How Can Becoming a Payments Facilitator Increase Revenue for My Software Company?

As a software company, your platform meets various needs for your customers, whether simplifying processes, analyzing data, or facilitating connections. However, one essential need your customers fulfill for your business is generating revenue. This article explores how you can monetize payments and significantly boost your revenue by adopting the Payment Facilitator (PayFac) model. This approach gives you control over payment processing and unlocks new income streams. If you're considering the model, you should speak to a payments expert.

The Evolution of SaaS Revenue Models

The SaaS model has revolutionized revenue generation by offering subscription-based pricing, which provides steady, predictable income. But what if there was a way to expand your revenue without raising prices? The answer lies in becoming a Payment Facilitator.

What is a Payment Facilitator (PayFac)?

A Payment Facilitator (PayFac) is a company that allows its customers—referred to as sub-merchants—to accept electronic payments using the PayFac’s infrastructure. Unlike the traditional method where businesses need to set up a merchant account with an acquiring bank, PayFacs streamline the onboarding and transaction process, enabling rapid acceptance of electronic payments.

How the PayFac Model Works

The PayFac model simplifies electronic payment acceptance by eliminating the need for individual merchants to go through the lengthy process of acquiring their own merchant account. Instead, the PayFac creates a master merchant account through an acquiring bank. Sub-merchants are then onboarded under this master account, allowing them to process payments without the usual delays associated with traditional merchant onboarding.

The PayFac Ecosystem: Key Players and Their Roles

1. Payment Facilitators: Provide the necessary infrastructure for sub-merchants to accept payments, handling underwriting, onboarding, transaction monitoring, and fund distribution.
2. Sub-merchants: Businesses using the PayFac’s platform to accept payments. They undergo verification and are integrated into the PayFac’s system to start processing transactions.
3. Acquiring Banks: Partner with PayFacs, handling underwriting and ensuring compliance. They process transaction data and money from the card networks.
4. Payment Processors: Handle transaction processing, from authorization to settlement, ensuring funds are distributed correctly.
5. Sponsors: Typically a bundled term for acquiring banks and processors, sponsors provide the necessary infrastructure and support for PayFacs.

The Benefits of Becoming a Payment Facilitator

1. Streamlined Onboarding: The traditional process of setting up a merchant account can be cumbersome. PayFacs, however, can onboard sub-merchants in hours, not days, using automated, frictionless underwriting processes, making it easier to monetize payments.
2. Increased Revenue from Payments: By managing payment processing in-house, PayFacs capture a larger share of transaction fees. This allows you to make money from merchant services by monetizing every transaction on your platform.
3. Enhanced Control and Flexibility: As a PayFac, you control the entire payment experience—from onboarding to transaction monitoring and fund distribution. This control allows you to offer tailored solutions, set competitive pricing, and manage risk effectively, all contributing to revenue from PayFac.
4. Improved Customer Experience: With the PayFac model, you can offer a better payment experience, reducing friction for your users and their customers. This can lead to higher satisfaction, lower churn rates, and a competitive advantage in the marketplace.

Considerations and Challenges in Becoming a Payment Facilitator

While the PayFac model offers significant revenue opportunities, it also comes with additional costs and operational challenges. When you decide to monetize payments and integrate this functionality into your software, you're essentially taking on the responsibilities of running a payments company. This includes:

1. Hiring and Business Processes: You'll need to hire new team members to handle the complexities of payment processing, such as underwriting, customer support, and compliance management. Additionally, you'll need to develop new business processes to manage these functions effectively.
2. Client Migration and Onboarding: Transitioning your clients to a new payments system involves moving them through underwriting, guiding them through the go-live process, and ensuring they understand the new system. This is a large and potentially disruptive task.
3. Customer Support and Pricing Management: Handling customer inquiries, managing chargebacks, and creating pricing models that compare favorably with existing services are all essential tasks. You'll need to provide robust support to ensure client satisfaction and retention.

Recognizing the magnitude of these tasks, Swipesum offers a service where we do all the work required and provide you with a full payments team. This ensures that, from day one, you have a professional, fully operational payments offering, allowing you to focus on your core business while we handle the complexities of payment facilitation.

How to Transition to the PayFac Model

Becoming a PayFac involves several key steps:

1. Conduct an ROI Analysis: Determine if becoming a PayFac makes financial sense. Typically, processing over $50 million in transactions annually justifies the investment, but this figure can vary based on margins and revenue share from payments.
2. Develop Policies and Procedures: Establish underwriting guidelines, transaction monitoring processes, and compliance measures tailored to your industry and risk profile.
3. Build the Necessary Infrastructure: Invest in technology that supports seamless onboarding, transaction monitoring, and fund distribution, helping you to make money from merchant services.
4. Partner with a Sponsor: Secure a relationship with an acquiring bank and processor, collectively known as your sponsor, to provide the support and infrastructure needed to operate as a PayFac.

The PayFac model offers software companies a powerful way to monetize payments, improve customer experience, and gain greater control over payment processing. While there are costs and challenges associated with becoming a PayFac, the benefits—including increased revenue and improved market competitiveness—make it a compelling option for many SaaS businesses. At Swipesum, we specialize in guiding companies through the transition to becoming a PayFac, from initial ROI analysis to full implementation, and we provide a complete payments team to ensure your success. Ready to explore this opportunity? Visit SwipeSum.com to get started.