Remember MythBusters, the TV series where investigators Adam, Jamie and crew did reality checks for viewers on movie stunts and urban legends? In the payments solutions space, there are myths and assumptions about PayFacs (payment facilitators) and ISVs (independent software vendors) that also need to be confirmed or debunked.
PayFac is a hot topic — the term is now a verb, according to a recent series by PYMNTS and Visa that explores PayFac as a business strategy and how it will reshape payments. The series is worth reading, but it’s also a reminder there are misconceptions about the PayFac model’s potential as a revenue driver, what it takes to become a PayFac and how urgent it is to make a decision on PayFac status.
But first, let’s define PayFac for the purpose of this discussion: A PayFac is an entity that facilitates payments by seamlessly embedding the ability to enroll, accept payments and monetize software through a payment processing stream. With that definition in mind, here’s a look at three pervasive PayFac myths the ISVs considering payments solutions should know.
Myth 1: The PayFac model is the best way for ISVs to enable payments processing while multiplying revenue.
ISVs solve business problems for the merchants they serve by developing software for streamlining processes and extending customer capabilities. Most ISVs who contemplate becoming a PayFac are looking for a payments solution that takes the friction out of commerce for customers, but payments aren’t their primary focus.
A payments solution that can offset software costs by multiplying revenue is an attractive proposition, but it’s critical to understand becoming a payfac isn’t the only path to that goal. PayFac is one option in a larger subset that includes both retail acquiring and PayFac-as-a-service (PFaaS), a partnership that can deliver a seamless customer experience while lowering risk exposure and upfront investment of ISV time and money. In addition, many ISVs can be well-served by traditional retail acquiring – as long as the payment provider offers auto approval and frictionless onboarding.
Retail acquiring, PayFac and PFaaS are all options under the umbrella of payments-as-a-strategic asset (PaaSA). PaaSA enables payments, facilitates monetization and empowers ISVs to create a compelling value proposition within the ISV’s vertical. PaaSA is a larger category with multiple ISV options. Key considerations when choosing a PaaSA are the customer experience to be delivered, ISV customization required and how account reporting and funding will be delivered. So, that’s one myth debunked: There are several ways to enable payments processing while multiplying revenue.
Myth 2: Becoming a PayFac is easier and entails less risk than working with a third-party payments solutions provider.
The software entrepreneurs considering becoming a PayFac should fully understand the complexity involved in that journey. Put simply, becoming a PayFac requires a substantial investment of time and money, and it also requires highly specific expertise.
An ISV who pursues PayFac status must obtain registration with card brands through an acquiring bank, which is typically an expensive and time-consuming process. To secure bank sponsorship, the ISV is also required to demonstrate proficiency in areas like underwriting, onboarding, managing fraud risk, handling compliance issues and other required tasks in a complex regulatory environment.
The right third-party partnership can provide ISVs with a single, easy-to-use integration interface that allows them to get payments solutions up and running quickly while taking on less risk exposure. Best-of-breed payments platforms can provide ISVs with a single integration point enabling ISVs to choose any path on the PaaSA journey – retail acquiring, PFaaS or full PayFac solutions. So, that’s two PayFac myths debunked: A third-party partnership can be easier and involve less risk for ISVs than becoming a PayFac.
Myth 3: ISVs have to make a decision about becoming a PayFac early in the development cycle.
This might be the most persistent myth — the mistaken notion that ISVs must make a choice upfront about what kind of organization they want to be and how deeply they want to delve into the payments function. In fact, ISVs can realize the benefits of monetizing payments with embedded software now and decide later if they want to take on the responsibilities and risks of becoming a PayFac.
A good third-party partner can guide ISVs on payments solutions along the way, working with software entrepreneurs to put seamless embedded payments solutions in place that enable enrollment, payment acceptance and monetization without the major upfront investment required to become a PayFac. Solutions and control can evolve over time, and if it makes sense at a later point for the ISV to become a full PayFac, that’s an option. So, that’s the third PayFac myth debunked: You don’t have to decide now.
There you have it — the truth behind three common PayFac myths. As a software entrepreneur, keep in mind there’s a continuum of PayFac services. Some of the biggest names in the industry offer a great API stack but on a self-service basis, meaning you’re on your own as you sort out use cases and manage certifications. You also have the option to get award-winning solutions on a curated basis so you can focus on solving business problems for customers instead of payments solutions. Like any journey, the path you take is up to you, but it’s always better to have a guide you trust while busting some myths along the way.