According to Bain & Company, ISVs have the potential to address $35 trillion in payments, or 15% of the worldwide total, by integrating payments into their platforms. The digitalization of payments combined with consumer demand for one-touch commerce is driving software vendors in every industry to adopt payment processing within their platforms.
Payment facilitation, or Payfac, is a specialization of payment processing characterized by faster onboarding, faster funding and greater flexibility than traditional payment processing. Not every solution provider offers Payfac as part of their processing package – the reasons for this are varied and we delve deeper into the differences between traditional payment processing and Payfac in our blog, Payment Facilitators Versus Payment Processors – What are the Differences?
But more ISVs and SaaS companies are considering Payfac options when embedding payments into their platform to provide a seamless payment experience, satisfy customers and in many cases, gain a new revenue stream. And there are many options, from owning the Payfac experience to Payfac through direct providers to Payfac as a Service – and, in the case of Payfactory, real-time Payfac that involves minimal development effort.
Step 1: Evaluate Your Business
The first thing to know is “how” digital payments can be used. The three primary methods are at the point-of-sale (typically a brick-and-mortar store or restaurant), online or over the phone. Note that online purchases can be made through a computer, tablet or laptop (Ecommerce) or through a mobile phone (mCommerce).
- POS: Point-of-sale (POS) typically refers to the customer paying for a purchase in a physical location via a payment terminal (and can also be called card-present payments). Payment terminals should be equipped with chip card acceptance for credit and debit cards and near-field communication (NFC) technology for contactless credit and debit card payments (also called tap-to-pay) and mobile wallet payments.
- Online (Ecommerce and mCommerce): These are typically payments initiated via a computer or a mobile phone. These two pieces of hardware act as the “virtual” point-of-sale but because you are not purchasing goods in a physical location, they are card-not-present transactions. Credit and debit cards can both be used online, as well as mobile wallets, mobile apps, bank transfers (also called Automated Clearing House transactions or ACH) and alternative credit solutions, such as buy now, pay later (BNPL).
- MOTO (mail order / telephone order): These are typically payments initiated by the cardholder over the phone with a call center attendant or via physical mail. While the card is still not present with MOTO transactions, the difference here is that the merchant is keying in the data themselves and the cardholder is only speaking the number over the phone or writing it down on paper and mailing it in.
Step 2: Do the Research
It’s easy to get overwhelmed when starting out in payments research, but there are two primary integrated payment options – traditional merchant acquiring offered by a payment processor versus payment facilitation offered by a Payment Facilitator (Payfac).
Traditional payment processors (also called merchant acquirers) provide the systems and technology that processes the payment transactions, routing them to the card networks and the banks, receiving authorization and declines, and settling funds. Payfacs offer payment processing to companies, known as sub-merchants, through their own links with payment processors. Payfacs serve as an intermediary, gathering sub-merchant transactions and passing them to a payment processor for completion. You can learn more about both models in our blog.
It also helps to familiarize yourself with common industry terms, such as:
- Payment gateway
- Merchant onboarding
- Sponsor bank
- Sub-merchant
- Convenience fees, surcharge, service fees and platform fees
Get answers to commonly asked processing questions and definitions for payment processing terms on Payfactory’s FAQ page.
Step 3: Define an Ideal Integrated Payments Partner
Within traditional payment processing and Payfac, there are different models for ISVs to consider. What model is chosen depends on a number of questions that are helpful to define once the ISV has become familiar with payment processing. These can include:
- What is my desired revenue share from a partnership?
- What level of payment security compliance do I want from my partner?
- What kind of customer relationship management and support will I, and my merchants, receive from my partner?
- How involved do I want to be in the sales process?
- How quickly do I want to board merchants for payment processing?
Check out our blog, 6 Factors for ISVs to Consider When Choosing a Payment Processor, to learn more about other factors to consider, including transaction type, payment processing pricing, payment terminals, point-of-sale hardware, deposit timing and payment security.
Step 4: Choose a Payfac Model
There are many reasons why more ISVs and SaaS companies are turning to Payfac for their processing needs. The Payfac model simplifies the merchant account enrollment process and provides increased levels of control to ISVs. Seamless and paperless underwriting is at the heart of this model, accelerating standup times for merchants.
Once you have completed steps 1-3, you should have a good idea of how you want to process payments and what type of integrated partner is best for your business. Payfac comes in different models:
- Software Platform as the Payfac: Many ISVs are moving towards the value of Payfac by actually becoming Payfacs themselves. However, this is the most aggressive model typically only adopted by the largest ISVs because the time to become a Payfac can range from 12-18 months, the cost can reach into the millions, the ISV assumes 100% of the risk and liability for their sub-merchants and payment experience is required.
- Payfac Direct Providers: There are some larger providers that now provide payment facilitation as a direct service to sub-merchants that ISVs can integrate to. Here, the ISV can integrate to the payment platform and provide the platform’s Payfac services to their merchants directly. However, this is considered more of a “pay to play” model where the ISV is leveraging their processing only and there is no revenue share.
- Payfac as a Service: Payfac as a Service is the newest entrant on the Payfac scene. In this hybrid payment facilitation model, the Payfac payment service provider becomes a Payfac with Sponsor Banks; they act as a master merchant account and can set up sub-accounts for merchants same-day. The provider offers revenue share while taking on risk and liability.
- Real-time Payfac: Offered by Payfactory, real-time Payfac provides all the benefits of Payfac as a Service but with minimal development effort – in most cases, ISVs can be up and running with payments in less than one week. This is because Payfactory is gateway-friendly, meaning that we have integrations to over 100 gateways.
Scale Payment Processing with Payfactory
Payfactory was founded in 2021 by CEO, Ruston Miles, a 23-year payments industry veteran that believes payment facilitation is the future of merchant acquiring and in-line with industry trends for faster, more secure and seamless payments. He wanted to create a payment platform that was plug and play for ISV and SaaS providers, enabling these companies to swiftly implement payment processing into their software with minimal work while benefiting from an attractive revenue sharing model.
Today, Payfactory serves software vendors across healthcare, government & utility, retail, higher education and more with our gateway friendly, real-time Payfac service that encompasses 3 core pillars:
- Agility: A simple, fast payments integration for all software platforms.
- Seamlessness: A frictionless, fast merchant account go-live process.
- Integrity: No sacrificing of human service and support for the sake of speed and flexibility.
Contact us to get payment facilitation for your platform today.