Hybrid PayFac or Hybrid Payment Facilitation
The decision to become a Payment Aggregator or Payment Facilitator has massive implications for a SAAS application provider. There is a substantial cost and compliance requirements. Becoming a Hybrid PayFac can offer the vast majority of the benefits without the time, money and compliance requirements.
A Payment Facilitator [Payfac] can be thought of as being a Master Merchant that processes credit and debit card transactions for sub-merchants within their payment ecosystem. These sub merchants don’t have to go through the traditional merchant account application process and can typically enroll and begin accepting customer payments in hours.
Both the speed at which you can have new clients processing payments and eliminating the friction points involved in having the complete a conventional merchant account application make the Payment Facilitation business model very attractive to SaaS platforms that see the instant onboarding as vital to their applications success. Square is a very good example of a business that has successfully implemented this model. Go to WalGreens and buy the Square credit card reader, hop online and provide basic info including the bank account where your funds get deposited and 15 minutes later you can process our first payment.
Becoming a PayFac or PSP [Payment Service Provider] lends itself well to some businesses that fall into the software provider classification and particularly SAAS business service providers.
While there are certainly many benefits of being a true aggregator there are also significant financial requirements, PCI compliance obligations and ongoing operational demands. For a thorough overview of these risks/rewards read Payment Aggregation: Is It Right For Me?
These prerequisites to true aggregation often leave out the SAAS provider that does not have the financial wherewithal or does not want risk exposure. In particular SAAS startups that particularly need the instant customer onboarding to remove friction that may discourage adoption.
Fortunately there are now Hybrid Payment Facilitation or Hybrid PayFac solutions that offer the many pros of true aggregation without the significant investments of time and money.