Managed Payment Facilitation : What is it and is it right for your SaaS
Payment Facilitation refers allows a platform to act as a master merchant. Typically a SaaS platform is able to board their user base instantly and with fairly basic user information.
The platform has been registered with MasterCard and Visa as a Payment Facilitator (link) and has also been carefully vetted to ensure both compliance with regulatory oversight and to minimize risk exposure (LINK) to the PayFac sponsor. This sponsor offer the framework to manage the payment acceptance, reconciliation and funding.
Vantiv [now WorldPay] was the first Payment Facilitation service provider. The only way to become a true Payment Facilitator was to spend 4-6+ months integrating and go through a very extensive underwriting process to mitigate Vantiv’s risk exposure.
Although this solution worked well for many platforms the costs and demands of being a true Payment Facilitator left smaller and mid-size software providers without the Payment Facilitation option.
As is often the case the market need for platforms to onboard sub merchants instantly has led to a new version of Payment Facilitation that we have named Managed Payment Facilitation.
Managed Payment Facilitation allows a platform to leverage the two primary advantages of Payment Facilitation without spending a fortune, taking 6 months to launch or incurring the risk and compliance burdens found in true Payment Facilitation.
The primary driver and absolute must have to consider a Payment Facilitation model is:
The need for Instant Boarding
There are certain applications whose model is built on frictionless platform boarding. Property management software, invoicing, marketplace offerings all might base there offering on “sign up now and collect payments instantly”. [Image]
If this instant onboarding is not absolutely vital then Payment Facilitation is simply not the best option for you. Check out Payment Partnerships [link].
The second attractive benefit of acting as a Managed Payment Facilitator is revenue generation.
There will typically be margin between what the actual cost to process payments is eg 2.2% and what your platform will charge eg 2.9%.
Depending on your Managed Payment Facilitation partner you could receive a revenue share of the margin or a buy rate [you receive all the revenue above a certain percentage.
We speak with many platforms interested in Managed Payment Facilitation. Some of them are smaller or in start-up phase. They see Stripe charging 2.9% and believe they can do the same and make tons of money on payments.
What must be understood is that your Managed Payment Facilitation partner has invested a tremendous amount of money and time in building their product. There must be ROI for them in allowing your platform to leverage Payment Facilitation. An expectation of a very high revenue share or very low buy rate with little to no aggregate monthly volume is somewhat naive.
As your volume grows your ability to leverage more margin grows as well. With significant volume you can make similar or in some cases better margin than a true Payment Facilitator.
What is absolutely true is that it makes sense to have a conversation around your goals and needs to find a partner that best fits. That is our specialty. Contact us today.