From Integration to Expansion: The Benefits of Registering as a Full-Service Provider for SaaS Embedded Payments

By Brandon Banks

As the payment processing landscape continues to evolve, software companies are increasingly looking to incorporate payment solutions into their offerings. One potential route for software companies is registering as a Full Service Provider (FSP).

Becoming an FSP means taking on the responsibility of managing the entire payment process for your customers, from authorization to settlement. While this can be a significant undertaking, the potential advantages of greater flexibility, customization, and revenue can make it a worthwhile investment. However, the registration process can be complex and requires careful consideration of various factors, such as compliance and security regulations. As more software companies explore FSP options, it is crucial to be informed and thoughtful when evaluating this decision.

In this article, we will explore what it means to be an FSP, the advantages and disadvantages, the registration process, and the factors to consider when evaluating if this option is right for your software company.

What is an FSP?

A Full Service Provider (FSP) is a company that provides a complete payment processing solution. This includes setting up merchant accounts, managing transactions, preventing fraud, and providing reports. By registering as an FSP, software companies can streamline the entire payment experience for their customers while creating additional revenue opportunities.

Upon registration, FSPs are assigned a Bank Identification Number (BIN). This unique number associates all customers who have signed up for payment services to the FSP’s portfolio.

Responsibilities of an FSP

Registering as an FSP involves taking on several responsibilities to ensure the smooth and compliant operation of your payment processing services. These responsibilities include the following:

• Regulatory Compliance — As an FSP, you must stay up-to-date with the ever-changing regulatory landscape, adhering to all relevant rules and regulations in your jurisdiction. This includes compliance with anti-money laundering (AML) and know-your-customer (KYC) requirements, as well as data security standards such as PCI DSS.
• Risk Management — FSPs are responsible for managing payment processing risks, including fraud and chargeback management. Implementing robust risk management strategies and systems is essential to minimize potential losses and maintain a healthy relationship with payment networks and financial institutions.
• Infrastructure Management — Building and maintaining the technical infrastructure necessary to support payment processing is a key responsibility of an FSP. This includes server management, network security, and ensuring system uptime and reliability.
• Customer Support — As the primary point of contact for payment processing issues, FSPs are responsible for providing customer support to their clients. This involves addressing payment-related inquiries, resolving disputes, and facilitating chargeback processes.
• Reporting and Settlement Reconciliation — FSPs must ensure accurate and timely reporting of transaction data, as well as reconciliation of payment records with financial institutions and payment networks.

Costs Associated with Registering as an FSP

Registering and operating as an FSP can involve various costs, which can be classified into initial and ongoing expenses.

Initial Costs

When registering as an FSP, you will likely incur initial costs, including the following:

• Registration Fees — Regulatory authorities charge fees for processing your FSP registration application.
• Legal and Compliance Consultation — Ensuring compliance with relevant regulations may require the assistance of legal and compliance experts, which can add to the initial costs.
• Infrastructure Investment — Developing the necessary technical infrastructure to support payment processing services may require substantial upfront investment in hardware, software, and security systems.

Ongoing Costs

Once registered as an FSP, there are several ongoing expenses that must be taken into account, including the following:

• Operational Expenses — The day-to-day management of your FSP operations, including staff salaries, system maintenance, and security updates, can contribute to ongoing costs.
• Compliance Management — Staying compliant with changing regulations may require ongoing investments in staff training, system upgrades, and third-party audits.
• Network and Financial Institution Fees — As an FSP, you may be subject to fees charged by payment networks and financial institutions for processing transactions and maintaining relationships.
• Chargeback and Fraud Management — Implementing and maintaining robust risk management strategies to minimize chargebacks and fraud can also contribute to ongoing operational costs.

The Pros of Registering as an FSP

Despite costs associated with registering as an FSP, there are various advantages that make it a worthwhile investment. These include the following:

• Control and Ownership — As an FSP, you have full control and ownership over your customer portfolio, meaning that you own the payment service contract and relationship. This control is an immediate increase in company value because no third party can intervene or restrict any strategic decisions or movements with your portfolio. Software companies are only able to own, control, and maintain the portfolio as an FSP.
• Simplified Integration — As an FSP, software companies can provide a single integration point for their clients, making it easier to embed payment processing into their products. This reduces the need to work with multiple providers and simplifies the overall development process.
• Streamlined Operations — Registering as an FSP enables software companies to consolidate their payment processing operations under one umbrella, making it easier to manage and monitor transactions, fees, and customer data.
• Increased Revenue Opportunities — By virtue of controlling and managing the entire payment ecosystem, the revenue potential is significantly greater given the fact you’re doing more, and there are less 3rd parties involved in enabling your payment services.

The Cons of Registering as an FSP

Although registering as an FSP can provide numerous benefits, there are also downsides that must be taken into consideration. These include the following:

• Increased Responsibility — Registering as an FSP means taking on the additional responsibilities associated with payment processing, such as risk management, fraud prevention, and regulatory compliance. This can require significant resources and expertise to manage effectively.
• Cost Considerations — Becoming an FSP can involve substantial upfront and ongoing costs, including registration fees, compliance management, and investment in technology and infrastructure. It’s essential to carefully evaluate the cost structure to determine if registering as an FSP is a cost-effective option for your software company.
• Potential Loss of Focus — Managing an FSP operation may divert resources and attention from your software company’s core competencies. It’s vital to ensure that your primary business objectives are not adversely affected by the added responsibilities of being an FSP.

When Does Registering as an FSP Make Economic Sense?

Before opting to register as an FSP, software companies should consider the following factors:

• Volume — The higher your payment processing volume, the more cost-effective registering as an FSP may be. As transaction volumes increase, the economies of scale can offset the initial and ongoing costs associated with FSP registration and management.
• Market Differentiation — If your software company operates in a competitive market, offering integrated payment solutions as an FSP can help differentiate your product and provide a unique selling point that attracts and retains customers.
• Internal Expertise — Consider whether your company has the internal expertise and resources to manage the additional responsibilities that come with being an FSP. This includes compliance management, risk mitigation, and payment infrastructure development.
• Long-Term Strategy — Evaluate if registering as an FSP aligns with your software company’s long-term strategic goals. Assess the potential revenue opportunities and cost savings against the required investment and ongoing operational costs.

The Registration Process

Becoming an FSP requires software companies to undergo a thorough registration process. While the exact steps may vary depending on the jurisdiction, the general process typically involves the following:

1. Research — Begin by researching the requirements for registering as an FSP, including the necessary regulatory compliance and technical infrastructure. This includes finding an acquiring/sponsor bank that supports FSP sponsorships, but also aligns with your merchant’s risk profile. You will also need to partner with a payment processor that also supports FSP’s.
2. Application — Submit an application to the acquiring/sponsor bank, providing information about your company, the products and services you offer, and your anticipated payment processing volume.
3. Due Diligence — The acquiring bank will perform a comprehensive review of your application, including background checks, financial assessments, and risk evaluations.
4. Contract Terms and Agreement — If your application is approved, you review your contracts with your acquiring bank, payment processor, and the payment networks to ensure you meet the terms and conditions of your FSP services.
5. Integration and Testing — Develop and integrate the payment processing solution into your software, and conduct thorough testing to ensure seamless functionality.
6. Launch — Once the integration and testing are complete, you can begin offering integrated payment processing to your customers.

Final Thoughts

Deciding whether to register as a Full Service Provider (FSP) requires a thorough evaluation of the potential benefits, risks, and costs. It is essential to consider factors such as transaction volume, market differentiation, internal expertise, and long-term strategic goals. By carefully weighing these factors, software companies can make an informed decision about whether registering as an FSP is the right choice for their business.

If you want to learn more or seek advice on registering as an FSP, contact Nexio for an obligation-free consultation.