Intro
You’re a SaaS platform with merchants, you need payment services to allow those merchants to sell stuff, you have a choice to integrate one or many payment service providers. You think that by reselling payments you might be able to increase your revenue and make it simpler/cheaper for your merchants… You’re therefore looking for a ‘PayFac’ solution, of which there an increasing number of options in the market that allow the embedding and reselling of payments. Your SaaS becomes the Payment Facilitator (PayFac).
Shuttle knows many of these providers and SaaS who’ve tried it or done it. We’ve heard from multiple people say —
“It’s the best thing we did”“It’s the worst thing we did”
… It just depends whether it’s right for you and your merchants.
Why consider it
- Get a margin from the transaction and therefore make more revenue per customer (SaaS + Payments business model)
- Potentially reduce your merchant’s payment fees
- Simplify/reduce your payment integration requirements
- Potentially increase customer retention by making your product more sticky
- You centralise the account management for your merchants (I mean, they’re going to come to you about payments anyway!)
What type of SaaS does this work well for
- SaaS with micro or small merchants
- All in one SaaS solutions i.e. all payment channels are covered off in the SaaS – invoicing, online sales, etc
- SaaS with merchants that are from one or two countries (since payments are licensed nationally)
- SaaS with merchants who sell low risk products
- SaaS with merchants who sell products that have low chargebacks, fraud and refunds, because the SaaS might be liable for those
- SaaS with a larger team especially customer service reps, since the SaaS company will now be the point of call for all payments related issues and upfront risk processes
What type of SaaS does it not work well for
- SaaS who do not cover off all the merchants needs i.e. the merchant receives payments via other channels (since they won’t be able to use your payments service in those channels)
- SaaS with mid-market or enterprise, they will get cheaper and better services elsewhere and will not be willing to go through procurement for a new payment service provider
- SaaS who’s merchants are higher risk or in certain industries
- SaaS who’s merchants who have a lot of fraud or chargebacks
The middle ground
Shopify is probably the best known SaaS when it comes to reselling payments. They used Stripe’s Connect model to do this. But Shopify realised that if they wanted to win larger merchants then they had to work with other payment providers. It meant that Shopify ran a hybrid model, reselling Stripe and working with other payment providers to increase customer acquisition and GMV. And of course they got their margin by charging an percent on non-Shopify payments.
It sounds right for us, how do we get started?
- Find out your Gross Merchant Volume (GMV) per annum
- Determine if this model will work for all or some of your merchants
- Approach payment providers that offer a PayFac solution with your GMV
- Negotiate a buy rate
- Ask what liabilities and responsibilities you will need to take on (risk, KYC, PCI compliance)
- Decide a pricing strategy to resell to merchants
- Equip your team with payments knowledge or employ a payments expert to be on team
- Embed the service
- Resell the service
What providers offer a PayFac service?
Before we get into the who, let’s talk about the what –
The best buy rates will come from providers that want to pass all the risk, KYC and compliance processes on to you, that will significantly eat into your profits if you’re not setup to handle this with team and processes.
Some providers offer a middle ground where you take some risk, but you will still have to board the customer. And very few providers will take the risk and onboard the customers for you but your buy rate will be weaker and at the end of the day once you add your margin in, the payment fees will be comparable to the list price of the payment provider.
The following are some payment providers that offer a PayFac as a service:
Adyen, Checkout.com, Global Payments, Stripe , UniPaaS, Worldline, Worldpay
What else could we do?
- Resell a gateway, instead of a gateway and merchant account provider, your profits will be smaller but you will be able to work with more customers and reduce your overheads significantly
- Build the entire PayFac yourself – done in the past but not necessary anymore due to the options in the market
- Use Shuttle to run a hybrid model or just get access to all the payment providers and services you need from one place. This will reduce your PCI scope, integration and maintenance burden, Shuttle will provide commission for certain payment providers to the SaaS where applicable.
