PayFacs Bet Big on Digital Wallets in 2024

Nearly three times as many PayFacs as ISVs and marketplaces are enhancing digital wallets offerings, with those serving software publishers leading the charge.

Digital wallets are increasingly becoming a staple for processing transactions in the software publishing industry. Seventy-one percent of payment facilitators (PayFacs) have adopted this technology and are pushing innovation to enhance their capabilities.33%: Share of PayFacs offering merchant lending solutions to the software industry that want to innovate further

However, PYMNTS Intelligence’s latest study reveals the varying innovation priorities of players in the software industry. For example, while PayFacs focus on innovating digital wallets, marketplaces focus more on short-term merchant lending innovations.

These are just a few insights explored in “The Embedded Finance Ecosystem: Software Publishing Edition,” a PYMNTS Intelligence and Carat from Fiserv collaboration. This data brief examines the evolving role of embedded finance in the software producers and publishers segment. It draws on insights from a survey of 282 executives at PayFacs, independent software vendors (ISVs) and marketplaces conducted from May 10, 2023, to Aug. 25, 2023.

Other findings from the study include:38%: Portion of software industry transactions processed through PayFacs via digital wallets

Marketplaces and ISVs in the software industry lack in digital wallets innovation.

While many PayFacs have integrated digital wallets, 26% of ISVs and 25% of marketplaces have done so. With 38% of payment transactions in this segment conducted via digital wallets, PayFacs have gained a significant competitive edge by investing in this method. Still, ISVs and marketplaces can catch up by innovation in this embedded finance feature.

ISVs in the industry confront system integration and data availability challenges.

System integration issues present a significant barrier to launching innovations for 26% of ISVs in the software industry. This rate is more than double the average for all ISVs. Also, the same share cites lack of data availability as an innovation barrier, compounding this challenge. In contrast, just 15% of marketplaces and 8% of PayFacs identify system integrations as their main challenge.70%: Share of software marketplaces actively focused on enhancing embedded finance products

The focus on embedded finance and digital wallets innovation in the industry varies.

The varying innovation priorities of PayFacs, ISVs and marketplaces reflect the challenges and opportunities in navigating the eCommerce landscape. While 25% of PayFacs focus innovation efforts on risk management and compliance, a much smaller share of ISVs and marketplaces do the same. Conversely, innovating for operational enhancements is the mainstay for 50% of marketplaces.

Digital wallets and other embedded finance offerings have become critical components for success. The need for tailored innovations is increasingly evident as the software publishing industry modernizes its embedded finance offerings.

Download the report to learn how software publishers can navigate the diverse challenges and opportunities in embedded digital finance.