Becoming a payment facilitator (PayFac) is one of the key opportunities allowing software businesses to enhance their product and service offering while increasing revenue from a process it already completes: payments.
For most software companies, payments are a core platform functionality. Becoming a PayFac® developer means you become the payments provider and will own the end-to-end payment servicing process. By controlling the payments functionality in platform, you gain more revenue while also providing your subscribers an invaluable service. Managing their payments provides them with convenience and reduces the administrative burden of using another solution for payment processing.
When software companies do payments well, they enjoy increased customer retention and the ability to draw powerful insights from merchant data to deliver better service and reduce churn risk.
As one of three payment relationship models designed for software companies, being a registered PayFac provides the highest revenue potential through generating revenue from transaction fees. However, with this potential comes higher costs, compliance requirements and risks. The right embedded payments provider will be a partner to your business; not just a vendor. Since they’ll be the engine behind you, you’ll typically have a dedicated team to help you with strategy, technical questions, and a variety of other services to ensure your success.
How do PayFacs work?
We like to think of it like this: If you’re a software company, you’re a payments company. You will own the merchant relationship for every merchant processing on the platform and they will come to you with any questions, problems, and general troubleshooting.
You will take care of all aspects of running your payments “company”. Once you’re a PayFac, you will be selling payments, marketing payments, servicing payments, and more. Selling and marketing may seem like the easy part so let’s cover some of the nuances when it comes to payment details, product management, and servicing.
Here’s a snapshot of some of the pieces you’ll be managing as a PayFac.
| Payments | Security and compliance | Billing and analytics |
|---|---|---|
| Merchant onboarding | PCI compliance | Business analytics |
| Payment gateways | Reporting | Payment routing |
| Payment methods management | Managing chargebacks | Completing payouts |
| Relationship management with card providers | Addressing declined transactions | Making instant transfers |
| Fraud prevention | Managing subscription billing | |
| Card tokenization | ||
| Security | ||
| Maintaining uptime | ||
| Pre-processing tasks | ||
| Payment card updates |
Getting set up as a PayFac typically takes 12-18 months so you’ll want to work with an experienced team who can help you become successful.
What you should consider when planning to be a PayFac
While your software may not be ready to be a full PayFac today, it can be on your company’s roadmap and there are steps you can take as you begin the planning process.
There are a few primary considerations you should be thinking about early to help you determine your timing.
What’s your annual payment volume? You’ll want to do an analysis to determine if your processing volume is larger than the yearly expenses of being a PayFac.
Do you have a budget to hire dedicated payment resources? Your merchants will come to you with questions so you’ll want payments staff who can help them with payments setup, servicing, troubleshooting, etc.
How will you handle compliance and risk? This is a crucial piece to keep your business and your merchants protected. We recommend hiring an experienced risk and compliance expert who can manage merchant onboarding, chargeback issues, compliance issues, and other risk and compliance considerations.
Become a PayFac® developer
Owning the end-to-end payment experience by becoming a PayFac provides greater revenue potential, allows you to build the payment experience your merchants need, and delivers other benefits such as stronger company valuation. Under the broader Worldpay organization, our team has built the developer experience you need to test the sandbox.
Looking for more info? Check out A Complete Guide to Embedded Payments. It walks through the three key business payment models and what to consider if you want your platform or marketplace to become a PayFac developer.
