When NOT to become a Payment Facilitator
So, you may have heard the buzz word: PayFac®. You may have also heard that processing transactions as a payment facilitator lets you monetize payments. It’s an exciting opportunity, but you should get the whole story before you decide to take on such a big commitment.
- Purpose of this article: This article provides general guidelines to determine if becoming a payment facilitator is right for you…right now. You can then determine if this is the right road for you. It’s what you need to know.
This article is based on our conversation with Angie Ammon, Managing Partner at Fintech 513. Fintech 513 guides companies through the complex process of becoming a payment facilitator, helping companies get the biggest and fastest return on their investment.
Can you relate to the role of the parents when a child wants to learn how to drive? How about taking the car for a spin on their own? If so, you can understand the relationship of the acquirer to their payment facilitator (and sub-merchants). It can be a traumatic experience!
Think of it like this: the acquirer (or acquiring bank) giving their keys to the payment facilitator. As the acquirer (parent) you want to be sure that things will go well. The acquirer needs to weigh the payment facilitator’s business maturity and find out if they internalized compliance and security.
Here are some requirements (but also some goals to strive for) that could indicate your company is not ready to become a payment facilitator at this time:
Is your current card volume below $100 MM?
If so, you may not be able to recover your investment. Particularly when you consider that in addition to the initial investment, there are ongoing costs in software, compliance setup/monitoring, etc…
Are you able to port your complete book of business into the model?
Double check your contracts to be sure nothing hinders processing accounts as sub-merchants.
How established is your company?
You will need to prove a solid history with financial documentation (just like a parent allows more freedom to a historically responsible child).
Are you ready for the costs associated with becoming a payment facilitator?
(You know, like higher insurance for a new driver!) When considering becoming a payment facilitator, be aware of the $300-$500K cost.
Here is a bit of what is you should expect to pay for:
- Software technology stack
- Personnel to manage process
- Ongoing engineering support
- PCI certification (initial and ongoing)
- Differentiated technology (ok, now this is beyond me too)
Also, be aware that this is not a set-it and forget-it process… particularly when you are talking about compliance and security. Such factors require consistent updates and monitoring to ensure you’re operating safely.
It’s important to mention again, that the acquirer is ultimately responsible, so you need to prove you can be a safe, secure and compliant driver who can keep your passengers safe. If the acquirer senses you’re not ready to manage this responsibility, they won’t partner with you.
Becoming a payment facilitator takes time – sometimes a lot of it! If you need to start processing quickly, consider starting with an existing payment facilitator, which we can help you find. Or if you’re ready to further investigate becoming a payment facilitator, let’s get started. Click the link below to tell us a little bit about your business.
Depending on your company’s goals, building or buying your payments system could make more sense.