The Value Of Becoming A Payment Facilitator – Part I

What about the Payment Facilitator ROI? Part 1

By Angie Ammon | Managing Partner, Fintech 513

 

Last week, an interview with WePay’s co-founder Richard Aberman, by PYMNTS’ Karen Webster, was published. It raised questions about using payment facilitation as a payments strategy for your business, claiming that “at this phase of the game, it almost never makes sense to become a payment facilitator.”

I agree, becoming a payment facilitator is not for everyone, so let’s take a closer look. Three questions immediately come to mind. This post we will address the first, and the following two will be discussed in the next post:

  • Why it does make sense for some to become a payment facilitator
  • Does payment facilitation make sense for you?
  • How you can make the transition

The original article (Seen here) addresses the complexity of making the transition to become a payment facilitator, and operating thereafter. But the notion that the “juice isn’t worth the squeeze” may not be a universal statement that applies to everyone.

Given software companies’ generally primitive knowledge of the payments space, attempting to make this journey on your own – without the guidance of people who have been there before – can be a costly mistake.

However, last year we started Fintech 513 with this very idea in mind: combine teams of people with deep payment facilitation experience and perspective to help guide those exploring the opportunity payment facilitation could create for their company.

Payment facilitation has evolved quite a bit since it’s beginnings in 2010. But confusion around monetizing payments persists. Find more details on the origins of payment facilitation. (Click Here)

 

Why it does make sense to become a payment facilitator

The article “The ROI On Being a PayFac? Zero,” does take a moment to recognize the benefits of becoming a payment facilitator. The foremost opportunity is the additional revenue from monetizing transactions. “When you look at the companies that have successfully built payments businesses, they are making as much money on those transactions as they were on the SaaS line.” By eliminating additional vendors in the payment ecosystem, payment facilitators experience better economics with acquirers. Some “are looking at transactional revenue to supplement software as a service fees or to replace them entirely with transactional revenue.”

The other benefit payment facilitators experience is complete autonomy over the customer experience. For software companies that don’t monetize payments, or have a referral agreement with a payments partner, the experience for their client’s customers (the card holder) is disjointed. Receipts, payments disputes and invoices are all marked with different logos and come from third parties, not directly connected to the merchant the cardholder purchased from. Any issues with customer service, having to do with payments, is out of the merchant’s control, even though it’ll hurt their business the most, not the software company or payments vendor.

In line with improving the cardholder experience, payment facilitators are also able to control the merchant (their client) relationship. Without a payments strategy, software companies’ relationships with clients are limited to the service they provide. By providing payments as an additional service, through the payment facilitator model, they become more valuable to them for a number of reasons: more integrated reporting across internal operations, nearly-instant payments access for their customers (and subsequently no need for them to deal with card companies), and a much more streamlined experience for their customers (cardholders).

Lastly, because of their broader service offerings becoming a payment facilitator creates, they experience a lift in the valuation of their company. This provides a competitive edge for software companies and improved flexibility for future innovation.

Too good to be true? Becoming a payment facilitator isn’t the only way to monetize payments, nor the easiest. The transition process is complex and there are many ways for things to go awry if the proper steps aren’t taken to transition the right way. Next we’ll examine if payment facilitation could be the right business strategy for you.

 

 

Click here  to continue reading about the next two questions you should answer for yourself:

The Value Of Becoming A Payment Facilitator – Part 2

  • Does payment facilitation make sense for you?
  • How can you make the transition?

Payments may not be your core business, but it may present a strategic opportunity for you to better serve your customers. Is it the right decision for you?

Click the button below to share a little information with us so that we can find out.

Comments
  • Tim Dunn
    Reply

    Great Post! Excellent Content!

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