The Most Common Payment Facilitation Mistake
The Future of Payment Facilitation
The most common mistake we see software providers make when it comes to payment facilitation is trying to take on too much, too soon.
Payment facilitation has grown in popularity because of the combination of potential hyper growth and instant onboarding of merchants with very little up-front effort. It puts control squarely in the hands of software providers and makes the customer experience more seamless, making the model particularly appealing.
The Fault Line
However, we see software providers fail to understand or underestimate, the full payment facilitation picture which also includes program limitations, significant upfront costs, complexity, and the payment expertise required to succeed with this model.
Payment facilitators need substantial cash reserves plus significant capital to support staffing of full-time employees to manage ongoing payment infrastructure support. This is because they take on responsibilities traditionally handled by payment processors including contracts, funding, reporting and customer services for sub merchants as well as risk and underwriting.
The payment facilitation model requires software providers to obtain financial institution sponsorship as well as undergo PCI audits validating compliance. Facilitators are required to pay registration and annual renewal fees of $5,000 each to Visa and MasterCard and are also 100% liable for their merchant portfolio.
To offset the high facilitation costs and risks, software providers need to make sure customers can generate enough revenue to make the model worthwhile. Without the large customer base and corresponding transaction volume, software providers likely will not have what is needed to cover all operational costs.
With these challenges, managed or hybrid payment facilitation models have emerged that afford software providers the many benefits of payment facilitation without the burdens. While program specifics vary between providers, in many cases there are no requirements for upfront capital, in-house payments expertise, bank sponsorship, PCI audits, Visa & MasterCard registration or assumed risk & liability. ISVs get a more competitive payments program with instant, frictionless onboarding and a seamless customer experience. And, perhaps most importantly, software providers can gradually take on more in-house responsibility after gathering real life experience, rather diving into the payment facilitation deep-end, headfirst to sink or swim.
Look to the experts at Paragon Payment Solutions to help you effectively implement a lucrative payments program.