Managed PayFac

1. https://www.agilepayments.com /managed-payfac/ Managed PayFac or Managed PaymentFacilitation Whether to become a Payment Aggregatoror Payment Facilitatorhas far reaching implications fora SAAS applicationprovider. A Payment Facilitator [Payfac] is essentially a Master Merchant that processes credit and debitcard transactions for sub-merchants within their paymentapplication. These clients or sub merchants don’t have to go through the traditional merchant accountapplication process and can typically enroll and begin accepting customer payments in hours. This instant onboarding can be a powerful customer acquisition tool and is how Square has been able to growso significantly. ManagedPayFac Becoming a true PayFac or PSP [Payment Service Provider] can be a great fit for businessesthat fall into the software provider classification and particularly SAAS business serviceproviders. While there are certainly many benefits of being a true PayFac there are also significantfinancial requirements, compliance obligations and ongoing operational demands. For a thorough overview of these risks/rewards read Payment Aggregation: Is It Right ForMe? These prerequisites to true aggregation often leave out the SAAS provider that does not havethe financial or staffing wherewithal or does not want financial riskexposure.

2. ManagedPayFac Fortunately there are now Managed PayFac or Managed Payment Facilitation solutions thatoffer the many pros of true aggregation without the very significant investments of time andmoney. All the good and nodownside? Payment Facilitation offers the benefits of EZ client onboarding as well as more ownership of the payment process. It also offers a recurring revenue stream from payment fees charged to endusers. Recurring revenue is the holy grail and becoming a PayFac definitely offers your organizationthe opportunity to create a new revenuestream. With the Managed PayFac model you might think your revenue share opportunities wouldbe reduced-after all you have all the benefits of being an aggregator and few of thedrawbacks. This may be the case but many times may not. Seems too good to betrue? The reality is that many SaaS platforms have a desirable client base from payment processing standpoint. If for example your client base is all medical offices or restaurants that client base isvery low risk, potential high volume business-VERY attractive as everyone involved in the payments process makes revenue from thosepayments.

3. Note: If speed to market and instant on-boarding is paramount a MarketPlace PaymentSolution offers zero liability, instant on-boarding and the ability to be up and running in as little as aweek. So if the business opportunity is viewed as very desirable your cost basis may be equal to orbetter than a truePayFac. Here is another reason: In the Managed PayFac model you are in essence a sub Payfac. There isa true PayFac that assumes all those compliance and regulatory and infrastructure costs. They create a platform for you to leverage these tools and act as a sub PayFac. They have a lot of insight into your clients and their processing. This level of insight mitigates much of the risk that Vantiv for example faces after approving a platform to act as a truePayFac. The question then becomes: “Why go down the true PayFacpathway?” The The Managed PayFacmodel does have a downside. In the true PayFac model a client at that medical office sees “My Medical” on their credit card statement. In the hybrid model if your Master PayFac is YourPay for example you would see “YPY* My Medical” on their statement [descriptor] where YPY* indicates YourPay as master PayFac. This may not be an issue or it may dependingon your businessmodel. Another reason to act as the true PayFac is you own the payment process and that customer.There is no one in between or involved. Certain business may valuethat. Contact usto discuss Managed PayFac paymentneeds. How is Payment Facilitation different from a traditional merchantaccount? Paypal/ Stripe/Square underwrite and provision the merchant accounts themselves and fundtheir sub-merchant’s payments. MOST importantly, PP, Stripe and Square assume the risks involvedin payment processing. These include fraud loss, chargebacks and nonpayment. Because of these risks and more [eg money laundering] there is a tremendous amount ofmoney, work, scrutiny and compliance to becoming a true PaymentFacilitator. A traditional merchant account provider will obtain information from the business owner that makes them comfortable enough to assume payment risks. This could include voided check, bank statements, copies of business license, personal license and more. As a Payfac these frictionpoints are removed and much of the customer vetting process is automated via APIcalls.

4. <<Download Payment Facilitation Options Ebook>> • Here are some pros and cons of PaymentFacilitation: • The disadvantages to the Payment Facilitatormodel. • Potential financialloss • Customer supportdemands • Integration|Developmentdemands • Approval process to become a PSP can beburdensome • Compliance with KYC/PCI and potential taxreporting • See video:Becoming a PayFac – What can goWrong? • The advantages to the Payment Facilitatormodel • Speed of boarding process: Being a Payment Facilitator allows you the ability tosetup sub-merchants very quickly, removing a choke point to new clientacquisition. • PayFac Model: Right foryou? • Customers love that it is so easy to get the account going with no paperwork or documentation burdens. This dramatically improves the client boarding process. Buya Square reader at Walgreens, go online and create your account and within 30minutes you can be swiping payments. That’s a very attractive acquisitiontool. • Merchant Control: Sub-merchants are under contract with you, the MasterMerchant. • Payment Facilitation – I Want be aPayFac! • Flat fee structure: Easy to understand flat fees for your merchant customers.No needs to understand interchangetables. • Earnings: Master merchants are able to earn money from network and transactional fees, and potentially float. This is the big one for most SaaS platforms contemplating going the facilitation route. FinTech has seen massive investment and the main attraction is recurring revenue. As long as people are taking payments revenue+profit is being generated. Think about a regular business selling widgets. Unless those widgets are razor blades the purchase frequency can be months or years. Contrast that with a business taking payments. You can see the allure of the payments business and why SaaS platforms look at paymentfacilitation. • Revenue is derived simply from the difference in buy rate from the processing networks and thesell rate charged to the end customer. For illustration, if a Payment Facilitator knows their true overall cost amounts to 2.4% of processed volume and they sell at 2.9% their margin is .5% ofdollars

5. processed. If they process $10,000,000 per day that works out to $50,000 in revenue per day.Very attractive business model and you might say sign meup. Not sofast. There is still the risk exposure that must be examined. Any business that chooses the PSP model will likely face loss from fraud, going out of business, non-fee payment, etc. It is possible an enduser signs up for your SaaS offering with the intention of committing payment fraud–it does happen. They are enrolled in your ecosystem and process $10k or even $100k using stolen card data. Who is on the hook for thatloss? If you suspect it’s you and your application you would be spot on. Going into payment facilitation without an understanding of your risk exposure is a fast way to lose your shirt. Mitigating risk and using technology to identify potential fraud is massively important. Your facilitation partner should provide automated risk assessment tools that minimize your exposure. These tools will do most but not all of the user vetting. You still need to know your customer and be aware especially when first onboarding of potential fraud. Most payment facilitation platforms offer controls to measurevelocity, funding, reservesetc. In addition, small dollar average ticket merchants that do very few transactions per month are typically not profitable. A merchant that does three $40 transactions per month might generate $4 in revenue. If acquisition, boarding and support cost an average of $40 per merchant, the ROI is almost a year to break even. So thought must be given to your target user base: Do we haveenough users so that payments volume will generateROI? As the PSP you will also be front line for payment related support and when money is on thelineyou know people want service ASAP. There must be thought given to the support burden when pursuing the PSP model. The more you “know” your client base and the potential for dollar loss the more informed your decision will be. Thought should be given to documentation and support systems that allow for as much self service support aspossible. So it for you? Definitely a decision your business needs to give a lot of thought to. If fast/easyclient boarding is a must the PSP model is very tough to beat. There is of course the risk mitigation that MUST be addressed. There are certainly cases where payment processors have gone down because they did not properly mitigate exposure. Customer service burdens are also a part of your decisioning. Typically you will also have an integration timetable to ensure the account provisioning, application process and KYC [know your customer] obligations are programmaticallycorrect.

6. From our experience the #1 question to ask is: Will payments revenue be a primary profit driver for our business? If yes then becoming a Managed PayFac or PSP is definitelyworth lookingat. Our role is to listen to your goals, wants and vision. After discussing we give you ouropinion on a best fit and why we thinkso. Contact ustoday