In a traditional SaaS model, the SaaS platform owner sells licenses and subscriptions for some core payment software product. At the same time, most SaaS companies have established customer bases, which they can monitor and, largely, control. So, this feature improves their chances of getting additional profits from merchant credit card processing. In order to make some money on electronic payment processing, a SaaS company can try to become a payment facilitator. Then, most users of its payment software automatically become its sub-merchants.
Let us consider the PayFac options available for SaaS companies in a bit greater detail.
PayFac Model Implementation for a SaaS Platform
Basic steps
In order to become a PayFac, a SaaS platform gets certified and underwritten as one by the respective acquirer. The acquirer has to support all target MCC codes, currencies, geographies and payment types of the prospective PayFac. Then, the SaaS company has to integrate its platform with target processors and banks. Finally, it should go through PCI compliance audit and procedures. These are just the basic steps.
PayFac’s role
If a SaaS company becomes a PayFac, it becomes the middleman between its sub-merchants and respective acquirer or payment processor. Underwriting and other merchant lifecycle-related functions get easier for merchants. In return, the PayFac gets its share of merchant fees. They are not the same as interchange fees, charged by Visa or mastercard network. Master card and visa interchange fees remain the same. However, merchants are willing to pay a bit more for simplified and quick underwriting. Moreover, acquirers are happy to delegate merchant underwriting to PayFacs.
Pros and cons in brief
Payment facilitation fees do provide a significant additional revenue source for a Saas platform. However, the PayFac assumes a lot of new responsibilities. First and foremost, it means financial liability for sub-merchants’ operations. Risks also grow higher, especially if it comes to partnering with high risk payment processors and merchants.
In-between Solutions for a SaaS Platform
As we can see, becoming a PayFac is not just about new revenues. It is also about new liabilities, costs, risks, and considerable efforts. SaaS companies that cannot deal with them all at once, but still want to become PayFacs, can go with some intermediary solutions. Indeed, there are several try-it-before-buy-it models a SaaS platform can choose from. First, instead of becoming a full-fledged PayFac, it can start with implementation of a white-label payment facilitator model. Second, it can just partner with a white label PayFac gateway. In the latter case it gets most of the benefits of a traditional PayFac at much lower cost.
Concluding Remarks
If you are a SaaS platform, considering the prospect of becoming a PayFac, you have several options to choose from. Beside implementation of a full-fledged PayFac model, these options include intermediary solutions. Integration with a white label PayFac gateway seems to be the least risky and costly one of them.
Consult our experts to learn how our white label PayFac gateway technology can help your business prosper.