Is Becoming a Payment Facilitator Worth the Trouble?

PayPal, Stripe, Square, WePay, Braintree — the early birds of payment facilitator model adoption — provide inspiring examples for other companies that choose to become PayFacs themselves.

Indeed, many businesses decide to follow the “pioneers” (the “behemoths” or the “dinosaurs” — all these terms apply) and provide payment facilitation services to their respective sub-merchants.

When it comes to payment facilitator model implementation, the rule of thumb is simple. Benefits and opportunities must offset costs and risks (at least, in the long run).

Benefits and opportunities are, more or less, obvious. A PayFac supports a large portfolio of sub-merchants throughout all their lifecycle — from underwriting to funding to chargeback disputing — and gets its reward for all these services (from every sub-merchant). As a result, the revenues, collected by a PayFac, are much larger than the revenues of a traditional ISO. Plus, PayFac’s revenue stream is a steady and constant one.

As for costs and risks, they are understandable as well. An acquiring bank delegates such tusks as merchant underwriting and funding to a PayFac for a reward (part of the merchant services fees). However, beside the reward, these tasks are associated with the respective liabilities. First and foremost, we are talking about financial liability for sub-merchants’ operations.

Besides that, implementation of the PayFac model calls for large upfront costs, rigorous background verifications, as well as considerable integration and certification efforts. Some companies (SaaS providers, marketplaces, next-gen ISO, franchisors, venture capital companies) have a large part of the required functionality and logic already in place. However, even they are sometimes reluctant to go through the process of becoming PayFacs. For example, according to some analysts, ISVs often prefer just knowing that they can become payment facilitators to actually becoming ones.

Let us now take a look at the procedures a prospective PayFac should go through.

How to become a payment facilitator: a roadmap

1. Get registered as a payment facilitator by card networks.
2. Find an optimal processing partnership (keep an eye on the processing fees!).
3. Find an acquiring bank authorized to underwrite you as a PayFac.
4. Take care of the general liability insurance and cyber insurance.
5. Organize sub-merchant management process.
6. Organize initial background verification and underwriting of sub-merchants.
7. Find a payment gateway solution, optimal for your specific use case.
8. Get certified as Level 1 merchant by the PCI council.
9. Develop sub-merchant funding process.
10. Protect your business from consumer and merchant fraud, using appropriate tools.

As you can see, as a prospective PayFac, you should take some serious and costly steps. The good news is: you can start with a try-it-before-buy-it solution, such as white-label payment facilitator model. And, remember, you are not alone: payment experts at unipaygateway.com, armed with their rich experience of successful PayFac model implementation for many companies, will be glad to help you on your quest.