Having the ability to accept payments online is crucial for many businesses to run smoothly and to continue to grow. Independent software companies are faced with the challenge of how to incorporate payments into the software they create for their clients. Previously, the client would need to setup a merchant account with a payment processor. The process of doing that could be time-consuming, expensive and sometimes challenging if the client had difficulty meeting the processor’s criteria, especially if they were considered a high-risk business. To avoid these issues that could put the process flow to a grinding halt, the idea of being a payment facilitator came about.
What is a Payment Facilitator?
A payment facilitator, also known as a PayFac for short, is a company that provides sub-merchant accounts for SaaS companies and software providers. And this service is quickly becoming an option for independent software companies to offer their clients to make it easier for them to streamline their processing in-house credit card payments.
While some businesses still prefer to go the more difficult route of setting up a merchant account and obtaining a payment processor, the use of PayFacs has continues to increase. It is forecasted that by 2021, gross payments volume through Integrated Software Vendors (ISV) and Software as a Service (SaaS) will rise to $513 billion. PayFacs have already become a favored way to accept payments among companies that organize paid events or fundraisers.
Understanding the Payment Facilitator Model
By implementing payment facilitation, the software company becomes the master merchant and receives a Merchant Category Code (MCC). Each downstream client would be able to set up a sub-merchant account that would operate under that MCC after agreeing to the terms you specify in your master merchant agreement. Their transaction processing activities happen within their own separate channel. This keeps these transactions separate from the MCC’s and other sub-merchants’ transactions, which also protects both and their customers.
Can Independent Software Companies Benefit from Offering this Service?
Yes, if you are independent software company you can benefit by facilitating payments for your customers to streamline payment acceptance through your software. Being able to offer this highly sought-after service can give you a competitive advantage and help retain your customers. By offering this service, you can grow your company’s revenue through gaining more clients. However, you are also setting up a passive revenue stream for your company. You will earn a percentage from every transaction your customers process without sharing their liability.
Integrating payments into your software to give your customers a streamlined and seamless payment solution is a win-win on all sides.