For many software companies, there are distinct benefits to becoming a payment facilitator: increased revenue as well as control over your products and the experience you provide for your customers among them.
But traveling down that road can be daunting. The payments industry is vast and complex, and approaching that ecosystem from the outside can leave software providers wondering whether they’ve gotten the best deal on the services they need.
During a session at the Electronic Transactions Association’s virtual TRANSACT Connect conference earlier this month, a panel of payment facilitator leaders described the reasoning behind their decisions to become PFs and shared their real-world experiences in determining how to put together a payment facilitator business that worked for them.
The session, titled “Don’t Get Robbed on The Path to Becoming a Payment Facilitator,” brought together Matt Doka, co-founder and CTO of Fivestars; David Giannetto, CEO of WorkWave; and Celine Kaiser, vice president of payments for Modernizing Medicine. It was moderated by Deana Rich, co-CEO and co-founder of Infinicept.
Rich pointed out that, depending on the types of payments they want to enable, a software provider looking to bring payments in-house might have to sort through offerings from payment processors, sponsors, hardware providers, and tokenization providers, just to name a few.
According to Kaiser, Modernizing Medicine put out an RFP to understand what they would need from outside vendors. But that method didn’t necessarily clarify the issues for them.
“Even reading the different RFP responses, every processor would come with a different approach,” she said.
The vendors offered differing advice and their pricing models varied widely, Kaiser said, further complicating the team’s efforts to understand the offerings available to them. She recommended identifying knowledgeable payments industry expertise – either in-house or from an outside consultant – to help make the decisions that serve a company’s vision best.
“It’s really important to have the expertise to decrypt the responses, because otherwise you don’t really know what you’re going into and you’re going to end up paying much more than you think you would pay,” she said.
Doka also acknowledged the importance of advice from true experts in the payment facilitator model. He described two sets of advisers as the “least helpful” during his company’s process of becoming a PF. The first was the internal finance team that lacked experience in payments, resulting in fear about the unknowns.
The second group was composed of the companies that “were not doing payment facilitation and didn’t want us to be a payment facilitator,” he said. The latter group emphasized the risk and the challenges, he said, concerns that turned out to be unfounded in Fivestars’ case.
A contact at the company’s existing processor ultimately helped his team develop a list of additional elements they needed to build their payment facilitator business, starting with a consultant to help them write policies and procedures and the software to run their payments system. That individual also provided multiple recommendations for outside help that could help meet those needs effectively and securely, so the company could compare vendors and identify those they were most comfortable with.
“It ended up being quite a smooth process,” he said.
According to Giannetto, the journey for WorkWave was not as smooth right away, because the company lacked knowledgeable partners early in the process.
“That’s really when things started to change for us – when we started to form the right partners around us,” he said.
One key partner for WorkWave was a payments attorney who understood software and contract law as well to help the company navigate its relationships and ultimately to gain more control over the process.
Giannetto pointed out that the emergence of the payment facilitator model continues to attract many new entrants looking to get a foothold in the space. As a result, his team found that much of what was advertised to them as options was still in the concept stage.
“You can’t afford as a payfac to be the vehicle to help some other company succeed,” he said. “You have to find somebody that’s established, with a good reputation.”
Giannetto also noted that new PFs entering the space now have peers they can turn to for advice – people like those on the panel who have been through the process and can talk to them about their own paths.
You can view the full session here.