Hybrid Payment Aggregation
The decision to become a Payment Aggregator or Payment Facilitator has massive implications for a SAAS application provider.
A Payment Aggregator or 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.
Becoming a aggregator 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, 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 Aggregation solutions that offer the many pros of true aggregation without the significant investments of time and money.
All the good and no downside?
Right there is a catch and here it is: Your cost basis can be much higher
With true payment aggregation your cost basis may be in the 2.3% range [in certain emerging markets eg property management this can be less]. If you sell at 2.9% and 30 cents you have margin for revenue generation. True aggregation has upfront and ongoing expense. This margin can offset and in many cases drive significant revenue. This is how Stripe and PayPal make their money.
In Hybrid aggregation you will likely start much closer to the 2.9% and 30 cents as your cost.
To make money on payments side you need to price above that. You know your application best. To make Hybrid Payment Aggregation a viable option you likely need to address these questions:
- Will we primarily drive our revenue from our subscription fees or is payments revenue critical?
- If payments revenue is critical will our user base balk at typically higher than marketplace rates?
Based on this answers you will know if Hybrid Payment Aggregation is the right fit.
Contact us to have conversation on creating a solution for your payment needs.