Payment Facilitator and Acquirer: “Beginning of a Beautiful Friendship”

Payment facilitator model emerged around 2010. During the decade that followed it triggered powerful changes within merchant services landscape. One of the effects we can see is rapid replacement of independent sales organizations by PayFacs, because payment facilitation services range far beyond ordinary ISO’s functions. Statistics, gathered by Statista company, indicated that during the 2016-2017 period PayFac-generated revenues doubled (jumping from $200 to $400 million). Before economic recession 2020, forecasted value of PayFac revenues for 2021 amounted to $4.4 billion. Despite (or as a result of) the impact of coronavirus on economy, many businesses might decide to go online and focus on electronic payments, boosting the demand for PayFac services. So, some payment facilitators might retain their revenues or even profit.     

Payment Facilitator and Acquirer: Symbiotic Use Case

Many analysts try to apply Darwin-style theories to explain the success of PayFac model. So, which particular pattern would provide the best description of payment facilitator behavior and relations with other entities (especially, acquiring banks)? Would it be some “predator-prey” model or rather some fitness function? What we know for sure is that some companies seem to be “the fittest” ones when it comes to the implementation of the PayFac model. These are companies with established customer bases, that they already control to a certain extent. Examples include independent software vendors, software-as-services providers (SaaS), venture capital firms, franchise owners, and others.

In some modern studies, a payment facilitator is, indeed, described as a predator, grabbing profits from under the respective acquiring bank (or other intermediaries). However, in reality, merchant acquirer and payment facilitator are partners rather than adversaries. They do not compete for merchant services fees but share them based on performed functions and responsibilities. It is a mutually beneficial, or symbiotic, partnership. First, PayFacs simplify the process of merchant underwriting and onboarding. So, merchants underwritten by a PayFac can start processing within hours from the moment of applying for an account. Second, acquirers are relieved from merchant lifecycle-related functions, as PayFacs perform these functions in their place. Third, payment facilitators get their justly-earned reward, which is much higher than the commission, received by an average ISO.

So, when payment facilitator concept emerged it was “the beginning of a beautiful friendship” (similar to the one mentioned in “Casablanca”), and not of some bloody feud.

As more and more companies are incorporating payment experience into their core products, in the years to come we might expect even more efficient service provision models to appear.