Billions of People and Trillions of Transactions Define the PayFac Opportunity in Emerging Markets

Forging a 21st century commerce ecosystem on a global scale means changing consumer behavior, and merchant mindsets, particularly in markets where digital remains a small fraction of how consumers and merchants shop and pay. 

It’s also an enormous opportunity for PayFacs to accelerate adoption and acceptance at scale, using new technology that makes payments more efficient and secure but also paves the way for a more inclusive digital economy across the globe. 

Visa’s Simon Dahlman, head of value-added services and partnerships/CEMEA, and Chun Hsien Peng, vice president, seller solutions and acceptance/APAC, told PYMNTS’ Karen Webster that in these emerging economies, PayFacs become the bridge linking financial institutions (FIs), merchants and consumers, and cementing trust among all parties as they find out that digital money is as easy to manage and spend as coins and bills.

Dahlman and Peng are responsible for swaths of the map that are home to billions of consumers and trillions of dollars of commerce, much of it still done face to face, in cash transactions that pass from hand to hand, and none of it done as efficiently as technology might allow. 

As Peng said, “Small and medium-sized businesses are really a key area for both of our regions. Increasingly these small businesses are looking to PayFacs — because they have a more nimble tech stack, and they look at verticals in which the merchants themselves operate.”

Billions of People, Trillions in Transactions

The CEMEA region — short for Central Europe, Middle East and Africa — includes a population spanning 2 billion people and 90 countries. And viewed through the lens of demographics, the stage is set for digital money to take root, Dahlman noted. “This is a very young, tech-savvy population — a third of this population is under 15 years old [and] hungry for innovation.” With mobile devices in hand, and high internet penetration, financial services providers seeking to bring that innovation to the masses can leapfrog steps that would otherwise be in place as they shepherd the 75% of transactions — representing $3 trillion annually — still done in cash into digital channels. 

“It’s no wonder that there are a lot of PayFacs coming into the region,” Dahlman said. 

The APAC region, Peng added, has similar potential, where 23 countries are home to 4.3 billion people, equivalent to 44% of the world’s GDP. 

Peng pointed out that digital payments have seen significant adoption in countries such as South Korea, China, Singapore and Australia (where cashless payments account for 70% of payments volume). But there’s more work to be done in other countries, including Thailand and Vietnam. 

“These are the countries,” Peng noted, “where lack of financial access to financial services remains a significant issue.” Payments have also increasingly become a critical feature for super apps. 

“Ride-hailing is a perfect example,” Peng said, “where, when you call a cab, the payments are a natural part of the transaction.”

 And, just as seen in Europe, several PayFac had thrown their hats into the payments ring and sought to simplify the path for merchants to offer a broader range of functionalities. Partnering with Visa (through the Visa Ready Program), Peng said, simplifies the path for PayFacs to help merchants. 

Dahlman said a growing number of PayFacs are coming to Visa for fraud management capabilities through tokenization and authentication. “We help PayFacs by creating a roadmap,” he said. “As they expand geographically, and into new services, as well.” Against that backdrop, the PayFacs fill in needs that the traditional acquirers have not met. Peng noted a growing appeal in value-added solutions that transform credit, lending, loyalty and rebates.  

There are more than 250 registered PayFacs in the APAC region, Peng said, and the roster is growing. There are also more than 60 million “untapped” merchants that don’t yet accept digital payments, indicating just how large the greenfield opportunity is. A PayFacs acts on behalf of acquirers that have not yet reached those merchants, Peng said. “They become the distribution arm and the enablement of acceptance. … They understand the local needs and the payment methods that the merchants can accept that the consumers prefer.”

He said installation options have been a particular favorite among merchants that sell larger-ticket items into their respective markets. Dahlman chimed in that installments are finding wide acceptance in his region of coverage, too.

Gaining Merchants and FI Trust

PayFacs need to fine-tune their strategies on a market-by-market or regional basis, Dahlman and Peng said. Dahlman pointed to Africa, where two-thirds of the population is unbanked. Generally speaking, consumers are happy to wield cash to complete their everyday transactions and need to see tangible benefits to spur them to shift to digital. Mobile money operators, Dahlman said, have crafted that value-add by helping individuals send money home to family and friends across borders.  

For the merchants, he said, digital payments (especially newer features such as tap-to-phone) have a positive effect on understanding how their customers transact and how they can provide new payment options to get those unbanked consumers more firmly into the financial system. 

For the FIs, Peng said, the benefits come by making it easier for consumers to open bank accounts and cross-sell more services to individual and enterprise customers once those accounts are in place.

Asked by Webster how the landscape is changing for the PayFac model, Peng said that acquirers might have once looked at PayFacs solely as competitors, but now there’s a more collaborative spirit in the air. The PayFacs have the technical know-how to get value-added services into the field, and the FIs have the underwriting and risk control experience. “It’s a really good partnership,” said Peng. “When you can get an acquirer and PayFac to decide that they want to work toward expanding acceptance — together.”

Added Dahlman, “To be competitive in these markets that we have, and with all the local particularities, the PayFac really needs to be nimble. They need to be innovative. One solution does not fit all from a macro-level perspective. One may think the opportunity is huge, but once you zone in and you come into one country … the PayFacs need to localize to serve their clients in the best possible manner.”