Page 29 - GS210502_flipbook

Education

arrangement, which creates a win for the technology
company. It gains an additional revenue stream without A revolution is taking place with
risks or support responsibilities in the payments side of
the business. the rise of the payfac, creating a huge
market shift for payments, especially
However, said technology companies are turned off by
confusing billing processes, inadequate customer support since the COVID-19 pandemic
and rogue MLSs, all of which create a bad experience is driving increased investment
for merchants that reflects negatively on the technology
company. Thus, these companies look deeper into other in new technologies to address
payfac capabilities. unmet challenges found in various
The full model industry verticals.

In the full model, the software/technology company
becomes a full-fledged payfac, registered with the card In this model, a company that has already gone through
brands. This brings an array of benefits, including: the process to become a full payfac offers other technology
• Creation of one MID for the payfac (the technology companies the opportunity to join its platform using such
company). It can then quickly set up sub-merchants a payfac-as-a-service or payfac-out-of-the-box type of
under the MID without subjecting them to a long, setup. Thus, the technology company sits on top of the
burdensome underwriting/on-boarding process main payfac and boards clients in a sub-merchant fashion.
• Full control over the merchant experience, including The hybrid approach brings more sophisticated payfac
pricing (flat rate, for example), customer support, capabilities to technology companies that might not
branding and other aspects. have the time, energy, nor resources to manage the full
model. It also allows the company offering payfac-as-a-
• Higher split of residual-related revenues, which helps service capabilities to quickly become profitable through
boost business valuation. adding other software companies and their respective
sub-merchants. There are significant costs to this setup as
• The ability to add embedded/integrated financial well, but it's not as expensive as the full model.
products such as lending, credit and other solutions.
Other considerations
The full model offers numerous benefits but comes with
significant costs and internal processes to manage. For While increasing numbers of payfacs will choose full and
example, to get set up, the technology company might hybrid models, I don't believe it's going to be a completely
incur $500,000 to $1 million for the requisite licenses, card smooth ride. Technology companies must still remember
brand registrations, compliance assessments, staffing, that the card brands will frown on sub-merchants
underwriting procedures, and more. Then, ongoing costs, processing over $1 million a year. In addition, while flat,
including compliance, can range from $50,000 to $200,000 easy-to understand-pricing of, say, 2.9% and 30 cents
per year. (Stripe pricing) for every transaction might be attractive to
smaller merchants, those processing $100,000 to $900,000
Experts usually don't recommend that a technology a year might find that those rates are too high and opt to
company adopt the full model unless it has a huge quantity go through the longer setup process with a traditional
of merchants that can make the investments profitable merchant processor.
within a relatively short time. Also, the card brands prefer
that all sub-merchants process under $1 million a year; So we'll have to keep monitoring this situation. It will
once a sub-merchant goes over this threshold, it would be interesting to see how the rise of payfacs contributes
likely have to get a traditional merchant account. So much to significant changes in the payments industry. This
depends on types of merchants using the platform. is obviously no longer your grandfather's or father's
payments Industry. It has become a millennial- and
The hybrid model Gen Z-driven industry powered by digital, integrated,
embedded solutions.
The hybrid model combines the best of both worlds,
bringing the best of the referral model, including lower
risks, and the best of the full model, including higher John Tucker is U.S. enterprise sales director for TreviPay (www.trevipay.
revenue splits, quicker onboarding and a better merchant com) and has over 14 years of B2B sales experience in commercial
experience. This is achieved by what's known as payfac- finance. Tucker is an MBA graduate and holder of three bachelor's
as-a-service, or to think of it another way, a payfac on top degrees in accounting, business management and journalism. To con-
of a payfac. nect with him, feel free to send him a connection invite via LinkedIn at
www.linkedin.com/in/johntucker99/.

29