Today, many software companies and online marketplaces have taken on the role of payment facilitators. Payment Facilitation, or PayFac, challenges the balance of power in the merchant services space. Becoming a PayFac is a process that can be demanding at times.

To help better understand Payment Facilitation, 9 fintech experts share their thoughts about the most common mistake every new payment facilitator should avoid. Their insights may be helpful as your own business may be considering embedding payments, monetizing payments, or moving toward becoming a Payment Facilitator.

1. Trying To Take On Too Much, Too Soon

The most common mistake we see ISVs make when it comes to payment facilitation is trying to take on too much, too soon.
Payment facilitation has grown in popularity because of the combination of potential hyper growth and instant onboarding of merchants with very little up-front effort. It puts control squarely in the hands of software providers and makes the customer experience more seamless, resulting in a particularly appealing model.
However, we see software providers fail to understand or underestimate, the full payment facilitation picture which also includes program limitations, significant upfront costs, complexity, and the payments expertise required to succeed with this model. – Roy Bricker, Paragon Payment Solutions

2. Underestimating The Complexity Of Becoming a PayFac

In my opinion, a common mistake companies make is underestimating the complexity of becoming a Payfac and especially so in the ISV (Independent Software Vendors) segment.
One of the biggest challenge areas are billing and reconciliation. Payfacs need to be able to reconcile their transactions and fees against their processors as well as against individual sub-merchants. Understanding and planning for this challenge up front can save a lot of operational headache later on. – Yael Barak, 

3. The Strain The Underwriting Process May Put On Their Operations

In the simplest of term, most Payfacs don’t seem to realize the strain the underwriting process may put on their operations, as well as financial liability. They have to “get it right”, otherwise they are left holding the chargeback bag & not have enough volume elsewhere under their account to cover such card association/acquirer thresholds to remain solvent & profitable.  In addition, while they want the process to be quick/easy/painless, at the same time it needs to be thorough to protect them if the sub-merchant goes awry with who they bring on as customers. – Scott Tivey, Payometry

4. Lack Of Attention To Merchant Audit And Risk Management

One of the common oversights of payment facilitators is lack of attention to merchant audit and risk management, which are often perceived as obstacles to frictionless merchant experience. The friction is a consequence of lacking operational procedures as well as shortfall in the technological infrastructure. The solution is in the implementation of proper tools to enable the underwriting and monitoring personnel to streamline merchant audit processes. – Maria Brumberg, PaymentsOp

5. Devote The Necessary Time And Resources

Don’t underestimate the complexity of the payments space.  During my career I’ve had the opportunity to work with plenty of Payment Facilitators as well as ISV’s wanting to get into the Payment Facilitator space.  Inevitably each of these businesses have to decide if they are going all in on Payments or if they want to keep their focus on what they know and do well.  Each company needs to ask themselves how deeply embedded into payments they want to become.  Based on that decision, devote the necessary time and resources, or find the right partner(s) to help you accomplish your goals. – Drew Petersen, Blytzpay

6. Assembling All The Moving Pieces Is Harder Thank You Think

Do not believe everything you hear from so called Payment Facilitation experts who also work for a specific software solution.  Do your homework on who can truly help fast track your efforts to help you determine the right business model, the correct 3rd party solutions to partner with and the best acquiring bank to sponsor your transactions.  Assembling all the moving pieces is harder than you think. – Mark Bishopp, 3rd Party Payment Pros

7. Focusing Too Heavily On The Technical Integration

Focusing too heavily on the technical integration and development efforts instead of sales and marketing. Since a PayFac’s revenue is dependent on processing volume, go-to-market efforts are critical. Yet, figuring out how to sell payments into the client-base is often an afterthought versus an organization-wide focus. Introducing embedded payment capabilities should be treated just like any other product launch! – Joshua Silver, LaunchPath Group

8. Underestimating a Strong Partner

Clients tend to believe they need to be a PayFac, in order to benefit from fast boarding, be able to dictate payments schedules, or calculate pricing for their clients. A strong partner, who is a well-established ISO, combined with a strong independent processing platform can provide you with all the tools needed to disburse payments, set pricing, and even control the billing for your portfolio. A good ISO or already established PayFac can turn over accounts in a few hours, even streamline boarding and bill for services on your behalf while passing on 100% of the collection. A strong technology platform which offers the ability to handle disbursements, handle billing and has the ability to create processing accounts via API allows you to not only benefit from a card processing relationship, monetize your existing services and even create new revenue streams through creative billing strategies. There are so many options available to businesses today, for platforms or channels looking to leverage their client processing to their advantage. A strong partnership can provide the best parts of a PayFac without the high overhead when starting out. – Jordan Steinberg, Stonehill Consulting Inc.

9. Understand The Entire Payments Ecosystem

Take the time to understand the entire payments ecosystem – becoming a payment facilitator means you are becoming a payments company. Becoming a payments company means taking on risk, making it vital to understand what it means to be a payment facilitator from a risk perspective. Lastly, never underestimate the amount of work/resources that building a payments business entails (its often more than you would think). – John Jakobe, The Strawhecker Group