The decision to become a Payment Facilitator(Payfac) can be very confusing for a SaaS application provider.
A Payfac can be thought of as a Master Merchant that facilitates and processes credit and debit card transactions for sub-merchants within their payment ecosystem.
Becoming an payment facilitator is particularly attractive to SaaS appplication with end customer payment needs.
And while there are many benefits of being a PayFac, there are also significant financial requirements, compliance obligations, and ongoing operational demands. Here’s a thorough overview of those risks and rewards.
These prerequisites of true payment facilitation often weed out the SaaS provider that does not have the financial resources or isn’t comfortable with the high level of risk exposure. This especially applies to SaaS startups that count on instant customer onboarding and need to remove friction that may discourage Payfac adoption.
Fortunately there are now SaaS Hybrid Payment Facilitation solutions that offer the many benefits without significant investments of time and money.
Does that mean there’s no downside?
Of course not. Here’s the catch: Your cost basis is much higher
With true payment facilitation your cost basis may be in the 2.3% range. If you sell at 2.9% and 30 cents you have margin that generates revenue. Becoming a true PayFac has massive upfront and ongoing expense.
This margin can offset the investment and, in many cases, drive significant ROI. That’s how Stripe and PayPal make their money.
Using a Hybrid Payment Aggregation solution, your cost basis will be higher and ultimately depends on many factors including risk appetite, client profile and adoption potential.
To make money on the payments side, you need to price above cost. You know your application best. To make Hybrid Payment Facilitation a viable option you need to address these questions:
- Will we primarily drive revenue from our subscription fees or is revenue from payments critical?
- If payments revenue is critical, will our user base balk at higher-than-marketplace rates?
Answering these questions will tell you whether or not Hybrid Payment Facilitation is the right fit.
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