Payment Facilitation is the process by which a business such as a software company or ISV serves as the master merchant and processes or facilitates payments on behalf of a base of sub-merchants (often their customers). There are advantages to being a payment facilitator including the addition of another revenue stream but the initial cost can be daunting.
As a Saas or tech-based business, you may be considering the option of becoming a payment facilitator. The first step is considering the time and financial resources necessary to do so. Due to the associated costs of developing the payments system, building your own payfac technology may not be an ideal solution, nor is it necessary.
While becoming a payment facilitator appears to be a tempting choice for SaaS businesses, there are factors to consider when pursuing the web-based field of payment facilitation. Here are the costs to consider before deciding to become a payments facilitator.
Upfront Setup Costs
One of the largest hurdles to become a payment facilitator is the large upfront costs from an infrastructure and compliance perspective. Associated payment facilitation costs, including engineering and maintenance, can easily exceed $100,000 annually with upfront costs over $400k.
If you’re looking to onboard micro, small, and medium-sized businesses to your software quickly, this is what it will cost to take the first step toward becoming a payment facilitator.
Payment Systems Development & Setup
Connecting to Payment Processors isn’t the most straightforward process. The integration period can often take 18-24 months of development time with an experienced team. Add to that the 3-5 months and a minimum of $50,000 to obtain Level 1 PCI compliance and EMV (Europay, Mastercard, Visa) certification, if necessary.
This doesn’t include the buildout for the merchant management system including merchant dashboards, merchant payout systems, and dispute management systems for different card networks. With a minimum of four FTE (Full Time Equivalent) at $150,000 per year and taking anywhere from six months to a year, that’s an additional $600,000 expense.
Merchant Onboarding and Compliance System Setup
As a Payment Facilitator, you will be responsible for onboarding, underwriting, support, and the risk of each sub-merchant. To handle these new responsibilities, your company’s headcount will need to increase to manage each of these new requirements.
You’ll need to fill positions including:
- Merchant Onboarding Team
- Underwriting Team
- Dedicate Payments Engineering Team
- Customer Support Team to field calls and questions from your sub-merchants.
From a compliance perspective, the biggest hurdle is achieving PCI Level 1 Compliance. This can take months of work, especially if you aren’t using a vaulting solution to store the PCI data.
Registrations and Obtaining Licenses
As a Payment Facilitator the four major credit card networks you’ll need to register with are Mastercard, Visa, American Express, and Discover. Each card network requires its own initial registration fee to be paid ($10,000 per card network).
Payfacs also have ongoing license requirements to maintain their good standing and credit requirements with acquiring banks and card networks.
Ongoing Costs for Payment Facilitation
Once you’ve been authorized as a payment facilitator, the ongoing costs continue often exceeding $100,000 a year. Costs, including engineering, security, and maintenance are just a few expenses to consider when determining whether or not to become a payfac.
Risk and Compliance
Beyond the 3-5 months and an average of $250,000 necessary to obtain Level 1 PCI compliance, as a Payment Facilitator risk and compliance programs need to be completed.
Building a data retention and privacy program as well as making sure encode card networks are met (2-8 months and $300,000) increases the cost of $750,000.
A payment facilitator sub-merchant underwriting plan is also required and should include guidelines and tools for post-boarding operations. This includes monitoring sub-merchants to ensure they are not engaged in inappropriate or illegal activities and ensuring adequate consumer refund policies are in place.
Approximate Minimum Cost: $250,000+ per year (1 FTE at $150,000 per year and 1 risk analyst at $100,000 per year)
Customer support is an important part of any business model. The benefits of a good customer support team include repeat customers, more sales generation, and better cash flow. As your payfac continues to grow, you’ll need to increase the manpower to include customer support for the health of your business and quality experience for your sub-merchants. This cost can vary depending on how many merchants you have and the total amount you’re processing every year.
Here’s are some of the potential costs of adding an in-house customer support team to your Payfac operation:
4 Customer Support Representatives
- Salaries and Benefits $141,284
- Customer Service Manager $45,726
- Hiring costs $20,645
- Software and Hardware $3,600
Total = $211,955 per year
Processing Costs and Fees
Similar to any business, payment facilitation requires hard costs that coincide with revenue generation. These processing costs and fees vary from basic merchant onboarding to cost per payment submission.
- Merchant Onboarding $5 per merchant
- Fraud Prevention $0.04 -$.010 per Transaction
- Chargeback $15 per dispute
- Funds Routing and Payout $0.25
- Reconciliation/ Reporting $5-$225 per form + $100,000 per year
- Annual PCI Validation $200,000 per year
- Renew PayFac Registration $10,000 per year
What Makes Stax Connect a Viable Payments Option for Your Business
If costs, risks, and compliance are concerns, you may consider partnering with Stax Connect. Stax Connect enables a wide variety of payment formats across all business types. It would normally take six to nine months to get underwritten and then another six months to a year to build the technology to become a PayFac. With Stax Connect you simply plug the API into the system and within a day or two you are up and running and can start signing up merchants.
Stax Connect allows you to have access to a full payments experience, including the latest in data optimizations, analytics and reporting, and optimized payments technology. All without the need to spend millions of dollars in time and money. We take care of the heavy lifting so that your business can focus on your customers and your platform.
With Stax Connect you’ll have access to:
- Access to Stax’ Dashboard
- Award-winning 24/7 customer support
- No need for custom engineering resource requirements
- Save costs on implementation, with no additional fees
- Easy enrollment allowing you to onboard customers in 20 minutes
- Access to the lowest credit card processing fees, in addition to the ability to adjust customer pricing
- Revenue Sharing
You’ll also have immediate access to an award-winning customer support team to help make sure Stax Connect continues to work seamlessly with your platform.
Eliminate the need to spend millions in development costs and let Stax Connect allow your business to offer custom pricing to your customers. Enable payments quickly at no cost and begin reaping rewards almost instantly.
Learn more about Stax Connect and find how you can quickly get started on monetizing payments today. We will be happy to answer any questions you have and help you leverage the best all-in-one software payment processing solution for your needs.