As an ISV that develops solutions for B2C or B2B merchants, you know you can provide more value to your clients by integrating payments with your software. But if you want to get more value for your own businesses, you’ll want to consider becoming a payment facilitator (PayFac).
A payment facilitator takes more control of its customers’ experiences with payments. The PayFac establishes a merchant identification (MID) number and processes its clients’ payments through it. As a result, the PayFac must handle underwriting and approvals, the merchant onboarding process, receives funds on behalf of its clients, and create a schedule to transfer those funds into merchant accounts. For taking on these responsibilities, you will benefit from the ability to increase the revenue you receive from payments and optimize customer experiences.
What You Need To Know Before Becoming a PayFac
If your client base processes a large volume of payments via an integration with your software, you may find the PayFac route a smart option. To begin the process of becoming a PayFac, ISVs must meet requirements including:
- Allocating Human Resources and Establishing Processes
Recognize that offering PayFac services won’t be something you can do in your spare time. You need to dedicate or hire resources with the requisite skills to handle underwriting, approvals, regulatory compliance, reporting, fund transfers, and customer support. You will also need to create or deploy a management system that allows your team to do their jobs efficiently and dashboard visibility into this part of your business.
- Securing Sponsorship from a Financial Institution
PayFacs must build a relationship with an acquiring bank. The bank’s partnership is necessary to facilitate payments for merchants and will want to be involved in planning and have transparency into the technology you use. The acquiring bank will also want to confirm that you are using effective policies to comply with Know Your Customer (KYC) and anti-money laundering (AML) laws.
- Choosing a Gateway
You need to choose a payment gateway you’ll use for payments. With multiple options, you’ll want to find one with PayFac-related certifications with key payment processors. However, also look for a gateway partner with a good track record of customer support and a range of value-added services that can help you provide the best experiences to your clients.
- Complying with PCI Standards
As you choose technology and establish processes, keep in mind that they must comply with Payment Card Industry (PCI) standards. Work with your gateway partner to make any adjustments necessary to ensure that merchants using your software and your new PayFac services are in compliance.
- Registering with Card Brands
PayFacs must register with each card brand; $5,000 to Visa and $5,000 to Mastercard. You will also need money transfer licenses in each state you plan to operate in. If you operate nationally, these fees will total about $150,000.
- Establish Cash Reserves
Your business will also need to establish substantial cash reserves so that you can cover chargebacks, fraud, and other issues that may arise with your clients’ transactions.
The Payoff of Becoming a PayFac
The requirements to become a PayFac take time, skilled resources, partnership, and investments. However, the return can be significant. As a PayFac, you:
- Decide on the margin you make on transactions: If the merchants who use your software process a total of $10 million per month, for example, increasing your revenue by 0.5 percent would mean an additional $50,000 in monthly revenue.
- Enhance your client relationships: As a PayFac, you decide on approvals, onboarding processes, and fund transfer schedules. It gives you the control to tailor experiences to your customers and increase customer satisfaction.
- Increase your business valuation: A satisfied customer base, increased revenues, and a growing business can make your business more attractive to investors.
Ready to Take Your Business to a New Level?
If you decide to start the process of expanding your business to facilitate payments for your clients, Datacap Systems is ready to help. We’re certified to provide gateway services to PayFacs, and we’re experienced in assisting ISVs to navigate the process of growing their businesses with the PayFac model.
Contact us to learn more and discuss a partnership.
