Lately we started getting quite a lot of questions like: “What is required for a SaaS platform to become a PayFac?”, as well as inquiries from SaaS platform providers. Indeed, SaaS platform providers already use many features of PayFac model, often without realizing it. So, they can, definitely, implement payment facilitation model in full and benefit from this transition. In response to questions and inquiries, we’ve decided to write an article outlining the key aspects, that a SaaS platform provider should take into consideration before trying to become a payment facilitator.
First, we are going to list the basic steps a company should go through on the way to becoming a PayFac, and then – describe the particular ways, in which these steps can be completed.
From SaaS platform to PayFac: key tasks
In fact, the key steps, that a SaaS platform should go through do not differ much from those, any other company should go through on the way to becoming a PayFac. They are described in detail in our respective white paper.
Find an acquirer and the technical solution
The first thing you should do, if you are a SaaS platform provider, is find an acquiring partner and go through underwriting process as a payment facilitator with this particular acquiring bank.
Then you will need the platform that is going to handle the technical side of payment facilitation services provision to your sub-merchants.
Risk mitigation and merchant funding
You will need to perform underwriting and initial scoring of your merchants, as well as merchant fraud and risk monitoring (for instance, the merchant might be on OFAC or match list). Beside initial check, you will need to perform ongoing monitoring of merchant fraud, merchant risk score, and chargeback rates. Finally, you will need to build efficient mechanisms for sub-merchant funding, chargeback monitoring, and chargeback handling.
You should remember that there are several types of risks associated with being a payment facilitator.
The first one is merchant fraud risk. If you are a payment facilitator, you can mitigate this risk by monitoring merchant behavior and detecting uncommon patterns as described in our respective article.
The second one is that merchant account applicants do not always provide accurate and credible information when applying for accounts. Moreover, some of them may represent high risk industries or illegal spheres of business. So, if you do not verify whether the prospective sub-merchant is on OFAC list or match list at the time of application, you might face serious problems and penalties during the next audit.
The third one is that many of the factors, associated with business, change over time. So, beside initial merchant data verification, ongoing monitoring must also be put in place.
How to manage the key requirements
In order to accomplish the listed tasks, you can follow one of the three conceptual approaches.
Integration with an existing provider: platform-as-service
You can integrate with an existing payment service provider that specifically caters to software platforms, such as Ziftpay or WePay. These companies provide everything you need as service. They already have the necessary logic and APIs that offer PayFac-specific tools which are not present among traditional gateways and that are easier-to-consume in comparison with the tools, provided by processors. Plus, these companies already have logic that is necessary for merchant risk monitoring and other things related to payment facilitation service.
You can license (purchase) an open-source platform, such as UniPay – Payment Gateway Software (that already includes most of the necessary logic), take it in-house, go through certifications (and re-certifications) with the acquirers you are going to partner with, and customize it according to your specific needs.
Existing platform extension
You can extend your existing platform by implementing a series of integrations: for example, integration with Agreement Express for initial merchant risk assessments, with Aperia (or Identity Mind) for merchant fraud monitoring, plus integration with some specific acquirer for merchant onboarding, payment processing, and chargeback handling.
If your business model is not very complex (say, you are operating within one country and only handle card-not-present transactions), then platform-as-service option is the cheapest one for you.
If the scenario you are going to follow is more complex, or if you plan to add new geographies to the scope of your operations, then it might be better for you to get full control of the whole process. In order to accomplish this, it is more suitable to build your own solution from the existing platform. However, in the long run, it might be easier and more profitable to use a ready-made product and customize it accordingly, than implement the necessary features one by one using your own development efforts.