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Embedded Finance: The Time Is NowThe Time Is Now
Embedded Finance:

WITH JOHN TUCKER WITH JOHN TUCKER

The payfacs are coming – Part 2

By John Tucker Not all payfacs are the same
TreviPay When technology companies consider payfac capabilities,
A character nicknamed Socrates in Dan Millman's semi- they soon realize not all payfacs are created equal. There
autobiographical Way of the Peaceful Warrior said, "The are three main payfac models, and within each, a variety
secret of change is to focus all of your energy ... not on of configurations exist to maximize revenues and reduce
fighting the old, but on building the new." A number of risks. The three main payfac models are the:
traditional merchant processing companies understand
this. They are bringing to market integrated payments 1. Referral model
packages, along with programs that help technology 2. Full model
companies become payment facilitators (payfacs) instead
of fighting the old race-to-the-bottom battles of rate 3. Hybrid model
savings and cash discounts
The referral model
In The payfacs are coming – Part 1," published in The Green
Sheet on May 10, 2021, issue 21:05:01, I proclaimed that Simply put, Payfac technology helps facilitate, or expedite,
the payfacs are coming and discussed major nuisances payments between one entity (or person) and another
associated with traditional accounts that set the stage for entity (or person). So, for example, a technology company
disruption. is already participating in payment facilitation if it has
integrated a payment gateway into its platform.
A revolution is taking place with the rise of the payfac,
creating a huge market shift for payments, especially since With this setup, there's no risks to the technology partner
the COVID-19 pandemic is driving increased investment from a payments standpoint; the company isn't dealing
in new technologies to address unmet challenges found with underwriting, compliance, staffing, customer
in various industry verticals. New technology companies, support, billing, upgrades, infrastructure, etc. All of
often developers of innovative software, are attracted to that is handled by the technology company's merchant
the payfac model because they want to create a superior processing partner, which also manages the payment
merchant experience. gateway relationship.
If the annual 30 percent growth rate of payfacs continues, But while there are no risks here, the rewards are often
not only is there a strong chance we will get to 4,000 global low in terms of residual revenue share, depending upon
payfacs by 2025, but we could far exceed that number. By the partnership's terms. Some partnered technology
the end of the decade, we could see 10,000 to 15,000 global companies have negotiated exclusive agreements with
payfacs, and the payments industry, as we know it in 2021, merchant level salespeople (MLSs) who send them
will be forever changed. new merchant account leads, and the MLSs and the
company share the processing residuals. Due to the
highly competitive market, many MLSs agree to this

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