The unsexy side of payouts

“Why can’t we do this on our own?

Thats a question I get asked a lot when I discuss payout options with prospective Hyperwallet clients, and I tell them the truth: you can. If theyre willing to invest the time and resources, theres nothing stopping these companies from building their own network of more than 50 partners globally; opening their own business bank accounts across the world; obtaining (and adhering to) their own money transmission licenses in different jurisdictions; developing their own secure and scalable infrastructure and user interfaces; hiring their own treasury team and maintaining their own customer support center; doing all of the other things that Hyperwallet does to provide one of the best-regarded mass payout solutions on the planet.

You get where Im going with this. Behind the razzmatazz of the payment products you use every day lies the unsexy mechanics of financial transactions—the plumbing—and it’s not an easy thing to replicate on your own. Its taken Hyperwallet years (and no small amount of capital) to get our platform and financial network to where they are today, and there are huge costs involved in keeping it running.

My own marketplace payment experience  

I used to run my own digital marketplace, and I found myself asking the same question I now regularly have to answer. Why do I need to work with a payout provider? Why not build this in-house? As I did some deeper research into this proposition, I was blown away by just the enormous cost of getting started. Aside from the reams and reams of paperwork Id have to complete, Id also need to pony up a few million dollars in legal costs. And then there was the timeline: 12-24 months. Ain’t nobody got time (or dollars) for that—and we hadn’t even started talking about the cost of opening and maintaining bank accounts in countries all around the world. 

Fine, I thought to myself, I’ll just use a money services provider thats licensed and has a decent network coverage. The rest I’ll cover with a patchwork of wire transfers and checks. It would be expensive, but it was hard to find one single payout provider who could cover the entire globe, and I didn’t want to integrate with multiple vendors. I just wanted to focus on my core business and not have to think about payments—just as we dont want to think about other non-core issues, like whether our email is working.

The trouble with payments, though, is that it requires a number of ancillary activities: I needed a treasury team to manage and segregate fund flows; a payment operations team to handle payment exceptions; a legal/compliance team to screen all transactions; a customer support team to handle any payment- related queries; a tax team to generate forms. These are highly specialized jobs, and the process of finding the right talent, recruiting them, training them—this was all time being taken away from my core business.  

The list just kept growing. It didn’t feel like true outsourcing. For e.g., When I outsource my email to an outside partner, I expect everything related to email to be handled by the partner. In the case of payments, relying just on the partner’s financial network and licenses wasnt turning out to be sufficient for our company to be completely insulated from all the background operations that make payments happen.

This is precisely why complete payout solution providers like Hyperwallet address such a critical pain point for the industry. Integrating one of these solutions means wiping your hands of all the messy (and expensive) work that needs to be done behind the scenes. All you need to do is tell your payout provider who to pay and how much, and everything that happens from there on is their responsibility: screening transactions, identifying the right payees, handling payment exceptions, providing customer support, handling tax forms, storing and securing the payment data, managing legal and compliance obligations with the ever-changing regulations.

For me and my marketplace, it was just impossible to build a business case for taking payments in-house, rather than using a payout provider. For example, the cost of just setting up the compliance component of the payment process can be between USD 2 to 3 million, and the fixed cost of keeping the lights running for that piece is somewhere around USD 7 to 8 million. We haven’t even factored in the actual cost of executing transactions on that infrastructure!

Find a long-term payments solution

If those costs have got you running scared to the first payout provider wholl take you, slow down. Its not enough to choose just any payments partner. What you need to know is whether your payout provider is a complete provider or just a temporary fix provider—because if its the latter, youll run into all sorts of problems down the line. 

You should begin by asking these five questions:

Can I rely on their global network to cover all geographies, or will I need to integrate with multiple providers depending on a specific geography?

Do they provide only part of the value chain, or do they provide the full suite of services so that I don’t need to think about payments anymore?

Do they have the proper licenses to be able to hold and transmit funds?

Do they provide customer support for payment-related queries so that my customer support team’s workload can be lightened?

Do they allow me to seamlessly integrate the payments into my existing workflow, or do I need to redirect my users to a third-party website and/or app?

Maybe you can rely on an even simpler test: does the partnership feel like youre buying a product or a full-service outsourcing agreement? 

Make no mistake about it—payments are critical and integral to your business, and it can be very tempting to keep the process in-house. However, unlike some other operations that can be easily replicated by building a product, the true power of payments lies in what you can’t see on the surface—and it is very expensive and time consuming to replicate that. 

For a more detailed list of questions to ask your payment services provider, be sure to check out this helpful ebook. If you want to take a deeper look at the cost of setting up functionality for payments infrastructure, this infographic is very informative.

About Simran Singh 

Simran Singh is the Director of Business Development and Strategy at Hyperwallet. Simran has more than five years of experience in the on-demand economy and graduated as a Palmer Scholar from Wharton School of Business. He also holds an undergrad degree in Computer Science and Mathematics from the Indian Institute of Technology, Delhi.

About Hyperwallet

Hyperwallet’s payout technology provides two-sided marketplaces and digital platforms with a frictionless, transparent, and reliable way to manage global payouts and enhance their sellers’ experience. With Hyperwallet, platforms can offer payout optionality across multiple currencies, enable financial management tools for their sellers, and streamline identity verification and compliance screenings – all through a single integration. Hyperwallet has offices in San Francisco, Austin, Sydney, London, and Vancouver. You can learn more at www.hyperwallet.com.