In today’s tech-driven world, software companies must carefully consider their needs when assessing integrated payment solutions. Integrated payments and embedded payments are often used interchangably but there are three distinct business models: integrated referral partnerships, payment facilitation (PayFac®), and payment facilitation as a service (PayFac-as-a-Service).
The key difference between the three models is the level of ownership your software platform has over how you market, sell, and service payments to merchants.
Referral partnerships are the simple path to monetization but have the lowest level of customization while becoming a full payment facilitator (PayFac®) provides the highest revenue potential and customization. Becoming a full PayFac® means your software company essentially becomes a payments company.
PayFac-as-a-Service is the middle ground, allowing software companies some ownership over their payments experience within the platform as well as how payments are marketed, sold, and serviced, while a payments provider, such as Payrix, manages the risk and compliance burden. It’s the first step into some responsibilities of payment facilitation.
What is an integrated referral partnership?
The referral partnership, (also known as integrated payments) is the traditional method of processing payments. With this model, your software platform establishes a relationship directly with a payment processor to become a referral partner. When one of your customers wants to set up payments for their business, you refer the customer directly to the processor. In return, you receive a referral fee.
While a referral partnership offers out-of-the-box payment processing with some revenue share, it doesn’t provide control or ownership over the customers payment experience.
There are benefits to integrating payments into your software without have additonal responsiblities.
- The payments partner will help you market payments to your existing customer base
- The payments partner will sell and service payments to your customer
- Your customers get better reporting and solve reconciliation issues from non-integrated solutions
- Your customers can often take advantage of additional value added services like gift cards
What is PayFac-as-a-service?
PayFac-as-a-Service allows software companies to take a more significant role in the end-to-end payment servicing process without bearing the risks and responsibilities of being a full PayFac®. With PayFac®-as-a-service, software companies gain greater control and visibility over their payment experience while achieving higher returns.
Often thought of as the “sweet spot” between risk and reward, your software platform has much more control over the payment experience, but it doesn’t come with the same level of risk and responsibility as being a registered PayFac®. When you implement as your embedded payment solution, your customers manage payments seamlessly within your platform and only interact with your software. Depending on how you role your payment solution out to your customer base, your subscribers may not even be aware there’s a payments partner in the background.
A few key questions you may consider when evaluating PayFac-as-a-service are:
- Is my team prepared to market and sell payments to our customers?
- Do we have the in-house resources to manage onboarding, customer experience and support?
- Are we prepared to handle payments contracts and pricing?
What does it mean to be a registered PayFac®?
Becoming a registered PayFac® provides full customization and ownership over the payment experience on your platform. With this embedded payment solution, you can take your own payments solution to market and control how your customers are serviced and supported. When you become a PayFac®, you establish a master merchant account through an acquiring bank. Your customers then set up sub-merchant accounts under your master account. Significant revenue-earning potential comes with being a PayFac® but there are much bigger responsibilities as well.
A PayFac® manages every aspect of payments, from selling, marketing, contracts and pricing, infrastructure investements, managing, servicing, compliance and risk.
A few key questions you may consider when evaluating if you’re ready to become a PayFac® are:
- Does my company have the in-house resources to manage the end-to-end payments process?
- Do we have the systems and processes to address our compliance and regulatory obligations?
- How will the increased risk of becoming a PayFac® affect other parts of our business?
Get the best integrated payment solution with Payrix
Integrated and embedded payments can transform how your platform offers and manages payments. Not only can it help you provide a better user experience and increase customer retention, but you can increase profitability and net revenue retention, too.
If you’re looking for even more information, check out our ebook, A Complete Guide to Embedded Payments. It walks through the three key embedded payment models and what to consider for each. No matter which path you choose, we’ll build a program that suits your business and your goals.
