out how you can optimize your payment processing set up to handle international payments.

The payment gateway landscape is an extensive one, so identifying the best fit for your SaaS business isn’t always straightforward.

You can use the information we’ve outlined above as a handy guideline. Any payment gateway that fulfills all or most of these guidelines is likely to meet your international payment processing needs. That would include subscriptions, localization, global tax compliance, data reporting, and tackling payment failure.

But that being said, not all payment gateways offer complete solutions for your international payment handling needs.

Billing solutions don’t provide the same coverage either. They often let payments slip through the net, without offering a comprehensive approach to handling the many tasks associated with processing and reconciling them on a global scale.

The alternative is to stitch together an assortment of different tools to handle each part of your international SaaS payments processes and compliance. This will always lead to spending on complex engineering projects, resulting in inconveniently siloed data. In short, more resources spent in the back office and no real-time visibility of your data.

To tackle the international payment handling challenge, SaaS leaders commonly choose one of these two approaches: a merchant of record (MoR) or a SaaS payment processing platform.

In the next section, we’ll examine the two categories in-depth, looking at their key capabilities and comparing major players in the space.

Handling international payments requires a wide assortment of tools to handle each part of the process. If you are looking for a more unified solution, a merchant of record (MoR) is your answer.

A MoR offers businesses an alternative to building your own payments stack, so you can focus on your product and customers, rather than on the mechanics of how you get paid or managing sales tax and compliance.

Let’s break down the MoR model:

• MoR’s give you instant access to established international banking infrastructure for optimized payments in multiple countries and currencies, all via a single integration.
• A payments infrastructure rooted in an MoR model gives you a unified solution for taking payments - from checkout and pricing to localization and subscription renewals (and more).
• An MoR handles global sales tax for you within the single integration, including full liability for tax compliance too.
• This infrastructure sits across the journey of your payments which will be maintained for you - not to mention the tooling and support provided to help you easily build an experience specific to your business.
• An MoR is a single cost that covers what you’d be spending on extra tools, integration processes, and extra employees, and brings in the value of higher performance.
• MoR gives you a single source of truth with all your payments and revenue data giving you real-time visibility at any given time.

Paddle

As a merchant of record, Paddle ticks all these boxes. Even better, it's specifically built for SaaS companies. With Paddle, you no longer need to worry about severe penalties for tax-related errors. Paddle takes on all liability with its integrated compliance features.

And there’s no more inconveniently siloed data when using Paddle. It brings all your payments and revenue data together into a single source of truth, enabling you to navigate the fast-growing global SaaS market with confidence – all while knowing Paddle has your back.

Key features:

• Instant access to multiple acquiring banks and smart payment routing to give your payments the best chance of success wherever the buyer is based.
• Turn on local payment methods and currencies with just one click.
• Paddle takes on the headaches of sales tax and compliance, wherever your customers are based, including all sales tax liabilities.
• With multiple integrations (including PayPal), your payments infrastructure will be far more streamlined and efficient.
• Paddle is a partnership - not a provider - for scaling software companies, with SaaS specialist support on hand, as well as advisory for larger businesses.

Cleverbridge

Cleverbridge is a cloud-based global ecommerce platform that provides billing solutions for digital goods, online services and SaaS companies in B2C and B2B markets.

As a full-featured MoR platform, Cleverbridge is designed to offer global sales tax compliance and subscription payment capabilities. The platform offers a wide range of billing models and is well-suited to large companies with dedicated engineering teams handling their payments infrastructure.

That said, Cleverbridge is not tailored for SaaS-specific features like key subscription and B2B models. That means there are certain limitations to how well it can support this particular business model.

Fastspring

FastSpring is another MoR that handles online payments for businesses who sell both physical and digital goods. Ultimately, FastSpring acts as a reseller, selling goods and services and handling online payments on behalf of its business customers.

Managing sales tax compliance is also possible with Fastspring, which is of particular use for SaaS companies who operate internationally or domestically in regions like the US where sales tax legislation is particularly complex.

FastSpring doesn’t specialize in SaaS, so you’ll still have work to do to build a payments infrastructure optimized for the SaaS model, including localization processes including local languages and currencies.

Now let's look at the second category: payment processors. We’ll examine how they measure up when it comes to supporting international SaaS payment needs.

The aim for payment gateways, just like Stripe, is to let businesses be able to take payments online. Inevitably, this means businesses hit the same issues and challenges that you would with Stripe.Going global requires solid growth support, including international bank integrations, and support for local currencies and languages.

Self-serve SaaS sales means it's essential to deal with complex subscriptions in different currencies, along with tricky sales tax compliance challenges and the constant risk of fraud.

But typical payment processors have several limitations in these areas. For example, difficulties with international payment routing, dunning, or SaaS logic can create difficulties in your payments’ performance.

What's more, payment processors leave you fully liable for registering, filing, and remitting sales taxes globally – with hefty penalties for mistakes.

In short, you can’t build a complete SaaS payments process with just a payment processor. You'll need to invest in other tools to make sure all aspects of collecting payments and remaining compliant are covered.

Let's now examine the capabilities of five major competitors in the payment processors category.

Paypal

As one of the original payment processors, PayPal is the preferred payment method in many European markets, such as the UK and Germany. It offers a wide range of languages and currencies.

PayPal is one of the more expensive tools on the market. It charges 2.9% plus currency fees for receiving payments, on top of additional fees if you want to accept or send money outside your set country or region.

What's more, you'll probably have to use PayPal alongside other payment gateways to provide a sufficiently wide range of payment choices to your international customers. Stripe and PayPal do not integrate which means more hassle with manual set up and a lack of a single source of truth.

Stripe

Stripe is considered a payment gateway - a tool that will enable internet businesses of all sizes and product types to take and manage payments online. Just like PayPal, Stripe also offers a wide range of languages and currencies.

It includes functionality for integrating payments, approving or declining transactions and connecting your acquiring bank to your customers’ issuing banks, without needing a separate merchant account.

Stripe is easy to integrate with other tools thanks to its developer friendly APIs, except for PayPal with which it lacks an integration altogether. With the necessity of using PayPal, that means you'd have the two tools siloed and would need to manage them separately.

But Stripe’s high fees on cross-border transactions make it difficult for SaaS companies handling international payments. What's more, Stripe does not handle sales tax compliance, so you'll still be liable for all of that.

Adyen

As an enterprise focused payments company, Adyen comes with powerful payment features, multiple languages and currencies. Its fees are adjustable according to your payment volume.

Importantly, Adyen is its own acquiring bank, with established bank entities in many countries. Adyen is a great fit for large businesses with dedicated engineering teams, necessary to manage its sophisticated revenue infrastructure.

One advantage of Adyen is its extensive documentation and flexible APIs, although this doesn't replace the need for significant time from your engineering team to get the platform up and running.

On the downside, Adyen is still a single payment gateway, just like Stripe or Braintree. That means it can't help you achieve optimal payment performance by rerouting failing payments between multiple providers. It will also leave the sales tax burden to you to take on.

Braintree

One of PayPal's recent acquisitions, Braintree is a payment gateway for taking online payments. Its native integration with PayPal makes it a good choice for B2C and lower priced B2B sales in markets such as Europe, where customers typically prefer PayPal.

Just like Adyen and others, Braintree is a single gateway that can't reroute failing payments between multiple providers – dragging down your overall payment performance.

Braintree requires you to set up banks yourself when supporting new currencies. This leads to a responsiveness gap, which can hamper your rapid entry into new global markets.

SaaS founders moving from Braintree report higher payment failures outside their home markets. This happens because of the way Braintree connects to banks in different regions, such as routing European Braintree users through an acquiring bank in Ireland, even for transactions outside of Europe.

What's more, just like other payment gateways, Braintree still leaves you to take on subscription billing, analytics, localization, and sales tax compliance.

Checkout.com

This fast-growing payment service is mainly used by midmarket and enterprise companies.  

Although it’s still only a single provider, Checkout.com’s recent acquisition of ProcessOut means it can now offer payment routing – a clear advantage.  

Checkout.com also provides an extensive range of payment methods and currencies, along with transparent pricing.  

Despite these benefits, Checkout.com is still only a payment service. It doesn't handle any other aspects of the revenue delivery pipeline, such as sales tax compliance, data, or flexible subscriptions. What's more, Checkout.com’s manual approach can be time and resource heavy.