The decision to become a Payment Aggregator or Payment Facilitator (Payfac) has massive implications for a SaaS application provider.
A Payment Aggregator or Payment Facilitator 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?
With the Hybrid model you might think your revenue share opportunities would be reduced-after all you have all the benefits of being an aggregator and few of the drawbacks.
This may be the case but many times may not. Seems too good to be true?
The reality is that many SaaS platforms have a desirable client base from payment processing standpoint. If for example your client base is all medical offices or restaurants that client base is very low risk, potential high volume business-VERY attractive as everyone involved in the payments process makes revenue from those payments.
Note: If speed to market and instant on-boarding is paramount a MarketPlace Payment Solution offers zero liability, instant on-boarding and the ability to be up and running in as little as a week.
So if the business opportunity is viewed as very desirable your cost basis may be equal to or better than a true PayFac.
Here is another reason: In the Hybrid model you are in essence a sub Payfac. There is a true PayFac that assumes all those compliance and regulatory and infrastructure costs. They create a platform for you to leverage these tools and act as a sub PayFac. They have a lot of insight into your clients and their processing. This level of insight mitigates much of the risk that Vantiv for example faces after approving a platform to act as a true PayFac.
The question then becomes: “Why go down the true PayFac pathway?”
The Hybrid PayFac model does have a downside. When acting as a sub PayFac your end customer might be “ABC Medical”. In the true PayFac model a patient at that medical office sees “ABC Medical” on their credit card statement. In the hybrid model if your Master PayFac is YourPay for example you would see “YPY* ABC Medical” on their statement [descriptor] where YPY* indicates YourPay as master PayFac. This may not be an issue or it may depending on your business model.
Another reason to act as the true PayFac is you own the payment process and that customer. There is no one in between or involved. Certain business may value that.
So is Hybrid Payment Facilitation the right fit for you? Typically we like to have a conversation around your immediate and long term goals. From there we can help you by working together or if we are not the best fit provide some alternatives.
Contact us and let’s explore your options.
Contact us to have a conversation on creating a solution for your payment needs.