Payment facilitation is the process by which one entity, a master merchant, processes or facilitates payments on behalf of a base of sub merchants.
As a facilitator, there exists a variety of deployment approaches as well -- each providing distinct advantages while delivering ease and speed of onboarding to new clients. While facilitation benefits exist regardless of the model, there are costs and profit distinctives in each and thoughtful consideration of how to approach the process is an essential first step.
On one end of the spectrum there exists a “super facilitator” dynamic a la Stripe, PayPal and Square. These are industry juggernauts providing convenient payment acceptance to any business that needs to take payments.
An alternate payment facilitation model is one aimed at the SaaS provider with a web-based payments component: consider Freshbooks, Xero or Quickbooks Online as examples. Each provides a suite of accounting features with embedded payment processing and reconciliation as critical components. By acting as the facilitation layer, these SaaS providers’ clients can quickly submit basic business information and be processing payments within minutes.
Without the support of a payment facilitator, merchants or businesses that want to transact with credit cards would otherwise need to apply and be underwritten by an acquiring credit card bank. To mitigate risks around fraud and non-payment of fees, these banks employ verification processes. The information and vetting process can be prohibitively burdensome to small businesses, ultimately leading to decisions to forgo accepting credit card payments. This refusal perpetuates cycles of revenue loss, scale and convenience up and down the customer, merchant and facilitator value chain.
While becoming a payment facilitator appears an obvious choice for SaaS businesses, there are factors to consider with respect to pursuing aggregation or facilitation. Each business profile is different and distinctives around levels of maturity, client profile type and cash flow should all be weighed.
Here are the five key components that make payment facilitation a viable option:
As you begin to explore the payment facilitation process, keep in mind the above factors.
If costs, risks and compliance are concerns, you may consider hybrid payment facilitation or aggregation. While your cost basis will start substantially higher, upfront investment costs are lower and revenue generation potential remains strong. And if you may have a client base more disposed toward higher fees or strong subscription revenues to offset the reduced margin, the hybrid approach may be attractive.
If the aggregation model is ultimately not a fit, consider a Payment Processing Partnership. This model effectively transfers the inherent facilitator risks to a third party, while still offering revenue generation opportunity.
Article Originally published on Agile Payment Blog: How to Become a Payment Facilitator (PayFac)
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