Becoming a payments facilitator has become a trend among ISVs, SaaS platfroms, and marketplaces. Many companies want to incorporate payments processing as a part of their suite of services. A panel of payments industry professionals came together during the MPE 2021 event to address the questions related to different aspects of payment facilitation and aggregation strategy and operation. I had a pleasure to moderate this session, and summarize it with six tips that you may find useful.
Payment facilitation & payment aggregation models allow SaaS platforms, marketplaces, and merchants with complex payment setup to provide their business clients with payment processing services in a streamlined and frictionless manner. At the same time, these models are associated with certain regulatory requirements and financial risks for the operator. Technological infrastructure development and maintenance and expansion to markets outside the EU & US are also among the most common challenges that merchants face when providing integrated payment services within their platforms.
Below are the six tips given during the session:
1. Define your business needs and plan ahead
There is more than one way to incorporate payments service as a part of your value proposition. SaaS platforms can create value by embedding payments within the platform while not being directly involved in the processing. Incorporation of payment upgrades platform’s ability to serve its users by granting access to both commerce and payments data via one single source.
Marketplaces may require a deeper involvement in the payments flow. Handling the entire flow from pay-in to pay-out is often essential for a marketplace. Thus, by becoming in essence a payments company marketplace can offer the best value proposition to users.
SaaS platforms and Marketplaces need to strategize beyond payments, there is a lot more value to be delivered via additional types of financial services such as card issuing, wallet management, and lending.
2. Explore available options for payment incorporation
ISO, Aggregator, Payment facilitator, Managed payment facilitator are all plausible options for your business. The right model will depend on your desire to be involved in the cash flow and your readiness to manage the operation and the risks that are associated with such involvement. Keep in mind, though, that your business may monetise payments even if it’s not directly involved in the payment processing.
You may start out from one model, such as ISO or a managed payment facilitator, and gradually migrate toward more complex models, such as aggregation and payment facilitation. The level of involvement will increase organically with the growth of your business. With the right approach you can monetise the partnership with the payment service providers.
3. Do payment service provider research
It is crucial to find the right payment service providers to support your business goals. Over the past few years best in class payment vendors have developed solutions to support marketplaces and other aggregation models. Moreover, many of these providers see collaborations with SaaS platforms and marketplaces as a strategic goal for the upcoming years.
From the market perspective, USA is the best served market where a sufficient number of PSPs offer support for integrated payment models including omni-channel payments. The UK is also a market with a sufficient number of payment service vendors available. In the EU the task to find a suitable provider may be somewhat more challenging especially if you need omni channel support. Other markets such as LATAM or Australia may present an even bigger challenge as the number of reliable vendors with good service records is quite limited.
Additionally, providing payment services in regions like LATAM comes with a number of challenges related to unstable processing infrastructure and a need for failover, ability to process payments in local currencies and accept local payment methods, manage FX and cross border settlement, as well as ability to handle local tax. Therefore, it is crucial to strike a partnership with the right provider that will handle these particularities seamlessly allowing the SaaS platform or a Marketplace the freedom to boldly expand into the new geographies.
4. Develop a strategy to manage your integrations
Payment orchestration platforms were designed to release the burden of handling integrations to multiple PSPs.
SaaS platforms and marketplaces often need to support and develop multiple integration to provide best in class service to their customers, thousands of development hours are spent on this task. The quality of the integration may suffer, as many features are de-scoped to save precious time, resulting in very basic and possibly unstable connections. It is best for the platform to dedicate available R&D resources to building new features that add value to the core product and outsource the task of payment integrations development and maintenance to a payment orchestration platform. POPs give the business flexibility to support tens and even hundreds of integrations at the same time.
Furthermore, payment orchestration platforms come packed with other essential tools that allow businesses to manage risk, monitor transactions, execute KYC verification, issue Payouts and much more. Additional value may be found in the payments data standardization, on demand reporting services, and dashboards designed to provide the most relevant for the operation teams.
5. Incorporate Right Fraud Prevention Tools
Transaction monitoring is an integral part of the operation when you are an aggregator of a payment facilitator. Requirement to screen transactions originates from the card schemes. But even in white-lable payment facilitator or ISO models often vendors want to ensure the legitimacy of transactions going through their platform. Transaction risk analysis serves you best when your traffic goes through one monitoring tool to allow better data analysis.
Customer authentication requirements change from market to market as well as consumer behaviour. Local payment methods also may bring additional identification challenges and unique fraud patterns. This is why it is crucial to have a fraud prevention tool that will allow flexibility in screening and risk assessment processes. The goals are to achieve optimal protection in any geography, address peculiarities of each market, and at the same time avoid the overload of unnecessary rejections and false positives. Chargeback guarantee is a feature that may be helpful when entering new markets where consumer behaviour is unpredictable.
6. Leverage Payouts
When managing a ISV or a marketplace consider your Payout Strategy as a part of the holistic payment solution. Just like with payment processing, payout methods, user habits, and regulation requirements vary from market to market. At the same time, it is crucial to allow instant payouts while keeping the costs low. Payment orchestration platforms may provide the vendor with abilities such as card issuing and lending tools, thus, enabling payout monetization.
This post was originally published in the POSitivity Magazine, Issue #89.