The Only Question Businesses Interested in Payment Facilitation Must Ask

Your SaaS business has recognized that the PayFac business model offers the benefits of quick, frictionless payment onboarding, and the ability to embed a payment solution into their core product offering and make signing up to use the payments component very simple (less than an hour between the simple application and the ability to accept payments in most).

Coupled with the opportunity to generate a new revenue stream from their client’s transaction fees, the PayFac model is very compelling.

So, What Now?

You MUST ask yourself:

“Is my business looking to become a payments company or simply looking to leverage payments to drive customer acquisition and revenue growth?”

The True PayFac Model

Becoming a true Payfac means a commitment to becoming a payments company. The amount of time, money and staffing demanded means you simply must devote the time and expense to developing an ongoing payments division.

As a true PayFac your business owns the entire payments ecosystem. You handle payments, payouts, chargebacks [payment disputes], customer inquiries about payments and more. Typical start up costs exceed 100k, integration may take 6 months and you will have to devote staff to compliance, risk mitigation and more.

There are 2 main reasons that a business goes the true PayFac route. Firstly, if you have a large enough user base and potential transaction volume you may be able to get better “buy” rates so that your profit margin on transaction fees is larger. Secondly, in the hybrid model if your sub client is ABC Martial Arts their end customer would see “SPS* ABC Martial Arts” where SPS stands for parent PayFac. The true PayFac model no prefix appears on the customer statement.

The Hybrid PayFac Model

Businesses looking for a less onerous option than becoming a true PayFac should explore becoming a Hybrid PayFac. In essence you are a sub PayFac meaning you are working with a full fledged Payment Facilitator. You have input into how your sub merchants get paid, what pricing will be and more. There is typically help from your PayFac partner with compliance, risk mitigation and more. Your up front costs are typically just your dev time. As the Hybrid PayFac model is a relatively new offering the development is typically much simpler [via better API’s]. Traditional PayFac’s tend to use legacy technology.

The Payment Partnership Model

Beyond becoming a true PayFac or Hybrid PayFac, there is a third option: The Payment Partnership Model.

In this model your application integrates to either a Third Party Payment Provider or a Payments Gateway. In most cases an agreement is signed that spells out revenue sharing and mutual obligations.

Users will complete an application for credit card and in some cases ACH processing. In many cases this is via paper and approvals can take 2-5 days or more. Depending on your partner processing credentials may be pushed to you securely or the end client must enter into the application [not ideal].

Today you can elect to integrate an application API that allows users to complete their application on your site and have the electronic application sent to the partner for approval. In many cases applications can be auto approved and credentials pushed back via API, meaning you have them processing payments in as little as 24 hours.

Integration can take as little as one day or depending on how tightly you want to manage payment exceptions [especially on the ACH side] multiple days.

Revenue Generation Potential

In terms of revenue generation the Payfac options generally will be close in revenue share opportunity. Since you are onboarding clients and assuming more risk than a single merchant, your business will often will generate more revenue in the payments partnership.

There is potential fraud risk, chargeback risk and more that potentially can result in $ loss. Because the potential for loss is perceived as greater when you are a PayFac the buy rates [your costs] tend to be higher than if you had a payments partner that underwrite each individual merchant.

So if the Payfac route is the best fit for your business then you will either opt to become a true PayFac or Hybrid. The choice comes down to the major question:

“Is my business looking to become a payments company or simply looking to leverage payments to drive customer acquisition and revenue growth?”

Make sure to  start the process of becoming Payment Facilitator with a conversation about what your business’s goals are, what you want and what you don’t want. From there pros and cons can be discussed.

If you decide to move forward Agile Payments is here to help.

If not we try and suggest options for you. Ultimately we want long term success for your business.