Should you become a payment facilitator or buy services from an existing one?
Answering the question, “What do you want to accomplish with payments?” will help you decide. Is it a seamless customer experience? Generate revenue? Lower transaction costs? Control the customer experience? If you answered yes to these questions you might fit the payment facilitator model.
If you are a technology company providing payment processing services to your clients, payment facilitation has the potential to increase enterprise value. Obviously, if you build, you control the process more than as an ISO or ISV or through a VAR referral agreement. However, depending on your payments strategy goals and current company position, one option may be smarter than the other.
- Risks and responsibilities
- Cost of entry for payment facilitation
- Revenue opportunities
Risks and responsibilities
Buying access to the payment rails represents minimal risk to your organization. This is because the payment facilitator you choose to use assumes the risk. Payment facilitators like WePay, Stripe or Square also manage the responsibilities associated with processing payments, such as fraud, compliance and chargebacks.
When becoming a payment facilitator, your organization assumes both the responsibilities (i.e. compliance) and the risks associated with your sub-merchants’ transactions. This requires expertise, software and potentially more staff.
Risk for the payment facilitator includes:
- Detecting merchant ID fraud
- Transaction fraud
- Merchant credit risk
Cost of entry for payment facilitation
If you buy access to the payment rails your cost of entry is manageable (payment facilitators as a service company make their revenue from your transactions). Additionally, if you buy your access you would be ready to accept payments almost immediately.
Building your access to these rails could take 6-12 months. However, if you attempt to go at this process without guidance from someone within the payments industry, it could take up to two years, and the probability of being rejected by an acquirer is high. There are strict rules for network compliance, legal requirements and managing operations associated with processing payments for your sub-merchants.
Though the costs associated with building your own access are steep, there are advantages:
- Reduced cost of signing and supporting all merchants (including low volume and specialized needs merchants)
- Customize an industry specific payment solution
When you buy your access to the payment rails, the cost of entry is minimal, as are your risks and responsibilities. But that low barrier to entry comes at the cost of minimal revenue opportunities for you. Your payment facilitator as a service company will take a majority of the revenue that you can monetize from processing transactions.
If you elect to build your access to the payment rails, your opportunity to monetize payments vastly increases. Simply stated, you are not paying for services- you are providing services. This option also provides the opportunity for value-added services, such as enhanced reporting.
If you’re looking to customize the customer experience and begin accepting payments immediately, consider buying access from an existing payment facilitator. This way you can proceed with a payment strategy without the added risk and responsibility.
However, if you’re processing a high volume of payments already and can handle the additional responsibilities of processing payments, then building your own access to the payment rails could be a viable option. You can then generate additional revenue, increase your service to customers and increase the value of your company.
If you are in a (B2B) business to business environment, review the Clio case to see how payments increased their customer satisfaction.