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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the rapidly evolving financial technology landscape, neobanks are continuously refining their SaaS pricing strategies to maximize revenue while delivering value to customers. Usage-based pricing (UBP) has emerged as a compelling option for many fintech platforms, but it's not without its pitfalls. This article explores when UBP is the right choice for neobank SaaS products, when it might backfire, and how to implement it effectively.
Understanding Usage-Based Pricing in the Neobank SaaS Context
Usage-based pricing is a model where customers pay based on their actual consumption of a service rather than a flat recurring fee. For neobanks offering software-as-a-service solutions, this could mean charging based on transaction volume, API calls, user accounts, or data processed.
According to OpenView Partners' 2021 SaaS Pricing Survey, companies with usage-based pricing grew at a 29% higher rate than those with traditional subscription models. This pricing approach aligns costs directly with value received, making it particularly attractive in the banking technology sector.
When Usage-Based Pricing Works for Neobank SaaS
1. When Your Value Metric Is Clear and Measurable
Usage-based pricing works best when there's a direct correlation between usage and value. For neobank platforms, effective pricing metrics might include:
- Number of transactions processed
- Volume of payment amounts
- API calls or data transfers
- Number of accounts managed
- Compliance verifications completed
Kyle Poyar, Partner at OpenView, notes: "The best pricing metrics are ones that align with customer value and grow as your customers derive more benefit from your product."
2. When Serving Diverse Customer Segments
Neobanks often serve a range of customers from small startups to enterprise clients. Usage-based pricing creates natural price discrimination, where:
- Smaller clients with lower usage pay less
- Enterprise clients with higher volume pay more
This approach eliminates the need for complex enterprise pricing negotiations and can reduce discounting, as customers naturally find their appropriate pricing tier based on actual needs.
3. When Enabling Customer Growth Journeys
For early-stage fintechs or small businesses using neobank services, usage-based pricing creates an attractive low barrier to entry. As these customers grow, their usage and corresponding payments increase naturally, creating a pricing model that scales with their success.
Tomasz Tunguz of Redpoint Ventures found that "usage-based pricing models typically see 30% less customer churn than subscription-only businesses," highlighting how this model can foster longer-term relationships.
When Usage-Based Pricing Backfires for Neobank SaaS
1. When Compliance Costs Don't Scale with Usage
Neobank SaaS providers face significant fixed costs related to security and compliance. Meeting PCI DSS (Payment Card Industry Data Security Standard) requirements, for example, requires substantial investment regardless of customer transaction volume.
If these fixed costs represent a large portion of your operational expenses, pure usage-based pricing may lead to unprofitable customer relationships at the lower end of the spectrum.
2. When Revenue Becomes Unpredictable
Unlike subscription models that generate predictable recurring revenue, usage-based pricing can lead to significant month-to-month fluctuations. This volatility can complicate financial planning, investor relations, and resource allocation.
Patrick Campbell, CEO of ProfitWell, observes: "Companies with primarily usage-based models typically see 30-50% more revenue variance month-to-month compared to subscription businesses."
3. When Customers Demand Budget Certainty
Enterprise customers, in particular, often require predictable budgeting. Pure usage-based models can create anxiety about unexpected costs, especially when banking operations might see seasonal or unpredictable spikes in activity.
This uncertainty can extend sales cycles and reduce adoption as financial decision-makers hesitate without clear cost expectations.
Finding the Right Balance: Hybrid Pricing Models
Many successful neobank SaaS providers implement hybrid approaches that combine the best aspects of both subscription and usage-based models through effective price fences:
1. Base + Usage Model
Implement a baseline subscription fee that covers fixed costs (including PCI DSS compliance) and core features, then add usage-based components for specific high-value services.
This approach ensures minimum revenue predictability while still allowing for upside as customer usage grows.
2. Usage with Caps and Tiers
Create usage tiers with clearly defined boundaries, giving customers the predictability they need while maintaining the pay-for-what-you-use value proposition.
For example, a neobank platform might offer:
- Starter: Up to 10,000 transactions/month for $X
- Growth: Up to 50,000 transactions/month for $Y
- Enterprise: Custom pricing for higher volumes
3. Value-Based Pricing Elements
Some neobank services deliver value that isn't directly tied to usage metrics. For these components, consider value-based pricing approaches that align with business outcomes rather than technical consumption.
For instance, risk management features might be priced based on the value of fraud prevention rather than the number of scans performed.
Implementation Best Practices
When implementing usage-based pricing for neobank SaaS, consider these key strategies:
1. Transparent Monitoring Tools
Provide customers with dashboards that clearly display their usage patterns and projected costs. This transparency builds trust and helps customers optimize their usage.
2. Flexible Contract Terms
Especially for enterprise customers, consider offering usage commitments with discounts for volume, allowing for predictable budgeting while maintaining the usage-based model's core benefits.
3. Grandfathering Pricing Changes
If transitioning from subscription to usage-based pricing, implement changes gradually and consider grandfathering existing customers to avoid disruption.
Conclusion: The Right Pricing Strategy Is Customer-Centric
The optimal pricing strategy for neobank SaaS providers isn't universally usage-based or subscription-based—it's the approach that best aligns with how customers derive and perceive value from the platform.
By understanding your cost structure, customer segments, and value creation mechanisms, you can design a pricing strategy that drives growth while fostering strong customer relationships. Usage-based pricing offers powerful advantages when implemented thoughtfully, but should be adapted to address the specific challenges of the neobank sector, including compliance requirements, revenue predictability needs, and customer budgeting processes.
Whether you choose a pure usage-based model or a hybrid approach, ensuring that your pricing structure clearly communicates the value delivered will remain the cornerstone of sustainable neobank SaaS growth.