When internet shopping became a phenomenon, companies like Amazon quickly turned their customers’ data into a competitive advantage. In the process, they became one of the world’s largest retailers. When the “sharing economy” began to take shape, application companies like Uber and Airbnb adopted millions of users and each put themselves in a position for a much-anticipated IPO later this year.
What do these industry giants all have in common? They, and many other companies, have built or expanded on their success by capitalizing on emerging technologies. They assessed technology’s implications for their companies, customers, and industries and then adapted their business models accordingly. In many ways, their business thrived because they were early movers on a seismic technology shift.
With changes in payments happening around us every day, it can be hard to keep up with all of the “new” tech around every corner. However, few new technology models have generated as much interest and speculation as “payment facilitation”.
A payments facilitator (or PayFac) allows any software company to offer merchant services on a sub-merchant platform, rather than through a channel partner. The PayFac does not have to underwrite all merchants upfront — they are instead, underwriting the merchants essentially as they continue to process transactions for them on an ongoing basis.
The payment facilitator role has some obvious benefits: to get the software provider the things it wants e.g: better economics from acquirers, increased ability to create the user experience it wants, and maximal control over its relationship with clients. This relatively new role provides larger payments developers a direct means to grow and expand their own revenue lines.
That’s not to say that becoming a payments facilitator isn’t without its own challenges. Whether they’re entering the operating model on their own, or utilizing consulting services and technology enablement companies, the task of becoming a payment facilitator can feel daunting. However, challenges often prove worth it for the experience of their sub-merchant, consumer, and value-chain ownership. Over the last several years, companies that assist payment facilitation have emerged, and opened opportunities that didn’t exist in the past.
One of the primary decisions these companies will make is in choosing a processor that will best fit their needs. They need to make sure they’re selecting a company that will provide the integration capabilities they need, and allow them to grow their business domestically, as well as internationally.
That means knowing exactly what the processor’s capabilities are, how many platforms they have built to accommodate different payment types and services, and what their back-end reconciliation process is for all sub-merchants.
Many legacy processors grew their business by acquiring smaller platform companies and gateways. While this has been a great way to expand their product offering from a merchant level, as the technology integrator, developing integrations to each of these platforms and then managing the back-end reconciliation, authorization and settlement process can be challenging, at best, and demand additional developer resources.
Development companies also need to understand their future needs for emerging payment types, card-present and card-not-present capabilities, and if issuing and loyalty will be part of their plans. As payments facilitation takes hold of the industry, newer technology companies have emerged to help quickly enable new payment facilitators.
However, many of these companies are focused on only parts of the business model, such as card-not-present. Many developers become quickly fixated on growing a single line of business, such as expanding CNP currencies, only to find out their acquirer partner doesn’t have the capabilities they need to continue growing their business. As a quickly growing developer, you don’t want to get in the situation of integrating to a platform only to find out a year later that your business has outgrown it.
RS2 has the unique technology platform and industry competence to assist the payments revolution taking place today. RS2’s payment’s platform, RS2Works, was engineered from the start to be a single global platform with multiple API configurations that allows for any developer to completely customize their payments services. RS2 is enabling the transformative nature of payments and payment facilitators just as those technology innovators of the sharing economy.
As a developer looking to expand market share as a payment facilitator, cost and capabilities become a main concern when picking a merchant services partner. Make sure you’re looking at cost versus just ease of use, as well as features and functionality of future capabilities. You may decide you want access to card-present, card-not-present, issuing, all card types, and all processing methods.
Ask your potential payments processing partner how many integrations you have to develop to get all of the functionality you need. What is the back-end reconciliation process like? How about authorization and settlement clearing? There are more complex features to take into consideration than just international currency.
The time and effort businesses spend in the beginning answering these types of questions will pay off in the long run.