By Brandon Banks
If you’re a SaaS executive considering integrating payments into your software platform, there are usually two ways to go about it: partner with an integrated payments company or register as a payment facilitator (PayFac). It’s important for any business leader to understand both approaches and what each process entails.
While PayFac registration can provide greater control over transactions and customers, the registration process should never be underestimated. Integrated payments provide an easier way forward that still gives your company scalability, but can limit control of your merchant portfolio.
In this blog post, we’ll explore why being registered as a payment facilitator can sometimes be more trouble than it’s worth, and weigh the pros and cons of integrated payments versus registering as a PayFac.
What is a PayFac and how does it work?
In its simplest form, a PayFac is an organization that assumes the responsibility for payment processing on behalf of merchants. To become a PayFac, you must register with a sponsor bank in order to ensure your company has the resources, infrastructure, and expertise needed to take on the financial risk and liability of payment processing.
As the payment facilitator, your company becomes financially and legally responsible for every step of a payment transaction. This requires an initial investment in the right systems and infrastructure, as well as continuous management of compliance, security, and transactional costs and regulations.
The initial registration and onboarding process can take over a year to complete. There are numerous regulations, compliance requirements, and security standards that must be met in order to be approved. These regulations vary by country and region and can change frequently. You will be required to provide extensive documentation, including contracts with acquiring banks and payment processors, risk assessments, and security audits.
Pros of becoming a PayFac
- Increased revenue opportunities — As a PayFac, you bypass the hassle of splitting revenues with another company. All the revenue generated from processing fees are directly deposited into your account.
- Rapid customer onboarding — Becoming a PayFac allows to expedite the customer onboarding process. The faster you bring on new clients, the sooner your initial expenses as a PayFac will be recouped.
- Ultimate strategic control — With complete control over your payment operations, you can optimize processes and maximize return on investment. Furthermore, you have the ability to quickly adapt as your business scales up.
Cons of becoming a PayFac
- Slow speed-to-market and time-to-revenue — Becoming a PayFac is an extensive and exasperating process, requiring more than 12 months before you can start profiting from payments. It will take even longer to recoup your investment.
- Increased operational costs — It’s up to you to ensure that payment processing for your customers goes smoothly. To do this, you’ll have to recruit additional personnel, invest in software and tools, and stay abreast of the latest developments in payments technology.
- Risk and compliance management — As the PayFac, you’re now in charge of overseeing all risks associated with your sub-merchants. Therefore, if a sub-merchant goes against any laws or procedures, it is ultimately your responsibility to bear the consequences.
What are integrated payments and how do they work?
The financial industry isn’t really known for its creativity. Integrated payments is exactly what it sounds like: a way of processing transactions embedded — or integrated — into larger software applications or platforms. It requires you to partner with a payment processor and often utilize a revenue sharing program.
Because you’re partnering with a payment organization, this solution eliminates the need for software companies to invest time and resources into developing and maintaining their own payment systems. You don’t carry any risk or liabilities associated with payment processing. This allows you to focus on your core business and reduce the risk of financial losses or reputational damage.
The main downside is your earning potential is limited. Integrated payment solutions require some type of revenue share with your payments partner. Depending on your contract, your ability to adapt or pivot may be restricted as well.
Pros of integrated payments
- Quick speed-to-market — With integrated solutions, your payment processing service can be up and running in 30-60 days.
- No risk or liability — Your payment partner is responsible for upholding security and compliance requirements, meaning your organization will remain free from any legal or financial repercussions regarding payments.
- No underwriting or compliance management — You do not have to bring any aspect of payment processing in-house and can stay focused on the core aspects of your business.
Cons of integrated payments
- Limited control and flexibility — By uniting with a payments company, you won’t have full power over how your payments are processed. Depending on your contract, it could make pivoting or adapting to any surprising changes nearly impossible.
- Mandatory revenue share — Because you’re partnering with another company, you are basically required to split the revenue from payment processing. However, integrated payments allow you to avoid any financial liabilities that could easily negate your profits.
What’s the right option for your business?
When selecting a payment solution for your business, it’s essential to think strategically and choose wisely. PayFac registration may seem like the preferred option because of the higher earning potential. However, payment processing can quickly become overwhelming and complicated, often leaving businesses feeling unprepared and doomed to failure. Don’t let this be you. Take the time to fully understand how PayFac works before committing to this path.
An integrated payment solution is the smarter choice in multiple ways. It allows your customers a fast and secure checkout experience while also streamlining account management as well as compliance requirements. Not only that, but this more efficient method can potentially save you time and money — making it an overall great investment for any business!
Finding the right payments partner
The key to a successful integrated payment solution is finding the right payment partner. You want to work with a payment organization that understands your unique business needs and can match your ambition.
Lean on the expertise of a trusted partner like Nexio. Our team of experts work to create an integrated payments solution that is tailored to your needs. Unlike other payment companies, we give you complete control of your payment portfolio and provide a path to transform into a payments company when you’re ready to take on the extra responsibility. Contact us today and get ready to power up your payments processing capabilities!