Much like independent sales organizations, payment facilitators are companies that act as the liaison between processors and the merchants on the frontlines of electronic payments. PayFacs exist for two reasons: to help payment processors serve far more merchants than they could on their own, and to make it faster and easier for small and medium-sized merchants to find processing solutions.

What Makes PayFacs different from ISOs?

While PayFacs serve effectively the same purpose as ISOs, they’re distinct from ISOs in that they operate differently, enjoying a higher level of control over merchant selection, onboarding, and pricing. They also bear more responsibility for underwriting and, in turn, more risk. However, the extra control over pricing and the ability to tap into a wider pool of merchants means that PayFacs are rewarded for the additional risk they take on, making it an attractive model for companies looking to maximize residuals. 


How to Get Started as a PayFac

Entrepreneurs looking to move into the payment processing space as PayFacs have some early decisions to make. The first is what kind of PayFac they’re looking to be. Traditional PayFacs fill the same role as ISOs, providing processing services for a variety of merchants across a variety of industries. However, Stripe also offers a PayFac program targeted specifically at software vendors looking to take control of their own payments for in-software transactions. From here on out, we’ll focus on the more traditional PayFac arrangement targeted at serving third-party merchants. 

In many ways, becoming a PayFac closely mirrors the process of becoming a registered ISO. A potential PayFac has to find an acquiring partner willing to take them on as a reseller. They then have to submit to a long and thorough vetting process for each of the major card issuers they want to work with. Finally, as with registered ISOs, PayFacs have to pay a $10,000 upfront fee to be onboarded to each card network and ongoing fees of at least $5,000 per year per card company from then on. 

As with ISO registration, it’s a long, expensive, often frustrating process. However, in some ways, it’s even harder than becoming a registered ISO because of the additional risk and control a PayFac absorbs from day one. 


Key Qualities of Potential PayFacs

Because of the unique challenges PayFacs face, there are certain factors that play heavily into whether or not a company has what it takes to succeed in the space. While the list is long, three of the more important are a large pool of available capital, a highly experienced team, and customers already in the hopper. 

New PayFacs Should Be Well Capitalized:

Registering with the card companies alone costs $20,000 at a minimum, but because PayFacs are responsible for so much – like engineering, security, and underwriting – upfront costs can be in the $100,000 range with annual operating costs equalling that amount or more. As a result, it’s important for new PayFacs to ensure they have access to the capital they need to keep the lights on even if business is slow initially. 

New PayFacs Should Have Expertise In Place:

Payment processing is a complex industry, and the risk involved in onboarding new merchants is real – especially for PayFacs, which process merchant transactions under their own MID. As a result, it isn’t a good format for new entrants into the space without significant experience. In particular, an experienced and highly competent underwriting team is an absolute must right from the start. The need to have expertise in place to succeed as a PayFac is a major contributor to high operating costs even as a startup, but it’s absolutely necessary to minimize exposure to potentially fatal liability for bad merchants or fraud. 

New PayFacs Should Have a Large Client Roster ASAP:

While ISOs – even registered ones – have a little more room to breathe, PayFacs need to start generating as much revenue as possible as quickly as possible to ensure high operating costs can be covered. To ensure that happens, PayFacs need to reach a critical mass of clients well before capital starts to dry up – ideally in the very first year – and that means having a funnel full of qualified leads from day one and, ideally, agreements in principle already in place. Waiting until costs are running up to start the sales process is simply not an option. 


How do PayFacs Leverage CRM Technology?

Like their ISO counterparts, new PayFacs enter into an extremely competitive market and need to be able to hit the ground running. And like ISOs, many PayFacs turn to customer resource management software to help them build up a portfolio of clients as quickly and effectively as possible.

CRM systems empower PayFacs in countless ways, but there are three primary areas in which a good CRM can be a difference-maker: the sales process, ongoing service and support, and residuals management. 

PayFac Sales:

Recruiting merchants in a highly competitive environment is difficult. To succeed, PayFacs need to do two things: get more from each and every lead, and stand out from the crowd with a personal, laser-targeted sales process. A CRM helps PayFacs do both with advanced lead management tools. Everything from lead collection, to categorization, to the recording and accessing of lead data is made faster and easier. And because agents can quickly access the totality of stored merchant data in a matter of a few clicks, they’re better prepared for sales calls and meetings, and can deliver a more personal sales process that makes each prospective merchant feel like the top priority. 

PayFac Service and Support:

Growing a large, stable portfolio of residuals requires constantly bringing in new merchants, but it also requires keeping the top producing merchants happy. Because if a merchant becomes disenchanted, it’s extremely easy to jump ship to any one of the numerous competitors selling payment processing. As a result, top PayFacs need to provide unparalleled service and support to their merchants, and a CRM is an ideal tool to help do exactly that. CRMs make keeping in touch with clients easy, and some systems, like IRIS CRM, include built-in helpdesks to enable merchants to quickly submit support tickets whenever an issue arises.  

Residuals Management:

Residuals are what the payment processing game is all about, but they’re also a complex part of the business. Not only do PayFacs have to track and manage their own residuals, but they also have to carefully track and calculate their agents’ splits to ensure that each agent gets paid out the right amount, on time, every time. Crunching all those numbers manually is a major headache that eats up hours every month. But a good payments CRM can eliminate that work by automating residuals management and reporting. For instance, the residuals reporting tools included in IRIS CRM automatically combine processor reports to make them fast and easy to read, while calculating gross and net residuals along with agent splits instantly as soon as residuals numbers drop each month.

To find out more about how customer resource management technology can help new PayFacs and ISOs generate an immediate competitive advantage and maximize residuals growth, schedule a free guided demonstration of IRIS CRM today.