Does Payment Facilitation Make Sense for Your Business?
The 5 Key Considerations for Vertical Software Companies
Searches for payment facilitation have more than doubled in the past 5 years, and for good reason. The newest in the field of options for software payment monetization has shown great returns for early adopters like Shopify. In fact, the most successful platforms are discovering that recurring revenue from payments is eclipsing that of software revenue.
While historically software providers have chosen to completely outsource their payments function to an ISO or large processor the pendulum has swung in the opposite direction with businesses opting to take full control and management of their payments via the payment facilitator model. A third hybrid model has emerged as well – delivering an integrated payments partnership – a payment facilitator-like model where you can divvy up payments functions, outsourcing some responsibilities and keeping others in-house.
The revenue promise is real. But if you’re a software company or digital marketplace, choosing how and when you monetize 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. Use these interrelated topics as you approach the process:
Start with a pragmatic approach and weigh cost versus revenue potential. If you’re currently outsourcing payments, take a seat because the amount of money you are leaving on the table may come as a shock – note the hidden costs stunting your growth.
The decision to become a payfac means taking complete control of your brand’s payments experience. In addition to removing friction points for your customers, fully embedding and integrating payments into your software makes your offering a market leader in your vertical.
The journey to payment facilitation also means a transformation from being a software company to also becoming a payments company. Gauge your current level of experience. For those who lack payments expertise, we strongly encourage you seek guidance from a trusted partner. Are you prepared to hire experts to support payment in-house? If so, how many?
Integrating payments requires a significant investment in time and money so you will want 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 full registered facilitator, you take on the beast of owning all merchant and transactional risk – a particularly large pill to swallow. Beyond the risk directly associated with the payments you also may risk disrupting your current strategic plan, having to reallocate engineering and finance resources, and adversely impacting your customer experience. All of these can be mitigated and managed by a properly prepared and experienced team but must be considered seriously at the onset of a payment facilitation discussion.
As you can see, deciding to take on a project of this magnitude comes with major considerations. For some SaaS companies, the ROI to become a full-fledged registered payment facilitator doesn’t make as much sense for you as a hybrid model does. Management teams who are more averse to risk find that taking on less risk while still optimizing payments and owning the customer experience is quite appetizing. Consider your resource investment appetite in terms of time and capital. Perhaps your eyes are bigger than your stomach and you want to control your user experience but don’t want to be the payments expert. In this case, you’ll want a partner who understands your client needs and strategic goals, as well as today’s payment integration models.
Making the decision that’s best for your business right now requires consultation from an expert. Payrix allows software companies to crawl or walk before they run towards payment facilitation. No matter the stage, our team takes a consultative approach to understand your specific needs and vision. As part of this solutioning and discovery process, we will uncover what model aligns with your payment monetization strategy.