Payment facilitation is the process by which one entity, a master merchant, processes or facilitates payments on behalf of a base of sub merchants.

While becoming a payment facilitator appears an obvious choice for SaaS businesses, there are factors to consider with respect to pursuing aggregation or facilitation. Each business profile is different and distinctives around levels of maturity, client profile type and cash flow should all be weighed.

Here are the five key components that make payment facilitation a viable option:

1. Available Capital: Facilitation is a development intensive effort. Associated payment facilitation costs, including engineering, due diligence and maintenance, can easily exceed $50,000 annually.

2. Headcount: Risk mitigation and compliance requirements mean devoting full-time headcount to focus on ongoing payment infrastructure maintenance.

3. Payments Understanding: Pursuing payment facilitation means taking on additional obligations. Companies need to intuitively understand what can wrong, what comprises their financial costs (and what can be done about them!) and where they are exposed to financial risks.

4. Critical Mass: To clear the setup and ongoing maintenance expenses of facilitation, you need to generate enough offsetting revenue. Without enough clients (minimally multiple hundreds) and subsequent volume, you likely will not have the revenue needed to cover the costs involved.

For example, as merchant of record, let’s say you are able to net .4% on every credit card transaction processed. If your base processes $10,000,000 per year in aggregate, you would drive $40,000 in revenue.
If the average business processes $5,000 per month you need 170 clients to make the $40,000. So if your ongoing annual costs related to payment facilitation are $100,000, you can see why there is a need for a sizeable, active base or the growth prospects to justify the investment.

5. The Right client base. For a SaaS provider, payment facilitation may have a cost basis of 2.4% or more. To sustain the facilitation process, you need to sell your clients at a reasonable margin - likely 2.*% or more.

For more sophisticated businesses, the incremental payment processing fees may be material and become reason to stick with a traditional merchant account. For smaller businesses the convenience of the application makes paying higher payment processing fees worthwhile.
Rationalising your decision should take the nature of your client base into account.

Additional information on the key components that make payment facilitation a viable option and How to become a Payment Facilitator PayFac can be found at

Author's Bio: 

Agile Payment Blog. Payment Integration Solutions for Software Application Partners. Payment Facilitation Solutions for SaaS