Becoming a payment facilitator (Payfac) offers a great opportunity to increase your value to clients. If you provide software or other technology services, payment facilitation could enhance your product line and become a new source of revenue for your company. How do you determine whether this is the right payment solution for your business? Let’s take a look at how the service operates and what type of businesses qualify.
What is a Payment Facilitator?
First, it’s vital to understand the workings of a Payfac. The definition of a payment facilitator is a that it’s a payment services provider for sub-merchants, or a company that offers payment processing services to its own merchant clients. Examples of Payfacs include PayPal and Square, both of which offer online payment processing services to their sub-merchants that include:
- shopping cart solutions,
- recurring billing, and
- subscription payments, among others.
This service is invaluable for smaller merchants because it gives them a way to accept card and electronic payments without needing to open their own merchant accounts.
How Payfacs Differ
Generally, a payment facilitator processes transactions from merchants who generate less than $1 million in transactions annually. The company offering services holds the master account, so it carries the risks of chargebacks and fraud instead of the merchant doing so. As a result, Payfacs can charge higher per-transaction rates than traditional independent sales organizations (ISOs).
Requirements to Become a Payfac
Before you can begin signing up sub-merchants and providing services as a payment facilitator, you’ll have to register through a bank with card networks. You’ll complete an application and underwriting process with the acquirer
that requires information about your company’s history, your business and sales model, the revenue you generate, growth projections, and company policies.
You’ll have to meet mandatory insurance requirements for compliance purposes and stakeholder protection, need enough resources to process a high volume of payment transactions, and be able to show you have the right financial reserves.
Best Company Types to Become Payfacs
Some industries are better suited to becoming Payfacs than others. This opportunity is ideal for integrated software vendors (ISVs) that need to add a payment component to their services to make it easy to collect money. Examples include software app developers, field service industries, billing software, medical billing, event management and even tour operators.
Is Your Business Suitable to Become a Payfac?
Whether your business fits into one of the categories above or not, here are criteria determine whether this could be the right payment solution for you:
- Do you have enough capital available? Becoming a payment facilitator is a development-intensive process. The costs associated with it include engineering expenses, due diligence, and maintenance, so it’s important to perform a thorough investigation and draw up a budget before you decide.
- Do you have enough human resources? Managing risk and the requirements for compliance can be a full-time activity in your company, so it’s not something you can just do “on the side.” Make sure you can accommodate the necessary staffing to oversee the Payfac process.
- Do you have an understanding of the payment processing environment? You’ll need to be able to determine what can go wrong or expose your company to risks, to enable you to guard against these concerns.
- Do you have a critical payment mass? To break even against the setup and ongoing maintenance expenses of being a payment facilitator, you’ll have to have a sizeable, active base of clients and enough transactions to cover all the costs.
- Do you have a suitable client base? As an ISV, you’ll have to sell your services to clients at a reasonable profit.