Why build a payment capability when the alternative is so much better?


Written by Editorial Team

Published January 2021

In this article...

With the acceleration of the move to online platforms, especially since COVID-19, more and more businesses are seeing the value in being able to take payments online.

All sorts of businesses have online channels now. Take a simple example: a dentists’ practice. They want to be able to offer online booking facilities, provide secure communications, issue bills and reminders with links to a payment platform to take payment. Other examples include veterinary practices, schools, accounting software providers and companies providing mobile engineering and maintenance services – heating and plumbing engineers, windscreen and dent repairs and many others. Not surprisingly, the software providers that make the platforms through which these businesses operate are looking for ways to better support their clients’ move into online payments.

But it’s not straightforward and even the briefest glance from the customers’ perspective gives an insight into why not.

Customers don’t really think in terms of ‘payment’. Instead, they think in terms of convenience, security, and that’s the same whether they are buying on Amazon, Uber or at a local pizza place. Size doesn’t matter once customers get to the digital shopping basket – they want the same experience. That means guaranteed security and payment options that include their preferred channels – whether that’s a card, a digital wallet, PayPal or whatever – and, ideally, the opportunity to save their payment choices for next time.

An environment for specialists

The world of payments is complex and there are huge risks around technology, security and regulatory compliance. Companies that fail to protect their customers risk huge financial penalties and potentially massive reputational damage. Big businesses can invest in in-house expertise to build, maintain and up-date systems to mitigate those risks, but for small businesses payments are a problem. It can take months to build or integrate a payments platform and obtain a merchant account from a bank.

It’s the same for the B2B software providers. Payments are a risk: they are not principally why their customers come to them, and they are not where their expertise lies. But getting payments right has the power to add huge value to their customers, protecting and driving their revenues and reinforcing the relationship.

Recognition of both the challenge and the value of delivering high-quality payments functionality is driving the growth of a new concept in payments – the payment facilitator (PayFac).

A new model in payments

PayFacs sit between the online merchants and the rest of the payments infrastructure – acquiring banks, card schemes and issuing banks. They provide businesses with a means of rapidly accessing and delivering payments functionality while eliminating the time, cost and risk involved in setting up a payments platform of their own.

The PayFac model is actually quite straightforward and, in practical terms, it mirrors the software as a service (SaaS) model that so many software providers operate. Just as a SaaS provider ‘leases’ its platform – enabling its clients to leverage and benefit from years of investment and expertise in a specialised area – PayFacs enable users to access sophisticated technology, expertise in payments and established relationships with acquirers, card schemes and new acceptance channels.

Win, win, win for software providers

For software providers, using the PayFac model delivers a number of advantages. The first is that they can get their own customers – the merchants – up and running in payments much faster.

The second is that PayFacs are payments specialists: they are steeped in the language, technology and processes of payments. PayFac solutions such as Evolve from Pay360 are robust and secure by design: they are born out of decades of payments experience and expertise. PayFacs deliver reliability and security, removing a huge burden and providing peace of mind, both to the merchants and the software providers who, let’s remember, are no more expert in payments than the merchants they are supporting.

Anyone entering the payments space is immediately subject to a barrage of regulation. From general financial standards such as PCI and PSD2 to ‘know your customer’ and anti-money-laundering requirements, which can create bottlenecks in onboarding customers to a payments acquirer, the burden for new and inexperienced operators – such as software providers – is huge, constantly changing and potentially overwhelming.

One of the breakthrough advantages of PayFac solutions is that they have risk management and compliance hardwired into the service. PayFacs have whole departments dedicated to staying abreast of regulatory and operational requirements and software providers can immediately tap into these resources to protect themselves and their customers, dramatically reducing the cost of compliance and risk mitigation while simultaneously improving the experience for the software providers’ own customers.

At the same time, PayFac solutions give merchants immediate access to the latest payment channels and features, and enable software providers to support their customers’ growth and increasing volumes of transactions seamlessly.

By making it easier and faster to start trading securely and to grow their online business, software providers can turn payments into a value add for their clients, in turn helping them to retain and build their relationships and attract new customers.

Payments as value drivers

Finally, PayFacs enable software providers to turn payments into value drivers and, in some cases, into drivers of revenue. By buying into high-quality payments provision, software providers can address a wide range of problems for their merchant customers: reducing lost or incomplete sales at checkout; providing insight into customer preferences through dashboard tools, and; removing the headache of regulatory compliance and financial and reputational damage.

But some PayFacs go even further, enabling software providers to turn payments provision into a profit centre in its own right. Pay360 Evolve rewards software businesses that become selected partners with revenue for every transaction processed. That means that with a single integration, software providers can deliver first-class payments functionality to multiple customers, enhancing their reputation as effective commercial partners, and add a whole new revenue stream to their operations.

The PayFac model, while still comparatively new, is rapidly gaining traction and it’s not hard to see why. In buying into a PayFac solution, software companies are able to deliver better outcomes for their customers while simultaneously avoiding the pain and risk, leaving them free to focus on what they do best.

Payments occupy a strange place in online businesses: they are both central to success, and also non-core. PayFacs offer a means of squaring that circle. With all these advantages, the question for software providers is not so much why use a PayFac but why not?

Click here to learn more about Evolve, our payment facilitator solution.