Payments Innovation

Merchants, PayFacs And Monetizing Payments Flows

How Software Companies Can Monetize Payments

Amid the seismic changes that have refashioned the payments landscape over the last few years — as large players get ever larger (such as the $22 billion Fiserv-First Data deal) — there is an opportunity for software-as-a-service (SaaS) companies and digital marketplaces to monetize payments.

And, as Christopher Connor, chief client officer at Payrix, told PYMNTS, the nature and role of the PayFac (payments facilitator) in outsourced payment processing services is changing.

Platforms and software companies serving merchants can leverage a partnership model to integrate payments and take control of that experience across any number of verticals.

Connor noted that historically, acquiring was centered around indirect sales channels, through independent sales organizations (ISOs) or merchant service providers (MSPs). The shift through the last several decades has been from the ISO to a value-added reseller (VAR) referral relationship — and now, to SaaS companies.

Consolidation Across Software

Connor noted that alongside the consolidation at the traditional acquiring level, there has also been consolidation across the SaaS landscape.

“We’ve seen consolidation within verticals, with software platforms coming together to create brands within, say, health and fitness, while maintaining the individual brand of the SaaS platform itself,” he told PYMNTS. “We’re also seeing it for government platforms at the federal, state and municipal levels.”

That consolidation, he maintained, is creating a better experience for the downstream customer — and opening up opportunities for companies based in the United States but that have global aspirations.

As Connor told PYMNTS: “Owning the process from end to end, through the entire lifecycle of a sub-merchant, creates a better experience overall for the end consumer who is purchasing something from a merchant.”

For the PayFac, too, the benefits are significant — historically, they had owned the front end, or sales piece, of the relationship with the merchant, while underwriting, risk management and settlement reporting were all handled by someone else.

Fully functioning PayFacs, by way of contrast, effectively become their own payments company, with all of those aforementioned operations managed in-house.

That paves the way for alternative payment methods, spanning Apple Pay or PayPal, for example, or local payment methods preferred across far-flung regions and currencies.

“One of the biggest changes we’ve seen is: Just who is the audience for payments? And in building the technology to support that,” Connor said. That means building and operating a platform that “goes both horizontally and vertically” to accommodate the PayFac that comes in and wants to establish its business. The next PayFac, said Connor, may have a different structure, audience and needs.

“The tech stack needs to be nimble enough to support multiple business models,” he noted — a scalable solution that solves for 90 percent of use cases and can be tailored for the remaining 10 percent of “edge” cases.

The Benefits of Nimble Technology

Nimble technology, said the executive, can support the smallest startup all the way up to the largest and most sophisticated enterprise-focused PayFac. Those firms, large and small, benefit from standard reporting, data collection and analysis across APIs.

“Taking the payment data and marrying it to the sales piece, gives the merchant full visibility into the business, to manage operations in a cost-efficient way,” said Connor.

Firms have access to an easy-to-use set of tools that allows them to onboard their customers, process their payments, and then provide reporting for them to reconcile inside an I-frame (HTML documents).

With the onset of integrated platforms, firms such as Payrix operate as PayFacs, offering hybrid solutions that are white-labeled and provide fully controlled, branded payments experiences. They need not find separate providers for payments, sales management and inventory management.

Connor offered the example of a salon owner who may have 10 different stations.

“Now, that same platform is also doing appointment setting and running the charges from each individual stylist through the software, and then paying out to individual banks,” Connor said.

The software provider that has partnered with a PayFac can now see additional top-line growth.

“In the old days, the 100 to 120 basis points spread was predominantly the revenue of the acquirer — you now have that spread becoming a revenue stream back to the software firm,” Connor told PYMNTS. “That added revenue and cash flow can be deployed into new product development, which enhances the end customer experience.”



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.