Payment Facilitators, or PayFacs for short, are esoteric merchant acquiring entities that are really picking up momentum. We wrote an earlier piece that discussed the history of PayFacs if you want to get caught up, so for the purposes of this article we’re going to assume you already know what a PayFac is.
When it comes to PayFac it might surprise you to learn that a PayFac is not exactly consistent: there are different embodiments, just as there are various (too-often disgusting) flavors for your conventional ISO (independent sales organization).
As PayFacs mature we’re witnessing different takes on the model, all with their associated pros and cons. At the highest level we see the variability coming down to one thing: cost.
On one end of the spectrum you have PayFac as a service that’s as “easy” to stand up as an API… but you give away more of the economics.
On the other end of the spectrum you have to hire people, engage in some consulting/training if you’re not exactly sure how to handle merchant underwriting and risk assessments natively, but you get better economics.
Our lazy man’s graphic looks a bit like this.
But it’s not exactly this simple, naturally. What about the merchant experience, portability, and overall account penetration?
And still all of this begs the question: where does PayFac go?
It’s going to surprise nobody that the expected benefits of payment facilitation are (nearly) purely economic in nature, yielding increased margin for the payfac and substantially less for the backend acquirer, all of whom are public companies and need 10% CAGR.
So what happens? Do the processors do what they’ve always done and increase costs whenever given the chance? How long will that take? When should PayFacs or anyone riding on one be worried?
We’re going to answer these questions with a first-ever podcast, hosting Todd Ablowitz, co-founder of Infinicept, Caleb Avery, founder of Tilled, and Bob Butler, President of Payrix.
With software providers unequivocally accruing all the payments revenue in the processing ecosystem this dynamic can’t be ignored.
Why dont Payfacs backward integrate and build out their own processors?
I suspect they will all point directly to the card networks in 5-10 years. Processors have reached the end of their useful lives