Why Payment Facilitation Is An Attractive Model For Businesses – But Is It Right For You?
The payment world has transformed enormously in recent years, and with new advancements in technology have come new options for businesses and SaaS platforms. And one of these options can be seen, in various forms, in smaller businesses and huge names alike: payment facilitation, or ‘Payfac’. With true payment facilitation, your company can act as a master merchant for your clients, and you’re able to onboard new clients through a quick and easy application process, which then allows your user base to start accepting customer payments (either by credit or debit card or ACH payments) rapidly.
This application process demands minimal information from your customers, meaning that they’re able to get to what they need to do (ie. accepting payments) faster. All they need to do is confirm the most basic of KYC (know your customer) information, to cover the necessary bases.
However, for your business, it’s a different story. Although it’s easy for your clients to get going, for you there’s a veritable wealth of compliance checks and controls that you need to be approved for to get going, which can be a headache for your business – and aren’t exactly quick. Also, there are multiple other technical considerations to consider around payment integration, risk-compliance demands, and merchant funding which can put further strains on your business and its resources. As such, while true payment facilitation can be a great option for some businesses, it’s a huge decision and not one to be taken lightly – and for many, a Payfac as a Service model may well be more prudent and appealing.
But even though payment facilitation can bring with it difficulties and downsides, there’s still a reason why it’s valued by such huge companies as Paypal, Square, and Stripe. So what are the specific advantages of payment facilitation, and why is it a compelling option for some providers? Let’s take a look below.
Seamless Onboarding Of Clients
While traditional payment applications can be clunky and take days – even weeks – for approval for clients on occasion, with payment facilitation SaaS users can start accepting payments within the hour after application.
With the simplicity and immediacy on offer from the onboarding process with payment facilitation, it means that everyone starts getting paid quicker. As such, it’s pretty easy to see why this frictionless onboarding is the primary reason why platform users enjoy the integration of this payment model.
Increased Generation of Revenue
When it comes to payment facilitation, there’s a strong potential for increased revenue generation and essentially a brand-new stream of revenue for your business. It’s useful to note, though, that with this model, your revenue is largely dependent on the frequency, volume, and size of your transactions as a business.
As such, if you’re a SaaS platform, having a sizeable customer base that’s regularly making transactions is a huge bonus. Your profit is based on the margin (or spread) between what your users pay for your application and the cost of payment processing.
To put this into an example, if a SaaS vendor’s cost basis averaged at 2.4% (per transaction fee and discount rate blended), and their sell rate was at 2.9% plus 30 cents, then their margin would be .055% the amount per dollar of each transaction. This is the vendor’s cut.
In numbers, it becomes a little clearer. If your average user was processing $5,000 a month, then it’d take 1,000 users doing that regularly to hit a $5 million point. And bear in mind that these are gross revenues, which aren’t taking operating costs into account and which need to be considered when you’re thinking about your true profit bear potential.
If your SaaS platform can achieve high levels of usage, then you’re in luck: true payment facilitation could be a revenue stream that could end up making you huge amounts of money. If you’re not there with your business, though, it’s important to remember that the implementation of true Payfac is a costly and lengthy process – and without the user base numbers to back it up, you may be better off looking at Payfac as a Service as a payments solution.
Is Payment Facilitation Right For Me?
The answer to that question will be different from business to business. One of the main things to consider, though, when it comes to payment facilitation, is the golden question: will my user base be big enough to make it worthwhile?
If the answer to that question is yes, then true payment facilitation could be the solution you need. For a lot of businesses, though, it simply won’t be, and building up to the level of users needed will take too much time, and may leave you operating at a loss.
That’s where Payfac as a Service comes in. Payfac as a Service offers a hybrid model of payment facilitation, which means that you operate as a sub-Payfac. With the Payfac as a Service model, you’re able to garner the majority of the benefits that true payment facilitation would bring your business, without the huge outlays, resource stresses, and compliance issues they necessitate. It’s a viable option for a huge amount of SaaS platforms, at any stage in their growth.
To discuss further options for your business concerning payment facilitation, contact Agile Payments today. As a team, we have almost two decades of experience in payment integration, and we’re ready to help you talk through all of the options that you need to make the right choice for your business and to help it thrive. Get in touch now.