In the crowded small-business payment technology market, Fattmerchant is taking a different approach to revenue.

"Not once did I walk into a business that said 'I love my merchant services provider.' It's a necessary evil to a business owner," said Suneera Madhani, CEO and founder of Fattmerchant, a three-year-old payment company that relies on subscriptions over transaction fees.

Madhani previously worked for a larger merchant acquirer, and contends that model is filled with percentage markups for transactions and ancillary fees that the merchants were often unaware of, creating unexpected expense.

Suneera Madhani, CEO and founder of Fattmerchant.
Suneera Madhani, CEO and founder of Fattmerchant.

"I started as an agent and didn't like anything about the industry," Madhani said, adding her pitch to offer a "Netflix" style merchant services pricing model got turned down by her employer. "Everybody has the same sales pitch—here's our rate."

Orlando-based Fattmerchant is competing in a market that includes well known companies such as Square, Stripe and PayPal that use a mix of mobile acceptance hardware, merchant credit and non-payment business services to attract clients.

While most payment companies that target small to medium sized businesses with APIs or mobile point of sale technology charge a percentage over the card network's interchange fee, Fattmerchant charges a monthly fee, what it calls "interchange plus zero."

This is a tough pricing model to pull off. LevelUp and Square both tried similar subscription plans (LevelUp called its version Interchange Zero), but ultimately found that merchants preferred the familiarity of traditional interchange pricing. When LevelUp gave merchants a choice between the two pricing models, most chose per-transaction fees.

But a few short years can dramatically change attitudes, as evidenced by the resurgence of P-to-P apps and contactless payments.

Fattmerchant's approach has helped it expand from $5 million in processed payments in its first year to $100 million in 2015 and nearly $900 million since the end of 2015. It also this week drew a $5.5 million investment investment round from Atlanta-based Fulcrum Equity Partners.

Fattmerchant is Fulcrum's first fintech investment, though it has backed other B-to-B software providers that sell to financial services companies. The fee model attracted it to Fattmerchant, though the company's breadth of merchant services should also prove useful in expanding its merchant acquiring.

"Their omnichannel integrated payments platform [will have] an amazing impact on all types of businesses to simplify and improve their payments experience," said Jim Douglass, a principal partner at Fulcrum.

For example, an EMV terminal integration costs $99 per month to process up to $1 million annually; or $199 per month to process more than $1 million annually. These services include dashboards, PCI compliance, next day funding, technical support and no contractual commitment. Shopping cart service, API and mobile acceptance all cost $79 or $199 per month for the same payment volume categories.

Fattmerchant will use the funding to add locations beyond Orlando, including Atlanta. It will also add about 50 new people, expanding beyond its current staff of about 30. Fattmerchant, which said it also targets larger businesses, wants to up its distribution game.

"We're putting more of our resources into gaining partnerships, more ISVs and other vendors," Madhani said, adding much of Fattmerchant's acquiring is now done online.

"Transparency and making it easy to buy are always good things," said Gareth Lodge, a senior analyst at Celent, adding it's important that a merchant understand both its current charges, the implications of a rise and fall in volumes and the terms of the contract.

Fattmerchant's model would likely benefit businesses with recurring volume or a regular customer flow more than micro-merchants that accept one off payments. The company does have a "savings calculator" on its website, and a merchant that processes about $10,000 per month would save 40% on fees, according to the company..

"Subscription models can be better, but every merchant will have to run the numbers for themselves. And the process of getting to grips with that is probably more valuable for the small business than the subscription," Lodge said.

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