There’s no doubt about it, the merchant acquiring space is undergoing continuous change and innovation, and there are a lot of players both shaking up and disrupting the existing model.
But there’s one area, in particular, that Roy Banks, the CEO of NMI, tells Karen Webster is headed for the merchant acquiring graveyard – and rather quickly.
VARs and the traditional integrated payments software model.
Now don’t get him wrong, Banks tells Webster, integrated payments is a great concept – after all, what’s not to like about having payments integrated into the software that powers a merchant’s business. One seamless interface that makes running the business and managing payments easy, breezy is the holy grail for any business that accepts payments.
But, as Banks sees it, the integrated payments model is broken, because it still creates way too much friction for the businesses that VARs service today and/or may be targeting moving forward.
Before merchants take advantage of this integrated software, Banks says, they have to move through what he calls a “disjointed experience … including the always-painful merchant account sales, application and boarding process, which can involve merchants waiting sometimes even weeks until they are approved to accept payments.”
Banks goes on to say that, “in the integrated payments model, the software really isn’t payment-ready, because merchants can’t accept payments out of the box. The merchant must first call the integrated payment processor, which is a different company from the VAR to fill out a merchant account application and go through a rigorous underwriting and price negotiation process. This is a cumbersome multi-vendor solution full of friction and frustration for the merchant which often reflects negatively on the software VAR.”
And why PayFacs (payments facilitators), he says, will step in and displace traditional integrated payment providers from VARs who push an integrated payments model that doesn’t enable immediate payment acceptance for merchants when they purchase their software or SaaS-based solution.
Against that backdrop, Banks says that it’s not a stretch to think that PayFacs will move into position as an “integrated payments killer,” given its ability to offer merchants the “seamless and frictionless” ability to accept payments “right from the get-go.” With minimal upfront underwriting and near-instant merchant boarding, noted Banks, PayFacs are poised to “fulfill the vision integrated payments was meant to be” that doesn’t exist today.
Key to the category killer, added Banks, is the fact that with PayFacs, “with a simplified online merchant application integrated within the VAR’s software,” merchants can be enabled to accept payments immediately rather than waiting for and going through the frustrating back and forth merchant account application, sales and underwriting process with a VAR’s integrated payments provider to get to the same place. And, he added, the relationships with PayFacs are flexible enough so that merchants can transition to new channels of payments (mobile and online, for example) without having to establish additional merchant accounts.
And, we’re seeing evidence of it already, Webster adds. WePay enables instant payment acceptance inside of software platforms like Freshbooks. LevelUp does the same thing for its QSR customers. Banks agrees, suggesting that it’s only a matter of time before PayFacs become the payment acceptance mechanism inside of software as a matter of practice.
All that said, Banks tells Webster that he does see an opportunity for VARs going forward. The need to integrate software into payments is a real one. As business applications become more specialized by vertical, the ability to payment-enable that specialized software is critical. Payments, Banks said, are “oxygen to merchants,” especially smaller ones trying to get off the ground and gain customers.
But now is the time, he says, for VARs to focus less on the making the software ready for payments but rather making the merchant ready for payments, right out of the box.
“Integrated payments as we all know it today will not survive the innovative economy that has been created by PayFacs; I guarantee it, ” Banks tells Webster.
Unless, he offers, they creatively disrupt their own models and embrace the one that will allow them to become as innovative as the merchants they want to serve.