The decision to become a Payment Aggregator or Payment Facilitator (Payfac) has massive implications for a SaaS application provider.
A Payment Aggregator or 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 aggregator or payment service provider (PSP) lends itself well to some businesses that fall into the software provider classification, and particularly to SaaS business service providers.
While there are many benefits of being a true aggregator, 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 aggregation 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 Aggregation solutions that offer the many benefits of true aggregation 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 aggregation 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. True aggregation 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 Aggregation solution, you might typically start at 2.9% and 30 cents as your cost.
To make money on the payments side, you need to price above that. You know your application best. To make Hybrid Payment Aggregation 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 Aggregation is the right fit.
Contact us to have a conversation on creating a solution for your payment needs.