Payments Models
The backbone of a successful payments strategy is the right payments model. See how the three most common models compare so you can determine which is the right fit for your business.
Payments Model Comparison
When you're looking to embed payments into your product or software, there are three main options you can choose from.
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REFERRAL
HOW IT WORKS
The software provider sets up a referral agreement with a third party, typically a payment processor, acquiring bank or ISO.
The software provider integrates their technology to a payment gateway so they can send transaction data to the payments system for processing.
The software provider then refers their merchant customers directly to their payments partner for contracting,underwriting, onboarding and transaction settlement.
MERCHANT BOARDING
Can be slow - dependent payments provider's timeline
LIABILITY
None
OWNERSHIP OF CUSTOMER DATA
None
CONTROL OVER CUSTOMER EXPERIENCE
None
SHARE OF PAYMENTS REVENUE
Lowest
MERCHANT SUPPORT
Disjointed - merchants are referred to third-party provider for any service related to payments on the software platform. The software company has no visibility into payments activity or issues.
AGREEMENTS / CONTRACTS
Between third-party payments provider and customer
PAYFAC-AS-A-SERVICE
(aka Payfac Lite or Managed Payfac)
HOW IT WORKS
Third-party payment providers(often Payfacs themselves) offer customized, white-labeled merchant applications and underwriting processes that the software provider can use with their clients. They also offer integrations that enable more streamlined merchant onboarding.
The software provider integrates their technology to a payment gateway to enable transaction processing.
Merchants contract directly with the third parties –not the software provider –for payments. The third parties also manage transaction settlement.
MERCHANT BOARDING
Branded - Faster than referral (with integrations)
LIABILITY
Varies - it is important for software companies to fully understand the treatment of risk and liability the provider is offering.
OWNERSHIP OF CUSTOMER DATA
Varies - can be negotiable
CONTROL OVER CUSTOMER EXPERIENCE
Minimal - mostly related to brand presentation
SHARE OF PAYMENTS REVENUE
Medium
MERCHANT SUPPORT
Varies - dependent on provider
AGREEMENTS / CONTRACTS
Between third-party payments provider and customer
PAYMENT FACILITATOR
(aka Payfac)
HOW IT WORKS
As Payfacs, software providers fully facilitate payments on behalf of their individual merchant customers.
They integrate their technology with a payment gateway to enable transaction processing. They control their own merchant application, underwriting and onboarding processes. They also control how their merchants are funded.
Payfacs position themselves as a single point of contact for all of a business’s operational needs, including payments.
MERCHANT BOARDING
Nearly instant - controlled by software provider
LIABILITY
Full - managed with available tools
OWNERSHIP OF CUSTOMER DATA
Full
CONTROL OVER CUSTOMER EXPERIENCE
Full - software provider can tailor underwriting, onboarding and funding processes to industry’s unique needs.
SHARE OF PAYMENTS REVENUE
Full - can be recognized as top-line revenue
MERCHANT SUPPORT
Best - software company manages payments support as part of its platform and has complete visibility into payments activity.
AGREEMENTS / CONTRACTS
Between software company and customer
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