Podcast: Become a PayFac®. The Easy Way. Fivestars’ Journey.

Fivestars CTO Matt Doka recently sat down with Infinicept CEO Todd Ablowitz to share his company’s journey toward becoming a payment facilitator. Fivestars operates a marketing and CRM platform for small brick-and-mortar businesses. Initially, the company had no intention of incorporating payments into their platform. But they decided to experiment with an idea: could doing so help simplify their merchants’ efforts to bring customers into their CRM system by uniting it with the point of sale?

Fivestars chose to start with a turnkey solution that would allow them to quickly begin processing payments, and then later became a full payment facilitator. Doka shared details about their experiences – including why they made the decisions they made and what they would do differently.

Be sure to listen to the whole conversation, but below are a few of the key takeaways for software companies.

1. Owning the payment operations can and should help you reach your product goals. It did for Fivestars:

“The thing I’ve been happiest about is, it’s delivered on the product goals we had. It has absolutely increased our checkout times, the ease of use for consumers and merchants in store, and ultimately helped us grow our merchants’ CRMs and foster more connections.”

2. When evaluating any payments partner, even if it’s a turnkey provider, make sure you know up front exactly what services will be provided and what functions and costs you will still need to manage yourself. When a Fivestars merchant experienced chargebacks on the turnkey platform, Fivestars was surprised by its need to manage the process in-house:

“It was on us to collect the fees from the merchants, and it was not an easy process for a couple of reasons. One, it was just a total surprise that nobody told us that those kinds of shields for us in the middle weren’t in place. And that 2.9% didn’t actually cover any risk behavior. The second surprise was that it was still on us to go to the merchant, have the conversation, collect the money and trigger the money movement back.”

3. Regardless of your own strategy and whether you want to become a PF or not, you should still carefully consider how the choices you make initially will allow your solution to scale and evolve. When migrating existing merchants to its new processor, Fivestars had to obtain underwriting data from them all over again:

“The most costly part of becoming a payfac was the full-time individual contributor and the part time project manager and product marketing manager who had to grind through 100 merchants to get all the stuff and threaten to close the account if they didn’t move at some point. It was not a fun process.”

4. When you have an existing business relationship with your submerchants, your payments risk is quite low. Fivestars already had deep relationships with its merchants, which resulted in very little risk for them:

“Unless you don’t have any confidence in your merchant relationships, you gain nothing by selling the risk away for a lower margin. You gain nothing because the merchant is going to pay for that at the end of the day.”

5. Becoming a payment facilitator is probably faster and easier than you think. Once Fivestars decided to become a payment facilitator itself, the process went smoothly:

“The longest part of the process was intentionally on our part. We just wanted a really good deal, so we negotiated back and forth with processors for six months, took our time, and I think that was a good decision, because we ended up with what we thought was a really great partnership. But we could’ve gotten it done in a couple of days for the technology piece, a couple of weeks for the policies and procedures approval piece.”