The decision to become a Payment Aggregator or Payment Facilitator has massive implications for a SAAS application provider. There is a substantial cost and compliance requirements. Becoming a Hybrid PayFac can offer the vast majority of the benefits without the time, money and compliance requirements.
A Payment Facilitator [Payfac] can be thought of as being a Master Merchant that processes credit and debit card transactions for sub-merchants within their payment ecosystem. These sub merchants don’t have to go through the traditional merchant account application process and can typically enroll and begin accepting customer payments in hours.
Both the speed at which you can have new clients processing payments and eliminating the friction points involved in having the complete a conventional merchant account application make the Payment Facilitation business model very attractive to SaaS platforms that see the instant onboarding as vital to their applications success. Square is a very good example of a business that has successfully implemented this model. Go to WalGreens and buy the Square credit card reader, hop online and provide basic info including the bank account where your funds get deposited and 15 minutes later you can process our first payment.
Becoming a PayFac or PSP [Payment Service Provider] lends itself well to some businesses that fall into the software provider classification and particularly SAAS business service providers.
While there are certainly many benefits of being a true aggregator there are also significant financial requirements, PCI compliance obligations and ongoing operational demands. For a thorough overview of these risks/rewards read Payment Aggregation: Is It Right For Me?
These prerequisites to true aggregation often leave out the SAAS provider that does not have the financial wherewithal or does not want risk exposure. In particular SAAS startups that particularly need the instant customer onboarding to remove friction that may discourage adoption.
Fortunately there are now Hybrid Payment Facilitation or Hybrid PayFac solutions that offer the many pros of true aggregation without the significant investments of time and money.
With the Hybrid PayFac 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 PayFac 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.
A Hybrid PayFac or Hybrid Payment Facilitator acts under the umbrella of a true Payment Facilitator. This allows thm the benefits of true Payment Facilitation without the significant compliance and human resource demands
Any platform that serves a low-risk niche that MUST have instant onboarding
Hybrid Payment Facilitation offers less revenue generation (generally) and the end merchant is contracted with the true Payment Facilitation partner