The past decade has seen billions of dollars spent on Payment Facilitation solutions and the FinTech industry has also blown up. Innovations in eCommerce, card offerings, alternative payment options, and the move towards Software-as-a-Service (SaaS), have all been invariably accompanied by investments in technology.
Payment Facilitation solutions are not just an enabler of accepting payments from customers – these solutions include everything from merchant underwriting, payment acceptance, split fees, white-labeled portals, flexible payouts, risk management, recurring billing, and reconciliation of funds against payment processors and financial institutions.
Moving forward, organizations looking to invest in a Payment Facilitation solution are facing a strategic decision with the following alternatives:
- Build their own custom software system
- Use a SaaS product from an outside vendor
This article outlines the advantages and disadvantages of the Build and SaaS options so that stakeholders can make the best decision for their business.
The case for build
Building a Payment Facilitation system is not a trivial undertaking. It requires experience in software development and expertise in the payment’s domain, so you will need to bring payment facilitation knowledge in house. Although you have 100% control over how the software functions, building software in-house comes with a great deal of responsibility. According to Project Management Institute (PMI), 43% of IT projects exceed their initial budgets, 49% are late and 14% fail altogether.
When a Payment Facilitation system is built in-house, the associated compliance and regulatory processes and documentation must be implemented and compliant with the Payment Card Industry Data Security Standard (PCI DSS). This is defined by the Payments Card Industry Security Standards Council to increase controls around cardholder data to reduce credit card fraud. Organizations handling large volumes of transactions that build their own Payment Facilitation system are exposed to rigorous validation process that involve an audit by an external Qualified Security Assessor (QSA). The number of organizations facing cyberattacks is growing every year. It is expected that 30% of companies will experience a data breach in the next 2 years. Will your business be ready for potential security risks if you build your own software?
A typical Payment Facilitation system will include integrations to a payments processor so the business can accept a variety of payment methods such as: Credit Cards, ACH, PayPal, and others. These integrations must be continuously kept up to date. Additionally, for the system to stay relevant as a long-term investment, it must stay current with new technologies. On top of that, ongoing maintenance will be required to keep the system up to date with changing business needs.
From a financial perspective, the upfront costs to building a Payment facilitation system are high, way before the system is ready for rollout. The value the system provides to your business only begins to be realized once the project is completed. This can take anywhere from 1 to 3 years. Building a highly scalable Payment Facilitation system can easily start at $1.5-$3 million. Operating such a system is also costly – you will need to maintain a team that is capable to manage, administer, develop, test, deploy and provide an overall quality assurance to match the Service Level Agreements (SLA) that customers demand. It can also be expensive to scale your Payment Facilitation software economically. There is a constant need to re-architect the system, which introduces an overhead, delays, and upfront costs for any new feature or change request.
According to the US Bureau of Labor Statistics, by the end of 2020 there were 1.4M unfilled software developer jobs. With software developments on the rise, the US is under the risk of facing a cashflow loss of $162B in incomplete software development projects if the shortage continues. With such a high demand for software developers, salaries also increased, causing the costs of building software in-house to rise.
Still, there are a few scenarios where building a Payment Facilitation system might be feasible. Larger organizations with expert resources and an appetite to build and support such systems in-house over time may consider building. Building a system may also be relevant for cases where the goal is to build a temporary one-time system with short life span that is expected to be replaced with an alternative long-term solution.
The case for SaaS
Software-as-a-Service (SaaS) is a software delivery model that provides access to software and its functions remotely as a web-based service. Under the SaaS model, software applications are developed and managed by the Payment Facilitation software vendor and hosted in the cloud. A SaaS Payment facilitation system from a proven vendor provides a launch pad for a successful project. Rather than “reinventing the wheel,” you can take advantage of ready-made solution, designed, and built with the best practices in mind, and implemented by software experts and payment professionals. Best of all, SaaS is typically offered with flat rate monthly pricing, so you won’t need to endure large capital expenditures (CAPEX) upfront.
Payment Facilitation vendors are primarily software and technology companies that build payment systems designed to work with financial institutions and other ecosystem partners. The advantage of a ready-made, fully developed Payment facilitation system, is that it has been tried, tested, and improved upon by continuous efforts on someone else’s expense. This also ensures greater stability, better documentation, less bugs, and incredible uptime.
Keep in mind that the Payment facilitation vendor assumes the responsibility for application development, maintenance, hosting, network infrastructure, backups, security and monitoring, allowing you to focus on your core business activities without the distraction of managing costly and complex IT infrastructures.
Payment Facilitation vendors are also more likely to invest in technology upgrades as part of their continuous improvement strategy. This investment in upgrades serves their many customers so it is recuperated faster than if it was built just for you. This makes updates and upgrades much more cost effective in SaaS business model. You will be the beneficiary of significant leaps in value every time a new version is introduced, at no cost to you.
Those vendors also invest budget and resources in R&D (Research and Development) to keep their platform competitive. They also make available a 24/7 technical support service to handle any issues that may arise. Such issues may be introduced by the payment processor or acquiring bank through which the payments are processed. In such case, and the vendor will typically have a direct link to the payment processor Network Operation Center (NOC) and will be able to get updates and resolutions for the issue fast. Some vendors have implemented a sophisticated monitoring system backed by artificial intelligence (AI) that can track everything from network, security, and even logical conditions that allows them to proactively alert the payment processor on expected failures before they even happen.
There are some disadvantages for Utilizing a SaaS Payment Facilitation system. The service provider retains the right to the intellectual property and the source code. They are also in control of the product roadmap and functionality. Using a SaaS system, you will also be entrusting your data with a third-party provider. This data may include personal and sensitive information about your customers which carries a risk should the provider fail to protect this data. However, the SaaS provider will bear all or most of that risk, and you should do the due diligence to ensure that the data is safeguarded at the highest level.
One item to discuss with the SaaS vendor is the ability to customize their Payment Facilitation platform per your unique business needs. These customizations may be related to your need to provide a cohesive branding experience for your customers and merchants, or your ability to process payments through specific payment processors. If you are expecting a constant flow of customization requests from your team, make sure the provider you choose has the ability to support you. If they only offer a black box, and what you see is what you get – that should be a red flag.