5 things to consider before becoming a payment facilitator
5 key considerations for vertical software companies who are exploring becoming a payment facilitator
The online payments market is growing rapidly, and your customers are looking for new and better ways to process payments and give a better experience to their customers.
Internet searches for payment facilitation have more than doubled in the past 5 years and for good reason. The revenue opportunity of becoming a payment facilitator can be very large (just look at the success of monoliths like Shopify). In fact, the most successful platforms are discovering that recurring revenue from payments is eclipsing that of their software revenue.
However, what most companies don’t realise is the cost and risk in becoming a payment facilitator is also extensive.
The revenue promise is real. But if you’re a software company or digital marketplace, choosing how and when you monetise payments is not a business decision to take lightly. Like the options out there today, the list of considerations is also growing steadily. Before you can even consider diving into payment facilitation, a business strategy discussion must come first.
So what are the key considerations when weighing up becoming a payment facilitator? And if you don’t want to take on the extensive resources, costs and risks, what other options are there?
Use these interrelated topics as you approach the process:
5 key considerations
Before choosing your payments model, it’s important to understand the potential ROI of your investment. Many companies believe that becoming their own payfac is the best way to generate a profit from payments. However, many companies don’t realise the extensive resources that are involved in setting up and managing this.
Becoming a payfac involves setting up software, managing compliance, and a significant resource requirement for people to maintain it. Alternatively, outsourcing means you will get less % profit per transaction, but you get access to the resources and expertise of a payments provider, which can often work out to be more profitable, at least in the short term. Read more about ROI with our deep-dive article here.
The decision to become a payment facilitator in Australia means taking complete control of your brand’s payments experience. This has clear benefits: less friction, better trust signals, and greater control over how you communicate to your customers.
On the flip side, it also requires deep payments expertise, advanced and costly configurations, and strict compliance protocols to be aware of and implement.
Previously the only alternative was to go for a full-fledged ISO model, which meant you had to sacrifice a lot of the control over your customer experience and customisation. Recently, developments in FinTech have provided a new model to consider – an integrated software payments partner. Read more about creating a positive customer experience.
The journey to payment facilitation means undergoing a transformation from being a software company to also becoming a payments company.
Gauge your current level of experience with payments before making your final decision. For those who lack payments expertise, we strongly encourage you to seek guidance from a trusted partner.
Which raises the question: Are you prepared to hire experts to support payments in-house? Or would you rather consult with a payments expert who will help you build a comprehensive payment strategy that is affordable and suits you?
Integrating payments requires a significant investment in time and money so you need to fully understand just how long and how much. Depending on the complexity of your integration, the process could take 3+ months.
What types of full-time roles and how many team members will drive your new payments operation? How much do you plan to invest in staffing resources? And how much money will you spend on technology? These are a few key questions to assist in scoping the project.
Inherent in any financial services is risk, both in terms of your business and your customers. If you decide to become a fully registered payment facilitator, you take on the beast of owning all merchant and transactional risk – which can be a particularly large pill to swallow.
If that doesn’t sound feasible for you right now, you may want to consider a payments partnership, where all of the risk and client management, including fraud monitoring, PCI compliance, and data security is handled for you. Find out more about managing risk here.