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CoverStory

Ken Paull, Chief Revenue Officer at Cayan LLC, agreed, Paull noted that whether merchants are self-enrolling or
stating that the market has moved to integrated systems being signed by MLSs, they want to be online quickly, ac-
and traditional selling methods are changing, too. "Clo- cepting payments right away. "Traditional ISOs and mer-
ver, Square and other integrated solutions have enabled chant aggregators are using auto-enrollment, same-day
small and midsize merchants to use sophisticated, inte- activations and real-time underwriting to compete with
grated POS," he said. "As more VARs [value-added resell- Square, Stripe and PayPal," he said. "They're moving into
ers] sell POS software, we're seeing agents become VARs the VAR space, with advanced APIs and platforms that
and VARs become agents." easily integrate with mobile wallets and stored value sys-
tems."
Peter Fitzpatrick, Enterprise Sales Director at Agreement
Express Inc., a Vancouver, B.C. firm specializing in on- Fitzpatrick has observed "many shades of gray" between
boarding automation, foresees a future where niche-ori- ISOs and payfacs. "Small acquirers and ISVs [independent
ented technology firms dominate payment distribution software vendors] that resemble payfacs have similar re-
channels. "You'll see lots and lots of targeted, specialized quirements from an onboarding perspective but very dif-
verticals, each with its own unique way of assessing risk," ferent approaches when it comes to managing risk," he
he said. said. "The type of accounts they board will typically de-
termine the amount of risk each merchant represents."
When industry veterans Ablowitz and Deana Rich found-
ed payfac platform Infinicept in 2014, RunSignUp LLC was So how can ISOs and MLSs compete without becoming
one of their first clients. Based in Moorestown, N.J., the payfacs? Ablowitz said MLSs have numerous options.
cloud-based software company organizes races to benefit Seek out verticals you know and understand, then pur-
charities and boards about 1,000 races a month. Infinicept sue merchants in that space with solutions that go beyond
helped the company bring payment processing in-house. just acquiring transactions, he advised. "You may want to
"When we found them, they were offering PayPal, Brain- find a software package for a merchant group, or sell soft-
tree or Stripe," Ablowitz said. "Why let the payment rev- ware that includes payments, or sell payment facilitation
enue go [elsewhere], when they could be sharing that rev- to software companies," he said. "Find a restaurant POS
enue and improving customer experience as a payfac?" software and sell that."

Becoming a payfac enabled RunSignUp to set up each race Paull suggested selling turnkey services, such as en-
organizer as a sub-merchant, process payments through hanced reporting, ISV integration, faster EMV (Europay,
its master account and send net remittances to each race Mastercard and Visa) processing and gateway solutions.
organizer. Sub-merchants pay the company a flat rate of "For example, Party City had a long-standing relationship
6 percent per transaction to cover hosting, marketing and with an acquirer but needed enhanced security features,"
transaction processing costs. The impact of the change on he said. "We took the payment flow off the POS and got
RunSignUp's bottom line has been significant: it rose from them EMV support with minimal disruption."
$12 million in 2013 to $100 million in 2015 after the com-
pany became a payfac. "RunSignUp provides many more Compliance, security first
services to races than just payments, and becoming a pay- Ybarra's First Annapolis study highlights addressing risk
ment facilitator gave us the ability to monetize our ser- and security as a critical imperative. "Developing support
vices in a unique way that really works for our customers," models and offerings specific to aggregators may be a
said Kevin Harris, RunSignUp's Chief Financial Officer. significant opportunity for acquirers over the next several
Experience counts years, but it is important to also consider a plan for the
increased risk inherent in such models," she wrote. Indeed,
Experts have been saying for years that traditional acquir- a robust, holistic approach to security (from underwriting
ing, with its lengthy approvals and ambiguous pricing, is and onboarding through transaction processing) should
no longer sustainable in a world of one-click checkouts, be a paramount consideration for ISOs seeking to create
same-day deliveries and instant merchant accounts. But payfac-like experiences for their merchants and prospects.
that doesn't mean acquirers and their sales partners have This may require new ways of analyzing risk and security.
been shut out of the market.
A growing number of payfacs, for example, use nontra-
Holli Targan, a Partner at Jaffe, Raitt, Heuer & Weiss, P.C. ditional sources, like social media footprints, to evaluate
who specializes in financial technology, noted many pay- prospective clients. "It's easy to underestimate how ho-
facs lack the knowledge and experience acquirers and their mogeneous sub-merchants appear," Fitzpatrick said. He
sales partners have amassed. She said she is frequently pointed to specialized tools that can help better evaluate
contacted by payfacs seeking expertise in areas such as merchants. "Imagine using a Yelp score as a risk indica-
underwriting, fraud management and chargebacks, not- tor," he added. "A merchant with 4 and a half stars and 500
ing "they're going out and hiring industry experts to help check-ins would appear to be a trustworthy business. Spe-
build robust payments capabilities." cialized tools like this can be added to base underwriting
to evaluate specialized markets."

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