The Risk of Becoming Your Own Payment Facilitator

tech professionals at a desk

For an independent software vendor (ISV), adding payment processing to your application or platform is a smart upgrade to add value to your product. To add payment processing to your app, you either need to:

  1. Become a payment facilitator
    or
  2. Partner with a payment facilitator

You may be thinking that the obvious answer is to become a payment facilitator to keep processing in-house. But taking on the burden of payments goes much further than development and comes with a number of  downsides and risks.

Risks of Becoming a Payment Facilitator

1. Excessive Resource Investment

First, you’ll have to spend time and effort developing the ability to accept payments. You simply won’t be able to develop a payments platform with all the features of an established merchant services provider. You’ll likely be limited by basic credit card acceptance.

Today, consumers want the option to pay by card, mobile wallets, bank transfers, and contactless payments. By partnering with an existing payment facilitator, you can integrate every payment type into your software without expending a huge amount of capital to build it. Plus, they can provide your platform with innovative features like split payments, text-to-pay, and instant onboarding for your customers.

Financial technology is under a higher level of scrutiny than other industries. To accept credit cards, the card brands require enhanced security and customer protections that you will need specialized developers to handle.

2. Liability and Risk

It might look like becoming a payment facilitator yourself is a better investment than partnership. However, you may not be aware of the extent of financial industry regulation that you will need to comply with to process payments.

If you want to become a payment facilitator, you’ll need:

  • Sponsorship from an acquiring bank: a bank needs to vet that you are financially stable enough to take on the risk
  • Approval from card networks: certain data security standards must be met for brands like Visa and American Express to allow you to accept their payments
  • A process to vet merchants:  a risk and underwriting team is needed to identify threats to your business
  • Compliance with regulatory requirements: there are ever-changing rules set by banking regulations and card brands that can cost you in fines and penalties for non-compliance.

All these liability risks require considerable time, effort, and resources to mitigate. You’ll have to hire a team of underwriters to vet and onboard all your customers yourself so they can process payments. You’d also be responsible for maintaining regulatory compliance.

On the other hand, if you partner with an existing payment facilitator, they take care of all the above elements. It’s a much better choice than taking on all those requirements to process.

3. Financial Risk

If you become a payment facilitator, you’ll be taking on the financial risk that comes with it. That means when you or one of your users encounter fraud and criminal activity, you’ll be responsible for covering the cost. The costs of merchant bankruptcy can fall to the payment facilitator, so you’d have to take that on as well.

You’ll minimize your financial risk if you partner with a payment facilitator since they’ll be the ones responsible for potential fraud or criminal activity. You can focus on the core features of your platform instead of taking on learning about all the ways you can be liable for loss.

business team at work

Benefits of Partnering with a Payment Facilitator

1. A New Stream of Revenue Generation

If you partner with a payment facilitator, you’ll have a new stream of revenue for your company. You share profits with the payment facilitator without taking on any of the costs associated with becoming a payment facilitator yourself. There’s no overhead cost to you, so it’s pure profit for your bottom line.

If you become a payment facilitator yourself, acquiring banks and card networks take a chunk of your profits. Established payment facilitators already have these connections in place, so the transaction approval rate is much higher. You’ll generate more revenue without any of the risks or costs.

2. Access to More Features

If you become a payment facilitator yourself, you’ll have to develop a payment platform for your customers in-house. Besides the cost, it could take months to develop a functioning platform with innovative features and capabilities. But if you partner with a payment facilitator, you’ll get access to a built-out payment platform, so you can instantly get access to the features your users need.

Your solution can begin processing payments immediately, which adds to a great user experience. Access to these features add immeasurable valuable to your platform, extending its capabilities without an extra cost.

Becoming a payment facilitator yourself means committing time, money, and resources that can cut into your bottom line. Not to mention, you’ll be vulnerable to a huge source of financial and legal risk for your business. When you partner with a payment facilitator, you gain an extra revenue stream with no risk or overhead cost.

Your platform will seamlessly integrate with the payment facilitator’s platform to add new features and you’ll be able to instantly onboard your customers so they can begin processing immediately. Partnership with a payment facilitator is a low-risk, high-reward option for adding payments to your platform.

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