How much does it cost to become a Payfac?

One of the main benefits to adopting the Payfac® model is the increase in revenue you get from each transaction processed using your software. But of course, there is also cost involved. So naturally, any company considering the option needs to make sure the investment they’ll make in the Payfac model makes sense financially.

So how much does it cost? Fortunately, the range of costs to integrate payments into a software platform is already well established.

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The short answer is that you can expect to invest up to $500,000 to launch your payments business. That amount is about how much a software company with no pre-existing organizational expertise in payments and no current technical interfaces with payment gateways or processors is likely to spend.

But it could be far less, depending on your business and what you already bring to the table. Actual project costs can vary greatly depending on whether your company:

  • Has pre-existing platforms and / or technical integrations
  • Already has payments expertise in-house
  • Wishes to have fully loaded cost estimates or would prefer that work done by existing full-time employees is not allocated to the business case
  • Wishes to use payments consultants

Budget for launching a proprietary payment business

 
This budget exercise will enable you to develop a high-level estimate of your launch costs. A fully loaded budget looks like this:

Item #

Investment

Amount ($)

1

Build business case and strategy i

40,000

2

Recruit 1 in-house payments subject-matter expert ii

25,800

3

Complete RFP to select a payment processor iii

40,000

4

Develop policies and procedures for risk mitigation and compliance iv

40,000

5

Develop customer onboarding and servicing tools v

0-250,000

6

Recruit 1-2 service center staff for payments-related inquiries vi

21,500

7

Train service center staff (includes development of training materials) vii

40,000

8

Integrate platform with a payment processor / gateway viii

0-250,000

9

Update product marketing and sales plans, train sales team ix

30,000

10

Visa/Mastercard registration fees

9,000

11

Update product marketing and sales plans, train sales team ix

9,000

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To estimate your own costs, start with the table and modify based on your own situation.

  • If you already have payments expertise in-house, you will not need to factor in recruiting and hiring costs. Remove line 2.
  • Most software companies now purchase off-the-shelf software for customer onboarding and servicing. If you plan to do this, adjust line 5.
  • The costs to integrate your platform with a payment processor or gateway (line 8) can vary widely. Software companies with pre-existing connections to payment processors often assume that any new connections will be created by existing full-time employees. They treat this expense as a fixed cost and allocate $0 in this budget.Other software companies create a fully loaded business case with an allocation of $25,000-50,000. Those with no pre-existing payments infrastructure allocate more. Consult with your technical team to obtain a reasonable estimate.
  • If you are already selling payment processing through a referral deal with a third party, you likely already have payment sales expertise and marketing materials. If so, remove line 9.
  • Many software companies choose to exclude costs that are completed through existing full-time staff that are considered part of the company’s fixed overhead. If you plan to use resources you consider to be fixed costs, reduce lines 1, 3, 4, 5, 7 and 11 to reflect that.
  • Many software companies plan to use payments consultants to simplify and reduce costs. If this is true for you, adjust your budget accordingly, depending on the resources that are available to you.
  • Once you are satisfied with your budget, adjust the contingency amount (line 11) to 15% of the total.

While these estimates are just the beginning, they can help you decide whether offering your own payments product is a path you should consider taking.

 

i 3-month allocation of financial analyst + @ $120,000 salary + 20% allocation of an executive team member @ $200,000 salary

ii Calculated at 21.5% of estimated $120,000 salary, source: https://www.topechelon.com/blog/placement-process/typical-placement-recruitment-fees-average/ accessed on 04/24/19.

iii 4 months of payments SME to write RFP, manage RFP process, analyze and score responses, select top vendors and negotiate deals.

iv 4-month allocation of payments SME

v Most companies assume they will outsource this cost and put $0 here. We believe $250k is a minimal cost for a simple ability to automate boarding and provide online servicing for customers.

vi Calculated at 21.5% of estimated $50,000 salary per employee.

vii 4-month allocation of payments SME

viii This expense can be widely variable depending on infrastructure and available technical resources. Many companies estimate this at $0 when using existing infrastructure and existing staff. Others allocate up to $250,000 when payment processing is entirely new on their platform. Typical is $50k-$100k when pre-existing infrastructure exists but a new payment processor needs to be integrated.

ix 3 Month allocation of product manager @$120,000 salary