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Education
StreetSmarts SM
Embedded Finance: The Time Is NowThe Time Is Now
Embedded Finance:
WITH JOHN TUCKER WITH JOHN TUCKER
The payfacs are coming – Part 1
By John Tucker model offers. However, some companies using this model
TreviPay recruit with negligible screening. This opens the door
to many who have no prior industry experience or have
ccording to research compiled by payments questionable backgrounds that should exclude them from
platform provider Infinicept, the number the MLS fold.
of payment facilitators (payfacs) globally is
A an estimated 1,000 companies that handle This creates an array of problems, particularly merchants
approximately $1 trillion in total processing volume being lied to about rates and scammed by high fees. This
annually. The analysis also shows the annual growth rate causes reputational harm to the industry overall, not just
of payfacs is around 30 percent, which means by 2025, we to the agents and companies responsible. Often, rogue
could see over 4,000 global payfacs and around $4 trillion agents are in and out of the industry within a couple
in processing volume flowing through them yearly. The of months, leaving behind a bad taste in the mouths of
COVID-19 pandemic has accelerated this growth. merchants and technology partners to the point where
both are brainstorming ways to better control the
Of the current 1,000 payfacs, the biggest are PayPal, payments experience.
Stripe and Square. Those three have paved the way for Onboarding issues
prospective payfacs to better understand the model,
envision how to manage risks, and configure how they, Many inadequately trained MLSs don't understand that,
too, can jump into the game to reap rewards. technically, a merchant account is a line of credit. When
a merchant's customer runs an order on their credit card
In understanding the rise of the payfac, we have to begin for $300, the ISO/MSP deposits that transaction amount
with how we got to this place, which means identifying into said merchant's bank account within two business
the major nuisances associated with traditional merchant days, even though the customer has not yet paid for the
accounts. First, I'll examine the Wild West aspect of transaction.
payments.
Our own Wild West If said customer initiates a chargeback of that $300 with
the merchant unable to prove the legitimacy of purchase
Over the years, and in a variety of ways today, recurring (thus losing the case), the ISO/MSP will go to the merchant
nuisances associated with traditional merchant accounts to recoup the $300. However, if the merchant doesn't have
have annoyed merchants and a range of technology the money in their account, the ISO/MSP is likely on the
companies and value-added resellers (VARs) that partner hook.
with ISOs and processors.
As a result, most payment processors do a real, in-depth
A number of these nuisances derive from the fact that many underwriting review on every merchant before granting
ISOs use a 1099 merchant level salesperson (MLS)/agent them the ability to process payments. If approved, each
model, which many entrepreneurial salespeople prefer merchant receives a unique merchant identification
because they appreciate the freedom and opportunity the number. The issue here is that the underwriting process
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