Recurly vs Chargify Review
15 Dec
I love software as a service businesses. I started one myself a few years ago. It is a great feeling when your variable costs are near zero to service each new customer. You can charge based on the value derived by your customers, not based on your costs… and your customers pay you every month!
Herein lies the challenge — how do you get paid every month by your customers? The simple answer is to ask for their credit card number. But how will you deal with the following:
- Security implications of storing credit card numbers
- PCI Compliance
- Getting customers to update their expired cards
- Merchant account
- Credit card gateway
- Cancellations
- SSL certificates
- Emails for declined charges
- Emails for approved charges
- Re-charging cards when they are declined
- Cancelling access to you application for non-payment
- Tracking your monthly recurring revenue
- Forecasting future payments
- Free trial periods
- Monthly, quarterly, or yearly billing cycles
The list above isn’t exhaustive. I’m sure if I lived and breathed this stuff, the list would be 20 times as long. If you are building a web application, you definitely don’t want to deal with storing credit cards and writing your own billing code. There are deep security issues with how you handle and store credit card info that could get you into legal trouble if you don’t tread carefully.
Because of this, various recurring billing system platforms have sprung up over the past few years to take this burden off software as a service businesses and other web apps that charge ongoing fees.
Two of the most promising for small businesses are Recurly and Chargify. This post isn’t meant to be a feature-by-feature comparison. That is better handled here. Instead I want to encourage you to:
- Use a subscription billing platform — don’t build it yourself.
- Consider how you might want to use the data down-the-road
I hope I’ve already made my first point. The second point isn’t as straightforward. Let me give an analogy…
Let’s say I have $50,000 in Bank A. Bank B comes along and offers me a better rate, so I decide to move the $50K to Bank B. How would I react if Bank A decided they didn’t think it was secure for me to do this. As such, they decided I had to prove that I had a secure vehicle to move the money from Bank A to Bank B. After months of laboring, I was still unsure if they would let me move the money — the kept telling me it wasn’t safe.
Now let’s see how this relates to subscription billing.
If I have 1,000 people who have all promised me $50 per month, that is $50,000 per month in future payments promised to my business. All of this money doesn’t go straight to my bank, however. It is first funneled through an online payment gateway and then to a merchant account, who only then gives it to my bank.
Chargify doesn’t want to deal with the liability of storing credit card number on their server — who can blame them, I don’t want to either! (uhh… that was the biggest reason I had for choosing them I thought.) So they use a “vault” provided by the payment gateway to store the credit card numbers. Payment gateways don’t want to come under fire, so they don’t give up this info easily. Sure, your customers gave their info to you, but the payment gateway doesn’t trust you with this info. They need to protect the cardholders, and themselves.
Under this model, if you get a better offer from a different merchant account that uses a different payment gateway, it is almost impossible to switch. Your future payments (and thus your business) are held hostage.
Recurly, on the other hand, takes more risk on themselves by storing the credit card numbers for you. If you want to switch payment gateways, it is seamless. The cash flow of your business isn’t held hostage.
One other detail I need to mention… you’re better off going with a merchant account that supports the Authorize.net gateway. That will give you the most options for online vendors — this is the most popular gateway around and almost everyone supports it. Just don’t let them force you to hand over the financial keys to your business, i.e. don’t let Authorize.net store your credit card data for you.
Chargify has a much, much, prettier interface and some excellent founders. (I actually had lunch with Lance Walley and some of his team last February while discussing a venture of mine.) Yet if I was starting a new business with a recurring revenue model, I would choose Recurly.
