Rethinking becoming a pay-fac? Consider your provider

So you achieved pay-fac status for your business ... and you’re finding it’s not all it’s cracked up to be. Before you throw in the towel, the solution to a better pay-fac experience might be simpler than you think.

Maybe you went the traditional route and got sponsored by an acquiring bank, established a master merchant account, registered with the card brands and assumed the risk to underwrite and onboard submerchants yourself — all while providing payments technology for submerchants to process electronic payments and receive funds from those payments.

Or maybe you went with a managed pay-fac model, and you’re charging business owners for the privilege of selling on your platform and using your integrated payment services, while still offering them the convenience of boarding as submerchants through your provider without holding the master merchant account and the risk that comes with it, like fraud loss, chargebacks and non-payment.

Whichever pay-fac model you’re operating under, there are advantages to both paths — but they also come with their fair share of challenges.

It could be that you’re having a hard time turning a profit. Or you’re not getting the support you need. Or maybe you’re having trouble with your payment processing integration.

Whatever it is that’s leaving you frustrated, it could be that payment facilitation isn’t the problem, but the provider or platform you’re using is.

Whether you became a registered pay-fac on your own or went through a provider that enables you to function like a pay-fac, if you’re having second thoughts, read on. We’ll explore the top challenges that partnering with the wrong provider or platform can bring and how the right provider can make all the difference.

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Top 6 pay-fac pain points

Pay-fac solutions run the gamut from just an integration for a payment processing platform to models where the payment service provider holds the merchant identification number (MID) and is responsible for underwriting submerchants, allowing you to function like a payment facilitator without the risk.

That being said, it comes as no surprise that not all providers offer the same features or the same level of service. But, no matter what type of platform or provider you’re working with, there are some common pain points across the board you might be experiencing. Let’s dive in.

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1. Outdated software

The world of payments moves fast and is always evolving. If your payments software isn’t keeping up, it’s likely dragging your operation down.

Your small business clients expect you to offer the up-to-date functionality they need to run quick and painless transactions and accept all the ways their customers want to pay — debit cards, credit cards, ecommerce transactions, contactless payments, mobile wallets like Apple Pay® and more.

So, here’s the deal:

If you’re not seeing many software updates, processing speed has been slow, lagging or freezing, your clients are getting regular errors or mistakes, or your offering doesn’t have the capability to accept all the payment methods your clients need, the software you’re using might be behind the times.

Worse than making for a bad customer experience that could cost you clients, making do with outdated software can also be risky. Outdated software often means outdated security. And if you don’t have the latest security features in place, you’re leaving your clients open to data breaches, which spells reputational and financial damage for your business and theirs.

Not sure how your software stands up?

Conduct an audit to see if the payment processing software you’re integrating with is meeting the demands of your clients’ businesses.

If you’re finding gaps, or upset customers are complaining about them unprompted, it might be time to work with a new provider. Be sure to go with one who can offer you modern fintech with a payments processing platform that has the speed, ease, security and functionality your small business owner clients need for accepting payments.

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2. Complex interface or user experience

Aside from your payment processing software being outdated, another issue that could be making payment facilitation more challenging than it needs to be is a payments API with a complex interface or user experience.

It’s important to know:

Whether you’re working with a provider that takes on the responsibility while letting you function as a managed pay-fac or you’re a full pay-fac partnering with a provider for payment processing services alone, APIs can make or break your experience. The API merging your software with your provider’s payment processing solution should be able to connect to legacy systems or modern solutions with a single integration point — and be simple to use.

The same is true for your merchant boarding API. If you’re relying on your provider to automate the merchant onboarding process with an integration, your provider should offer a modern API that creates a frictionless user experience with the ability to customize the workflow and streamline the new account setup process.

However, all APIs are not the same.

As you know, there’s a wide range of API types, protocols and architectures out there. While the API you went with might’ve looked simple on the surface, maybe you found it’s much more complex than you bargained for in reality.

With everything else you have to manage, you don’t want to waste time and money on a tedious, complicated integration process. As a payment facilitator, it’s a must for your provider’s API to have a clean, up-to-date design that provides the functionality you need while offering speed, convenience, accessibility and usability. More than that, your provider should also supply clear documentation and supporting resources alongside the API.

One more thing to keep in mind:

Beyond integrating with the main payments processing software, you’ll want an API with the flexibility to deliver all the features your clients and their customers need. And you should be able to customize your solution by adding new functions quickly and easily without a separate, drawn-out integration process.

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3. High costs

The next pain point that could be putting a damper on your pay-fac experience is high costs without sufficient payoff.

Whether you’re paying for your own registered pay-fac platform or for the convenience of a managed pay-fac model, payment facilitation often doesn’t come cheap. Startup costs alone tally up to the hundreds of thousands, followed by significant monthly and annual costs to keep your operation going.

Let’s talk fees.

When partnering with a provider for payment processing functionality, there are varying costs required via monthly fees and per-transaction fees. Additionally, you share revenue with more parties in the payments ecosystem than just the processor. That means the margin on your revenue is lower than if you were to build your own payment gateway and hire an internal payments team, making it hard to turn a profit if you were given the bad end of a deal on pricing.

Maybe you went with a provider who had great rates to tout upfront, only to discover a trove of hidden fees once you’d already signed on. Or maybe you found out too late that their pricing structure isn’t the best fit for your transaction volume or customer base.

Here’s what it comes down to:

If the difference between your buy rate from the processing network and the sell rate to the end customer, multiplied by the volume you process, isn’t high enough, the pay-fac model could prove difficult to turn profitable.

Whether your provider offers a revenue sharing program or an interchange plus pricing plan, they should deliver full transparency about their pricing model and fee structure for card payments, so you know exactly what you’re paying and receiving on each transaction. Beyond payment processing, if you’re paying a provider for a full suite of pay-fac capabilities like underwriting and onboarding, compare costs between various providers to make sure you’re not being overcharged.

Bottom line?

If you’re paying high costs without gaining sufficient revenue, there are better providers out there you could work with who will give you the honesty, respect and fair treatment you deserve when it comes to pricing.

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4. Insufficient or spotty support

Payment facilitation comes with a lot of complicated territory. Territory you no doubt want help navigating.

Holding liability for submerchants, maintaining PCI compliance, navigating the underwriting process, managing tax reporting requirements, staying on top of risk management, monitoring payment fraud, handling chargebacks ... pay-fac duties are varied and complex.

Depending on what you’re looking for, you may need a different level of support than what your provider currently offers. For example, do you want your provider to manage cardholder calls and customer concerns, including chargebacks and settlements? If your team can handle it, then maybe it’s not an issue.

The point is, every provider is different.

Some provide just the technology with little to no support, short of an online FAQ page or chatbot. Some outsource support to a third party provider. Some only provide support for certain functions, while others provide robust, local, in-house consulting for every aspect of the pay-fac model.

If your provider isn’t supplying you (or your small business clients) with quality support, in regard to your pay-fac duties or payment processing issues that may arise, that could be the reason you’re thinking becoming a payment facilitator might’ve been a mistake. It’s likely that you’re not in over your head — you’re just not getting the support you need.

If that’s the case, better options exist.

Being left in the dark to figure out complex issues on your own is the last thing you need. Look for a provider that offers expert service, backed by a team of professionals who are just a call or email away to help you tackle problems and find solutions any day of the week.

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5. No clear way to scale

Another common pain point for ISVs operating within a managed pay-fac model specifically is when the solution you started with isn’t the solution you need now.

This scenario might sound familiar:

Maybe you signed up as an unregistered pay-fac as your first step, anticipating growth down the road. And now, after you’ve built up your client portfolio and grown your revenue, you feel ready to take that next step to become a full-fledged, registered pay-fac yourself … except your provider is blocking you.

It’s hard to scale without the right support and tools, even harder if your provider is purposely standing in your way to keep you dependent. A good provider will have a built-in path for you to grow how you want, when you want, including the ability to level up, take on more risk and add more responsibility as you go, with clear steps and support for how to do so.

We get it.

The thought of making the leap from unregistered to registered pay-fac — and transferring the risk for submerchant accounts to your master merchant account — can be a scary prospect. But the right provider will give you the tools and flexibility to make the switch as painless as possible.

If your provider is holding you back, you don’t have to stay stuck in a bad partnership. There are plenty out there who will put your goals first and are built to scale at your pace.

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6. No way to support top-line revenue growth

Finally, if you want to become a registered payment facilitator yourself, you might need to obtain investments or get acquired by a private equity (PE) firm to foot the bill. But in order to get them to bite, you need to show your top-line revenue is growing so investors can determine your company’s valuation.

A big portion of your revenue comes from processing payments. But as you may have already discovered, many providers don’t have a simple way for you to recognize your top-line revenue from payment processing fees. Even though you’re facilitating the sale by making it possible for your clients to process transactions, in a managed pay-fac model, you typically only claim a portion of the funds from the processing fees of those transactions as your top-line revenue … which can make things a little complicated.

The takeaway?

Some pay-fac partners don’t make it easy to see and understand what your cut of those funds is or what percentage you can actually claim. And when you need to clearly relay that info to investors, it can turn into a real problem. This is where a split payments feature comes in handy — something a good partner should offer (whether you plan to become a registered pay-fac or not).

With split payments or split funding, you collect your portion of the fees at the time of transaction. Pulling funds from a transaction into your account in real time allows you to recognize your portion of the revenue without delay. It’s the difference between getting instant payouts you can use immediately to show your revenue is growing instead of having to wait weeks for your commission payments to come through. Plus, in addition to putting money in your account fast, it provides a clear look at exactly how those processing fees are breaking down.

It’s not enough for a provider just to offer revenue sharing.

They also need to provide you with a transparent revenue reporting system, so you can recognize your revenue as soon as your performance obligation as the payment facilitator is complete. If your provider doesn’t offer a built-in way for you to recognize your top-line revenue in a timely manner, you might want to think about looking for one that does. The right provider will give you resources to understand your top-line numbers and set you up to successfully gain interest from investors.

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Introducing a pay-fac partner that puts you first

If you’ve been experiencing any of the pain points we just went over, good news: You don’t have to abandon ship. Chances are the provider or platform you’re working with isn’t the right fit.

We’d like to help with that.

Global Payments Integrated offers an Embedded Payments solution that’s designed to provide ISVs like you with the support and flexibility you need for your pay-fac model to thrive. Here are some key values you get with our Embedded Payments solution:

  • Legacy solutions work with modern APIs and interfaces: You don’t have to choose between a system you can trust and one that offers modern functionality
  • Single integration point: No complex interfaces here — integrate your software with our solution using one simple API
  • Robust and local support: Our team of experts is always available to help educate, consult and support your pay-fac business — and assist with customer concerns
  • Functionality is à la carte and turnkey: Enable the features you need with the click of a button, whenever you want
  • Ability to scale at your own pace: Take on additional pay-fac responsibilities in the order and speed that’s right for you
  • Revenue sharing: Receive a 100% revenue share over small buy-rates every time your customers accept and process payments
  • Split Pay feature makes growing top-line revenue easier: Split, deposit and manage payments with one tool, so you don’t have to rely solely on referrals for revenue
  • International opportunities: Scale internationally with a single pay-fac solution — one partner, one integration — that works in the US, Canada and is expanding to the UK later this year

With our ProPay® payment facilitation registration, you can enjoy the advantages of being a pay-fac without the risk and expense of becoming a registered pay-fac yourself. However, whenever you do feel ready to graduate to becoming a registered payment facilitator, we’ll be there every step of the way to help make it happen.

Contact us today to learn how switching to a provider that puts you first could make all the difference in your pay-fac journey.

©2023 ProPay, Inc. ProPay® and TSYS® are federally registered service marks of Global Payments, Inc.® All rights reserved.
Apple Pay® is a trademark of Apple, Inc. All trademarks contained herein are the sole and exclusive property of their respective owners.

Erin Donnelly


Erin is part of the marketing copywriting team at Heartland, a Global Payments company. With a background in writing, editing and strategic communications, Erin works to tell meaningful stories for the small business community. In her spare time, she enjoys baking, reading and drinking copious amounts of coffee.

Erin Donnelly