What are the Registration Requirements for Becoming a Payfac?
Written by Shannon LeDuff, in Category Latest Articles
In today's business environment, software companies have the ability to generate revenue on a number of fronts. Not only can they sell or license their software, but software as a service (SaaS) now include built-in merchant processing by becoming a payment facilitator (Payfac). This allows them to not only streamline payment services for their customers, but to create additional revenue through processing fees for payments made through the software system.
In providing this service, a SaaS provder helps merchants directly with payment processing needs instead of working seperately with an independent sales organization. Before this can take place, though, the SaaS provider must go through the process of registering as a Payfac. The steps to do this can be daunting without the right team and process in place. Working with an experienced partner can expedite the process and help SaaS providers establish Payfac status.
The initial step to align with an acquiring bank for Payfac status is to demonstrate that the SaaS provider has sufficient capital. The up-front costs can run in excess of $100,000 to get set up, and can cost that much every year to maintain operations. Sufficient capital therefore demonstrates to the bank that the provider is not only serious about providing these services, but can afford to do so on an ongoing basis.
One way to avoid some of those upfront costs is to partner with a company that has already done the development work. Associating with a company with a Payfac software solution in place can save tens of thousands of dollars and give SaaS providers a head start in getting this service in place.
Risk and Compliance Requirements
One key element of what Payfacs do is manage the risks for the clients they serve. For an SaaS provider to do this often requires full-time staff devoted to risk management and appraisal work just to ensure they can handle and mitigate the risks involved. The acquiring bank with which they register will require the risk management foundation to be in place before establishing Payfac services.
Here again, the right partner can make a tremendous difference for SaaS providers looking to add this service on. Working with a company with risk management processes built into the software, and with a team in place to efficiently examine potential clients, gives a leg up and streamlines the startup time and cost considerably. Further, it eliminates some of the staffing needs these providers would otherwise have going forward.
Finally, the technology must be impeccable for an SaaS provider to register as a Payfac. Part of this means meeting security needs. Every transaction must include protection against identity theft and other kinds of fraud, as well as guarding against infiltration by hackers. Establishing that the provider meets payment security certification standards is critical to doing business in this area.
Working with a partner already established in this area allows SaaS providers to circumvent the lengthy coding and certification process. Moreover, it gives merchant account clients the peace of mind to know that their data--and that of their end customers--is in good hands. Finally, it sets up the SaaS provider to register with confidence as a Payfac with the acquiring bank. With so much ready to implement immediately, adding these services to software offerings is a sensible step for most SaaS providers.