The European region, Lynsey Verrillo, Head of Enablers and Small Business at Visa, and Marc-Alexander Christ, SumUp co-founder, told Karen Webster, is home to 28 million smaller firms, which drive a significant portion of the region’s GDP.
And to fully embrace the great digital shift that has now transformed into the great omnichannel shift, payments acceptance is critical. So is a streamlining of back-end processes to improve invoicing and speed payments.
As Christ remarked, “cash flow is the biggest problem for smaller merchants.”
The conversation marked the fourth installment of the continuing series on PayFacs.
Through the past several years, said Christ, smaller firms have confronted a daunting issue: How to compete with the retail giants of this world.
These SMBs have made strides in targeting their audiences and improving their checkout, and the first iteration of PayFacs was to help them get their commerce sites up and running and take online payments.
The PayFac market is still fragmented and marked by various providers. As Verrillo noted, there are more than 200 unique PayFacs registered across the region — and they don’t all adhere to a single operating model. Some acquirers started on a journey to become PayFacs long ago and still maintain a PayFac presence serving certain verticals in certain regions across Europe.
Some eCommerce players have begun their operational lives as payment gateways, with the technologies in place to conduct payment processing — and by becoming PayFacs, they’ve captured more customer loyalty.
Then there are software vendors that have developed sector expertise that lends itself naturally to becoming PayFacs.
The Common Thread
No matter the business model, said Verrillo, there’s a common thread that runs through it all: “These different entities are trying to support their merchants,” she said, “with a full, end-to-end experience — and they’re coming in to solve specific problems.” The PayFacs tailoring their efforts to smaller merchants, she said, have helped give a tailwind to those firms, who typically have not had the sales volumes or growth potential that would have attracted larger providers.
Christ said the value proposition PayFacs — and providers such as SumUp, which helps merchants accept credit and debit cards with its terminals — can offer SMBs the opportunity to help lower the cost of payments acceptance.
For example, SumUp has found success in serving the micro-and-nano merchant segment, where in many cases those companies are run entirely by a sole proprietor. SumUp, he added, has been adding point-of-sale hardware and issuing to complement its core card reading business to bring a full spectrum of services to clients.
More Technologies and More Efficiencies
“Merchants are realizing that there is much more technology out there that they can embrace to help them run their businesses,” Christ said. Kiosks are among SumUp’s most recent product introductions as self-checkout remains attractive in the post-COVID era.
Providers, including SumUp, which covers 10% of the 28 million merchants in Europe, are also finding value in providing invoicing and other back-office functions that can help SMBs scale their business. The plastic card at the terminal, he noted, opens the door for a host of other integrations, leveraging the cloud to track inventory and even launch loyalty offers tailored to consumers on a market-by-market basis.
The emergence of PayFac as a service (and the unbundling of services), said Verrillo, has blurred the lines a bit, where traditional acquirers no longer view PayFacs as competition.
“They’re hugely complimentary,” she said of providers looking to become PayFacs and acquirers supporting those providers, and together “they are helping to reach tough-to-access segments, merchants and markets that demand the right capabilities and even language support” across Europe’s far-flung countries.
Looking ahead, Christ and Verrillo noted that there’s particular potential to serve the smaller players populating the restaurant, hospitality and retail sectors — and service providers such as landscapers and home remodeling firms. Technological advances and Europe’s embrace of real-time payments have enabled these forms to benefit from near-instant payouts. Digital payments, added Verrillo, can help SMBs get paid more quickly, improving cash flow.
As PayFac 2.0 takes root in Europe, said Verrillo, there’ll be two evolutions playing out: One will be the continued push to omnichannel commerce. The other movement will be towards SMBs consolidating their business with a few dedicated providers. (Visa, she said, has estimated that SMBs have on average at least four providers today.)
“We’re beginning to see,” said Verrillo, “PayFacs get better at developing an omnichannel presence and bring together the services for the businesses — and help show them where cards and other solutions can be tied to payments flows they’d not previously considered.”
Added Christ, PayFac Version 2.0 — and specifically, PayFac as a service — means that “small firms can focus on what they do best … building their businesses and serving their customers.”
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