Payfac vs. Traditional Processing: Merchant Application and Boarding Advantages

Payment processing has come a long way from the days of stand-alone payment terminals. Embedded and digital payments are becoming the new normal.

In fact, McKinsey has found that 50% of small businesses now run payment processing through their CRM, EHR or business managemnt software platforms, and 15% are in the process of transitioning their payment processing to their software provider.

As payment methods and types have become more diversified, so too have merchant options when it comes to the application, boarding and go-live experience.

In traditional acquiring, merchant application processing, approval and account onboarding can take up to two weeks.

But the increased digitization of payments is creating a demand to speed up the merchant application and onboarding process so that companies can begin accepting payments faster.

Payfac offers a more streamlined and efficient approach compared to traditional payment processing, primarily by simplifying the merchant onboarding process and providing a more integrated solution.

We break down some of the key differences between traditional payment processing and payfac in merchant applications and onboarding.

The Application Process with Traditional Processing

1. Application Process:

  • Detailed Application: Merchants need to fill out a comprehensive application form, providing extensive business and financial information.
  • Underwriting: The application undergoes a thorough underwriting process, which can include credit checks, background checks and a detailed risk assessment. 
  • Documentation: Merchants often need to submit various documents, such as business licenses, financial statements and bank statements.

2. Onboarding Time:

  • Longer Timeframe: The underwriting and approval process can take several days to weeks due to the thorough examination of a merchant’s credentials and risk profile.

3. Merchant Account:

  • Dedicated Merchant Account: Upon approval, the merchant receives a dedicated merchant account with their own unique Merchant Identification Number (MID).

The Application Process with Payfac

1. Application Process:

  • Simplified Application: Merchants fill out a shorter application form with minimal documentation requirements.
  • Instant Underwriting: Many payfacs utilize automated underwriting systems that can assess risk and approve applications quickly.
  • Less Documentation: Payfacs require fewer documents, such as basic business information and merchant identification.

2. Onboarding Time:

  • Quick Onboarding: The entire onboarding process can be completed in minutes to hours, thanks to the streamlined application and automated underwriting.

3. Merchant Account:

  • Sub-Merchant Account: Merchants do not get their own dedicated merchant account. Instead, they become sub-merchants under the payfac’s master merchant account, receiving a sub-Merchant Identification Number (sub-MID).

Key Advantages of Payfac in Applications and Onboarding

  • Speed: The primary advantage is the significantly faster onboarding process, allowing merchants to start accepting payments almost immediately.
  • Simplicity: Reduced paperwork and fewer documentation requirements make the process easier and more accessible, especially for smaller businesses or startups.
  • Scalability: Payfacs can quickly scale and onboard multiple sub-merchants, making them ideal for platforms and marketplaces that need to facilitate payments for many users.

Payfac also offers enhanced control and customization over traditional payment processing, providing businesses with tailored services that better fit their specific needs. This results in improved customer experiences, faster transaction times and reduced administrative burdens – making payfac a superior choice for businesses seeking efficient and flexible payment solutions.

The Payfactory Difference

For companies looking to harness the full potential of embedded payments, Payfactory offers a comprehensive payment facilitation platform designed to streamline payment integration and maximize revenue. With a focus on security, flexibility and user experience, we enable software platforms to effortlessly embed payment functionalities and tap into lucrative revenue opportunities.

Learn more about our seamless merchant application and onboarding process in our video, Payfactory’s Merchant and Partner Portal.

Adopting Embedded Payments Across the Ecosystem – Highlight on Healthcare

The market for digital payments is exceeding expectations, growing from $111B in 2023 to an estimated $193B by 2028.

Digital payments are done through contactless payment terminals, smart devices, mobile phones, and laptops. Digital payment drivers include the increased adoption of smartphones, real-time and P2P payments, and a desire for greater convenience.

Embedded payments go hand in hand with digital payments. Payment processing is seamlessly integrated with the software system. This creates one brand and experience.

Digital payments are an integral aspect of embedded payments, as the embedded payment offering should be enabled for all digital payment types, across all payment ecosystem touchpoints.

Today we take a look at how embedded payments work across the healthcare ecosystem.

The Growth of Healthcare Touchpoints

Anyone who has visited a hospital or doctor’s office recently can attest that payment offerings are becoming more varied. Healthcare’s adoption of digital payments arguably began with the pandemic, when in-person visits ceased, telehealth began, and payments were made online.

Shoot to 2024. Patients have returned to healthcare offices, and the number of touchpoints has increased. This could be through an app, a website, or a live visit, and may include payments or just communication. From booking an appointment, to requesting medical advice, to filling out a survey, there are a myriad of “touches” in the patient’s experience.

Payments are being processed at many touchpoints. More providers are offering patient portal payments. Others are offering in-app or text-to-pay for bills. And in-person payments with a payment card terminal are predominant for office visits.

Payments can be accepted:

  • Through a software system that specializes in a certain area of the hospital, such as the pharmacy
  • As a broader software offering
  • As a stand-alone solution provided directly by a payment processor.

“Perhaps the only good thing that came from COVID-19 was the evolution of virtual healthcare. Out of necessity, healthcare took a giant leap forward in digitizing patient care and payments, and as a result, this shift is shaping the future of healthcare and making technology a top priority,” said Ruston Miles, Payfactory’s CEO and founder of Bluefin Payment Systems. “To keep up with patient demand, healthcare organizations will need to provide more digital offerings.”

In fact, Onbe’s 2023 Fall Healthcare Payments Survey found that many physician practice groups are currently trying to figure out the right mix of payment forms to meet the needs of their patients. According to the survey:

  • 77% of respondents said that making and receiving payments digitally would positively impact their relationship with their healthcare provider
  • Medical refunds are especially ripe for digitization, with 59% of patients receiving payments via check despite the high costs, risk and decreasing popularity of this payment method

When considering an embedded payment strategy in healthcare, providers must answer the following:

1. What are the payment touchpoints? In the healthcare system, this would be where the payments are made.

2. How do patients like to pay at these touchpoints? There may be several ways to pay at one touchpoint. For an in-office visit, payment could be made with a physical credit card through contactless payments, or they could be made using a digital wallet with that same payment terminal.

3. What is the best software platform or payment processor to provide these payment types? A healthcare network could have a variety of software platforms and independent payment processors serving multiple touchpoints.

The Healthcare Payments Ecosystem

How embedded payments work in healthcare will differ with each provider and location. In Payfactory’s experience serving healthcare organizations, some of the most common payment touchpoints include:

– Admissions and emergency, where point-of-sale (POS) payment terminals equipped with contactless payments.

– Healthcare specialists, where mobile payments have become increasingly common, either before, during, or after an appointment.

– The cafeteria and gift shop, where POS payments are common for face-to-face transactions, and mobile / online payments could also be done for flower pickup or patient meal delivery.

– The pharmacy, where prescriptions can be paid for in-person or via mobile or online links.

Expertise in Embedded Healthcare Payments - Payfactory

Founded by CEO Ruston Miles in 2021, Payfactory specializes in embedded payment facilitation for software platforms across verticals. Ruston believed that payment facilitation would drive the future of payments with a seamless implementation and go-live experience for software platforms and merchants – but that security could not be compromised by increased speed and flexibility.

A member of the PCI Security Standards Council Board of Advisors since 2019, Ruston was at the forefront of developing North America’s first PCI-validated point-to-point encryption solution.

That’s why he designed Payfactory’s payment facilitation platform to include tokenization, E2EE, or P2PE – as well as customer authentication with 3D Secure (3DS) and additional fraud tools – as standard offerings through Payfactory and our partner gateways. This combination of embedded payments with security is crucial as healthcare continues to be targeted by cyberattacks.

Learn more about Payfactory’s platform or contact us to set up a consultation.

POS vs. Online Payments – What’s the Difference?

Consumer payment preferences have dramatically changed over the last 10 years – driven by both convenience and necessity.

Online shopping and the ability to have purchases delivered to your doorstop had already gained popularity in 2020. Then Covid exploded and in many cases, consumers were forced into the online realm – whether they liked it or not.

Now, the global market for digital payment solutions is expected to grow at a CAGR of 15.20% from 2023 to 2030, surging in market value to $24.31 trillion by 2030.

The growing adoption of smartphones, wider internet penetration, increased Ecommerce activities and innovative payment technologies are driving digital payments.

Digital payments encompass everything from credit card transactions, ACH transfers, digital wallet payments, peer to peer (P2P) payments and more.

And many of these payments extend across channels, meaning they can be used online, on a mobile device and at the point of sale (POS).

While Covid put online and mobile commerce in the driver’s seat, there has been a return to shopping in the physical environment and paying in-store at the POS. This “return” to retail and dining is propelling the market for payment terminals, up to $152 billion by 2029, a CAGR of 8.68%.

Companies considering an embedded payment strategy or seeking to expand on an existing payment installation must understand the nuances between POS and online payments – from both a consumer and partnership standpoint.

What are Point of Sale Payments?

Point of sale (POS) payments refer to electronic payments (not cash) made in a physical environment – whether retail or restaurant. Here, goods or services are typically purchased through a POS payment terminal, although in some cases, mobile to mobile payments may be exchanged. POS payments have evolved significantly from the days of swiping a credit or debit card in a payment terminal, incorporating advanced technologies to enhance security and convenience.

POS Terminal Payments

A POS terminal is a device that facilitates the transaction process by capturing payment information and processing the transaction. Modern POS terminals are equipped with various functionalities, including the ability to read magnetic stripes, EMV (Europay, MasterCard, and Visa) chips and contactless payment methods.

EMV Technology

EMV technology has become standard for card payments across the world, ensuring enhanced security through chip card technology. Unlike magnetic stripe cards, EMV cards generate a unique transaction code for each purchase, significantly reducing the risk of fraud.

Contactless Payments

Contactless payments allow consumers to complete transactions by simply tapping their card or mobile device at the POS terminal. Utilizing near-field communication (NFC) technology, contactless payments offer speed and convenience, making them increasingly popular in busy retail environments.

What Are Online Payments?

Online payments refer to transactions conducted over the internet, encompassing purchases made through computers and mobile devices. This method has seen exponential growth, driven by the rise of Ecommerce and the increasing use of smartphones.

Payments Made with a Computer

Online payments via computers typically involve entering card details onto a website’s payment page. This process includes multiple layers of security, such as encryption and tokenization, to protect sensitive information. Payment providers act as intermediaries, authorizing transactions and ensuring funds are transferred securely from the customer to the seller.

Payments Through Mobile Phones

Mobile payments have perhaps had the biggest effect on how consumers pay today. With the advent of mobile wallets like Apple Pay, Google Wallet and Samsung Pay, users can store their card information securely on their devices and in many cases, use biometric authentication (such as fingerprints or facial recognition) to authorize transactions. Additionally, mobile payment apps often support other payment methods, such as direct bank transfers and P2P payments.

How Do Point of Sale Payments and Online Payments Work Together?

The integration of POS and online payment systems is the foundation of an effective omnichannel payment strategy, enabling organizations to provide a seamless shopping experience across different platforms.

POS and online payments complement each other by catering to different consumer preferences and shopping contexts. For example, a customer might browse products online, make a purchase through a mobile app and pick up the item in-store, where they might also buy additional items using a POS terminal. This synergy not only enhances customer convenience, but also increases sales opportunities.

Unified Payment Systems

Many businesses are adopting unified payment systems that integrate POS and online payment processing. This approach provides a cohesive view of transactions across all sales channels, facilitating better inventory management, streamlined accounting and improved customer service. Unified systems also support features like cross-channel returns and exchanges, further enhancing the consumer experience.

Security Considerations

Both POS and online payment systems must adhere to stringent security standards to protect against fraud and data breaches. Technologies such as encryption, tokenization and multi-factor authentication are employed to secure transactions across all channels. By maintaining robust security measures, businesses can build trust with their customers and safeguard sensitive information.

Get Multi-Channel Embedded Payments with Payfactory

The continued evolution of payment technologies, from EMV and contactless payments at POS terminals to secure online transactions via computers and mobile devices, highlights the importance of a comprehensive multi-channel payment strategy.

At Payfactory, we leverage the strength of both payment models to enhance the customer experience and drive sales. Our embedded payment facilitation platform offers both POS and online payment options, backed by encryption and tokenization across all payment channels. Low to no-code development ensures quick and simple partner deployment through software platforms and gateways. Coupled with a seamless merchant experience and fast onboarding, ISVs, resellers and gateways can begin generating revenue in days – not months. Contact Payfactory to learn more about our multi-channel payment solutions

Maximizing Embedded Payment Revenue in Software

Embedded payments are transforming the landscape of financial transactions, seamlessly integrating payment functionalities into software applications and platforms.

Not only do embedded payments enhance the customer experience, but they also open up significant revenue opportunities for software platforms.

According to Juniper Research, the global revenue from embedded payments for embedded finance vendors will reach $59 billion in 2027, up from $32 billion in 2023. This incredible growth of 84% is driven by the increasing demand for a frictionless payment experiences and the strategic advantages that embedded payments offer to software companies.

For software platforms, embedded payments are crucial because they streamline the payment process for users, reducing the need for external payment gateways. This integration leads to improved customer retention and satisfaction, as users enjoy a more cohesive and efficient experience.

And software companies that embed payments directly into their platforms can capture a share of the transaction revenue, creating a lucrative new income stream.

What are the Revenue Opportunities in Embedded Payments for Software Platforms?

One of the most direct ways that software platforms can create new revenue is through transaction fees.

By facilitating payments directly within their ecosystem, software platforms can charge a small percentage on each transaction. This model is particularly effective for platforms with high transaction volumes, such as e-commerce, ride-sharing and food delivery services.

Another significant revenue stream comes from subscription fees for premium payment services.

Software platforms can offer enhanced payment features, such as faster processing times, advanced fraud protection and detailed analytics, for a monthly or annual fee. This tiered approach allows companies to cater to different segments of their user base, from small businesses to large enterprises, maximizing their revenue potential.

Additionally, embedded payments enable software platforms to offer value-added services like financing options, loyalty programs and personalized promotions. These services not only enhance user engagement and satisfaction but also provide additional revenue streams.

In fact, SaaS providers that offer embedded finance products to their customers can unlock two to five times more revenue.

How Can Software Platforms Quickly Monetize Embedded Payments?

Monetizing embedded payments quickly requires a strategic approach that leverages the platform’s existing strengths while seamlessly integrating new payment functionalities.

The first step is to partner with a reliable and knowledgeable payment vendor that offers flexible integration options and robust security features. This ensures that the payment experience is smooth and secure, instilling customer trust. To learn more about what to look for in a payments partner, check out our blog, 6 Factors for ISVs to Consider When Choosing a Payment Processor.

Next, software platforms should focus on the user experience by making the payment process as intuitive and frictionless as possible. 

This can be achieved through user-friendly interfaces, seamless integration with existing workflows, and support for multiple payment methods, including credit cards, digital wallets and ACH. By prioritizing the user experience, software platforms can drive higher transaction volumes and increase revenue from transaction fees.

To accelerate monetization, platforms can also roll out premium payment features and value-added services to their user base.

Offering these services on a subscription basis or as part of a tiered pricing model can generate steady, recurring revenue. Additionally, promoting these features through targeted marketing campaigns and personalized recommendations can boost adoption rates and overall revenue.

Finally, data analytics plays a crucial role in monetizing embedded payments.

By leveraging transaction data, platforms can gain insights into user behavior and preferences, allowing them to tailor their offerings and optimize pricing strategies. Data-driven decision-making can also help identify new revenue opportunities and enhance the overall effectiveness of the embedded payment system.

Get Seamless Embedded Payment Facilitation with Payfactory

Embedded payments present a significant revenue opportunity for software platforms, driven by the growing demand for seamless and integrated payment experiences. By capitalizing on transaction fees, subscription services, and value-added offerings, platforms can unlock new income streams and enhance user satisfaction. The key to quickly monetizing embedded payments lies in strategic partnerships, user-centric design and data-driven insights.

For companies looking to harness the full potential of embedded payments, Payfactory offers a comprehensive payment facilitation platform designed to streamline payment integration and maximize revenue. With a focus on security, flexibility and user experience, we enable software platforms to effortlessly embed payment functionalities and tap into lucrative revenue opportunities. Learn more about our platform or contact us for a consultation.

Adopting Embedded Payments Across the Ecosystem – Highlight on Higher Education

Paying for goods, services or bills can take place virtually anywhere today, thanks to the rise in digital payments – a market that exceeded $111B in 2023 and is estimated at $193B by 2028.

Digital payments mean just that – payments done digitally, whether through contactless payment terminals, smart devices, mobile phones or even just a laptop. The increased adoption of smartphones, government initiatives in real-time and P2P payments and greater convenience will continue to propel digital payments.

Fast on the heels of digital payments are embedded payments, where payment processing is literally embedded into software so that it is transparent to the consumers. The payment processor and the software provider are seamlessly blended and become one brand and one experience.

Digital payments are an integral aspect of embedded payments, as the embedded payment offering should be enabled for all digital payment types, across all payment ecosystem touchpoints.

How do embedded payment and digital payments work together across verticals? Today we highlight higher education and the myriad of payment touchpoints in this sophisticated ecosystem.

The College Campus – a City within a City

Colleges and universities are no longer just academic institutions. They have become destinations for sports tournaments, concerts, theater productions, public lectures and more. In fact, 23 universities make at least $125M annually from their sports teams alone.

Some of the largest higher education institutions in the U.S. are mini cities, where students can meet their everyday needs without leaving campus, from meals to shopping to healthcare.

In each location, payments are being accepted. This could be:

  • Through a software system that specializes in a certain area of campus, such as ticketing
  • As a broader software offering
  • As a stand-alone solution provided directly by a payment processor.

“Colleges and universities have more choice than ever when it comes to who they partner with for payments,” said Ruston Miles, Payfactory’s CEO. 

“There are more than 400 software providers serving higher education – even if their software wasn’t specifically designed for the HigherEd environment. A great example is healthcare software, which is used in hospitals on campus, or box office platforms that serve the stadium but might also work with theaters on Broadway.

The key is that all of these software vendors are now offering digital payments – online, mobile, NFC – as an embedded solution so that they can not only capture the revenue from their software deployment, but also the revenue from payments.”

When considering an embedded payment strategy, colleges and universities must answer the following:

1. What are the payment touchpoints? In a campus system, this would be the locations where payments are made.

2. How do customers / students like to pay at these touchpoints? There could several ways to pay at one touchpoint, such as a concession stand where a card is dipped or tapped in real-time, or where a mobile order is placed from the stands.

3. What is the best solution to provide these payment types? This will vary based on location. In many cases, one location might be served by one or more software vendors or even payment processors.

The Higher Education Payments Ecosystem

So how do embedded payments work across a campus? It will vary with each location, but in Payfactory’s experience with higher education institutions, some of the most common areas for embedded payments are in:

– The bookstore, where point-of-sale (POS) payment terminals equipped with NFC are common for face-to-face transactions, and mobile / online payments are done for book ordering or store pickup.

– Hospitals or clinics, where mobile payments have become increasingly common, either before, during or after an appointment.

– Self-service vending machines for snacks and supplies, where kiosks and POS payment terminals provide card and digital wallet transactions.

– The Bursar’s Office, where tuition and fee payments can be done within the office or via mobile or online links.

– Ticketing for sporting events, concerts and the theater can be done at the box office but most often are now purchased digitally from a phone, an app or a laptop prior to the event.

 

Choosing an Embedded Payments Partner – The Payfactory Difference

Payfactory has extensive experience in embedded payments for software companies across a variety of industries, including higher education.

Our CEO, Ruston Miles, has worked on the implementation of payment and security solutions with over 100 colleges and universities in the United States, and has served as a member of the PCI Security Standards Council Board of Advisors since 2019 – pioneering the first PCI-validated point-to-point encryption (P2PE) solution in 2012 as the founder of Bluefin Payment Systems.

Founding Payfactory in 2021, he knew that embedded payment facilitation would drive the future of payments with a seamless implementation and go-live experience for software customers, and little to no development required for software platforms – facilitating a new revenue stream with minimal integration costs.

Combined with our extensive experience, Payfactory is spearheading a new era of payments and security in higher education.

Learn more about Payfactory’s platform or contact us to set up a consultation.

Drive Profits, Deepen Relationships with Embedded Commerce

By Dale Laszig

 

For the past decade, tech startups have reshaped fundamental approaches to retail, hospitality, insurance, healthcare, investment, finance, logistics and other sectors. Using embedded commerce as a primary engine, these innovators gained record adoption during the pandemic, setting the stage for further enhancements across a range of industries, products and services.

Recent advancements in artificial intelligence, machine learning and payment facilitation have enabled software developers to create agile, responsive and personalized experiences at scale. There seems to be no limit to the capabilities and reach of these deeply embedded solutions, both at the component level and across wide-scale deployments of various vertical applications.

From Static Interfaces to API Interconnections

At the component level, application program interfaces (APIs) have become easier to deploy, thanks to a new generation of REST APIs and low-code, no-code solutions. Experts cite speed and flexibility as chief advantages of REST APIs, noting that REST architecture is easy to use and popular among mobile app and IoT developers. For example, REST APIs are stateless, meaning no client information is stored between “get” requests. In addition, cacheable data streamlines client and server interactions and keeps resources identifiable and accessible.

Low-code and no-code applications enable end-users to modify and customize applications without having to hire a developer or write extensive code. Many of these solutions include preconfigured communications protocols for off-the-shelf deployments. SAP defines low-code as a way to use embedded functionalities to design and develop applications that requires some knowledge and skill. By contrast, “No-code is a method that benefits from a similar user experience as low-code, but goes the extra mile by allowing non-technical business users to develop applications without having to write even a single line of code.”  

Artificial intelligence has also evolved from basic scripts and rules engines to intuitive collaborations between humans and machines. Futurist and author Bernard Marr contrasted generative AI to experimental prototypes from the 1950s that used algorithms to analyze data. “Unlike traditional AI systems that follow predetermined patterns and rules, Generative AI has the unique ability to create,” he wrote. “It can generate new content like audio, art, and text, all by learning from a set of data without explicit instructions.”

From Aggregating Merchants to Facilitating Payments

Over time, improvements in application design made it easier for end-users to add features and functionality to software solutions. Payment facilitation is a case in point; the payfac movement began by aggregating micro-merchants into a single merchant entity and later became a way to subsume technology, not just merchants, into a single application. The evolution from early payfac models to today’s sophisticated processing solutions has been a force-multiplier for numerous businesses and industries, according to Ruston Miles, Chief Executive Officer and Founder of Payfactory.

Reflecting on the payfac adoption cycle, Miles proposed that early promoters sold payfac sizzle such as fast merchant onboarding and customer checkouts but overlooked the steak, which was far more interesting to software developers. These coders, already well-versed in APIs, machine learning and software languages, seized on payment facilitation as a way to create uninterrupted customer experiences by embedding payment flows into existing applications.

“The first evolution of payfac was all about speed boarding and was a 100% digital experience available through APIs,” he said. “But looking at it from a boarding perspective, that is a one-time thing. The digital experience is also one-time, as is the API implementation.”

From Integrated Payments to Embedded Payments

The earliest models of embedded payments were called “integrated payments,” Miles stated, where side-by-side software and payments vendors are joined together to provide an “integrated” solution to the merchant. From the start of the process, it’s evident and understood that these are separate vendors – right from the contracting of the merchant, through application, onboarding and implementation, to payment gateway, reporting, chargeback services and even parties that provide monthly statements and bank deposits.

With embedded payments seamlessly placing the entire experience digitally into the software, where it appears one vendor owns the whole process, Miles said software companies enhance the user experience, often by using payment facilitation. Integrated payments are no longer up to par for firms that compete on seamlessness and utility in a single platform, he added, and that’s how the journey from integrated to fully embedded has really evolved.

Since the entire experience is now embedded, software companies are beginning to demand more, if not all, of the payments income, Miles noted, with some companies expecting payments to represent 40 to 60% of overall revenue – another big reason for embedding payments into software.

From Adjacent Solutions to All-Inclusive Experiences

Miles observed that payments software and hardware followed similar paths from standalone to semi-integrated to integrated solutions. Countertop terminals, peripherals and enterprise POS systems evolved as merchants and service providers looked for ways to keep customer payment data out of merchants’ scope. In a similar way, ecommerce solutions progressed from directing customers to adjacent checkout pages to using iFrame technology and embedded, tokenized solutions that enable customers to check out without ever leaving a website or app.

For example, enterprises are leveraging the payout feature in unique ways, he explained, by creating customized payout programming to remove friction from payables and receivables.

“Each vertical will have a different set of vendors that need to be paid through a transaction. For a $10 ticket sold, you may have a $2 service fee for the payment provider, then you need to spit the $10 between the software, the parking foundation, the box office, then Visa and MasterCard,” he said. “For a $200 veterinary bill, there could be payment to the doctor, to a pet insurer and to a medication provider. Splitting the payouts often happens manually and can take significant time.”

Payment facilitators can fully automate vendor payouts, Miles said, which enables all players to get their money the next day. Instead of accounting departments trading invoices, it can all happen through the click of a button, he added, and I think this evolution is very powerful.

From Generic Commerce to a Tailored and Embedded Payment Approach

In his July 25, 2024 blog post in diginomica, “Why every business needs an embedded commerce strategy,” Michael Affronti, SVP and General Manager, Commerce Cloud at Salesforce, cited examples of how B2C and B2B companies are leveraging embedded payments:

  • Manufacturing: Embedding payments into a sales transaction is smoother than sending an email, issuing a purchase order or prompting for payment details at point of purchase.
  • Internet Service Providers: Responding in online chat to customer inquiries about broken routers and modems creates an uninterrupted customer experience. Agents can share a link to a pop-up website where customers can reorder and pay securely.

  • Healthcare companies: Selling glucose monitors through subscription services enables medical device users to always have essential supplies on hand. These services make it as easy for customers to buy needed equipment, medicine and insurance.

Affronti mentioned that today’s businesses are using embedded models to innovate and bring in revenue without inflating budgets.

“When companies adopt an embedded commerce model, it’s important to look for a commerce platform that easily integrates data from different sources as well as with other sales and service technology,” Affronti wrote. “A single source of truth across all channels is key in order to drive personalization and a consistent experience. And of course, all interactions should take place on a foundation of trust and consent.”

Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn, and Twitter.

5 Ways to Capitalize on Ecommerce

By Dale Laszig

 

The “e” in ecommerce, which stands for electronic transactions conducted over the internet, could also mean “Everywhere Commerce” – fluid and nuanced transactions that flow across channels, bearing little resemblance to early models. The letter “e” is sometimes italicized, hyphenated, capitalized or in lowercase, reflecting the iterative journey from archetypal ecommerce to modern embedded payment solutions.

Ecommerce has come a long way since the 1990s, when websites first offered payment options. Ensuing decades brought technology, APIs, and innovative service providers as ecommerce became more frictionless, enjoyable and secure, using these five keys to success.

1. Design a Composable Framework

Remarkably, ecommerce methodologies have stood the test of time. Experts attribute this resilience to robust supporting infrastructures that allow brands to make changes on the fly and stay in sync with customers, with Gartner comparing these frameworks to Lego logs.

In essence, modularity gives businesses the freedom to experiment with interchangeable parts and vendors without being stuck in monolithic technology. The freedom of what Gartner calls “composable commerce,” is based on three core principles:

  • “Composable thinking, which keeps you from losing your creativity. Anything is composable. When you combine the principles of modularity, autonomy, orchestration and discovery with composable thinking, it should guide your approach to conceptualizing what to compose, and when.
  • Composable business architecture ensures that your organization is built to be flexible and resilient. It’s about structure and purpose. These are structural capabilities — giving you mechanisms to use in architecting your business.
  • Composable technologies are the tools for today and tomorrow. They are the pieces and parts, and what connects them all together. The four principles are product design goals driving the features of technology that support the notions of composability.”

2. Build and Test

The Lego-brick approach provides a common architecture where developers can make changes, fix bugs and add features at a component level, according to MIT researchers, who have seen composable infrastructures replace traditional systems.

“Gartner likens composable infrastructures to a structure made of simple building blocks,” they wrote. “This modular structure permits fast changes and responds quickly to new demand, traffic spikes, material production issues, or supply chain challenges.”

Commercetools researchers agreed that composable environments are more developer friendly than traditional architectures, where “touching one functionality means another may easily collapse in the process. This risk within a tightly-coupled system translates into employees being more reticent to run updates, try out new features and innovate.”

Any reticence about addressing customer inquiries, disputes, checkouts and anomalous behaviors in real time would be detrimental to modern B2C and B2B commerce, the U.S. Faster Payments Council (FPC) noted in its January 2024 bulletin. The FPC stressed the need for real-time fraud monitoring, detection, and mitigation to protect against emerging threats.

3. Adapt and Integrate

FPC’s Fraud Information Sharing Work Group (FISWG) and Financial Inclusion Work Group (FIWG) have tracked faster payments fraud since 2020, gathering industry data on a range of threats, such as identity theft, account takeover, synthetic identity, and social engineering.

“Fraudsters have evolved their techniques by leveraging the latest technology to perpetrate increasingly sophisticated ATO attacks, including phishing, credential stuffing, fraudsters posing as bank staff, and SIM swapping, all at a much greater scale,” FPC researchers wrote, adding that fraudsters took advantage of mass adoption of digital banking and ecommerce during the pandemic and continue to launch large-scale Account Takeover Attacks (ATO) using bots and automation.

In addition to reacting to threats, brands must pivot quickly to engage with customers across channels, which technology partners can help to facilitate. Commercetools recommends taking a “build where you differentiate, buy where you don’t” approach.

Companies that identify strengths and weaknesses across customer touchpoints such as search, content, online chat or checkout, can choose vendors with expertise in specific areas to customize technology stacks, using best-of-breed strategies to differentiate from competitors.

4. Innovate and Iterate

Faster payments have created an environment of instant credit decisioning, risk management and agile fulfilment where customers and brands track orders in real time, communicating by email, phone and chat. By necessity, modern infrastructure must be as dynamic as the commerce it supports. Brands are rising to the challenge by implementing fail-fast strategies, which Commercetools researchers have described as “constantly experimenting, plugging what works and unplugging what doesn’t.”

Customers expect a consistent experience across channels, Commercetools noted, including in stores and online. Researchers acknowledged that achieving this is not easy, but with the right framework and partners, companies can integrate new touchpoints to satisfy requirements. Innovation-focused teams in composable environments can add, remove or switch functionalities without being siloed, they added, which can improve time-to-market.

Trusted partners can fill capability gaps to enhance brand image and customer experience. Payment gateways, for example, can protect a merchant’s customers and reduce exposure by keeping payment card data out of scope. Payment facilitators can embed commerce into native software to help create a consistent, uninterrupted brand experience across channels.

5. Achieve Monumental Scale

Robust ecommerce infrastructures remove friction from cross-border payments, helping companies expand globally. Companies at all stages of digitization are tapping partners to augment core applications with composable commerce. Startups are improving time-to-market by partnering with ecommerce providers, payment gateways and payment facilitators. Mature enterprises are expanding reach by partnering with firms that address specific requirements.

In a digital-first world, ecommerce is valuable real estate. In many cases, an ecommerce site is the first thing that prospective customers, employees, suppliers and channel partners see. Companies are transitioning from monolithic systems to smart applications to make a positive first impression In virtual storefronts and mobile apps.

Fortunately, firms can migrate to modern ecommerce without popping tiles or laying cable. Tech layers can be added without ripping out or replacing existing infrastructure. Building and buying options, which knowledgeable technology partners can help navigate, have become more affordable than ever.

Best of all, outsourcing any aspect of ecommerce does not mean giving up control. Companies can progressively build ecommerce architecture, Commercetools wrote, “controlling every step of the way and minimizing disruptions and mitigating risks.”

Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn and Twitter.

The Growth of Embedded ISV Payments: 4 Key Trends​

2023 was the year of embedded finance – a relatively new Fintech term that encompasses financial tools baked into a non-finance platform, making services like lending, insurance and payment processing accessible to software platforms and applications across industries.

Embedded payments – or integrated payments, depending on one’s definition – have been around for several decades. Where it once was novel to pay for goods or services without leaving the software system or app, it is now expected by consumers who demand a fast, frictionless payment experience regardless of where they are transacting. In fact, revenues for embedded payments are expected to grow from $43 billion in 2021 to $138 billion in 2026. With an estimated CAGR of 23.1%, embedded payment revenues will reach $380 billion by 2029.

Integrated payments have come a long way, from basic point-of-sale (POS) credit card acceptance to a plethora of digital POS, online and mobile choices offered by payment gateways, payment processors and payment facilitators. As Payfactory’s CEO, Ruston Miles, told The Green Sheet in their November 2023 article, The extraordinary life of a payment transaction – a multilevel game:

“Payments have evolved significantly from being stand-alone solutions to being embedded in various verticals through a process driven by technological advancements, changing consumer preferences, and the need for seamless and convenient transactions,” he said.

As payment options continue to grow, there are four key trends that will influence embedded payment processing for ISVs and SaaS platforms – regardless of industry or customer base.

Trend 1: Omni-Channel Payment Offerings

Once considered a necessity only for retailers, omni-channel payments are gaining a foothold across markets thanks to how consumers want to pay. Hype has been given to Ecommerce, with good reason – the pandemic shut down in-person purchasing for most of 2020, pushing everyday spend online. This trend has stuck, with insights from Mastercard SpendingPulseTM finding that online retail sales increased +6.3% YOY in 2023, while in-store sales were up +2.2%.

Consumer preference for omni-channel has led to an increase in ISV embedded payment adoption, where verticals like healthcare, fitness, restaurants and even higher education must provide a way for customers to pay for goods and services either online or in an app.

However, this growth does not eliminate the need for storefronts and POS payment options, whether that is a payment terminal on a counter, a card reader attached to a kiosk or an in-store mobile checkout option. An omni-channel payment strategy will consider each point where the consumer touches a good or service and provide a means to pay wherever the consumer interacts with the vendor.

Trend 2: Fast and Simple Payment Integration

When the option to add payment processing into a software platform was introduced many years ago, it was accepted that go-live could take up to a year thanks to complicated payment rails, additional coding and a limited number of vendors offering integrated payments.

Today, there are dozens of embedded payment providers offering traditional embedded payment processing services or, like Payfactory, an embedded payment facilitation platform. More companies have emerged with an API-first mindset to provide a fast, frictionless integrated payment setup for ISVs. This is bringing ISVs more choice in their provider and flexibility with their systems.

The trend toward faster, simpler payment integration will continue as more software providers embed payments into their platform. Time to market is a major consideration when choosing a payment partner to not only to satisfy consumer demand and ensure differentiation among competitors, but also to begin generating an additional source of revenue, which brings us to Trend 3.

Trend 3: ISV Payment Monetization

Integrated and embedded payments should provide ISVs and SaaS providers with a new revenue stream, with the ISV sharing in the transactional revenue with their payment provider. However, there are still instances today where an integrated provider may not offer a revenue share to the ISV.

Payments is an intricate dance. Processing the payment is only one part. There is the merchant sale, the merchant application, merchant approval, merchant underwriting, merchant onboarding, merchant support and then support of the customer’s merchants.

An ISV’s revenue from payment transactions can depend on how much of this process they take on or simply may depend on the nature of the relationship with their provider. But one thing is for certain – more ISVs than ever are watching their valuation rise because of their payment revenue stream. ISVs must still keep in mind, though, that when it comes to valuation – having ownership of their merchant data will be key.

Trend 4: Payment Security Features

We live in a world where data breaches happen every day. IBM’s 2023 Data Breach Report revealed that 83% of organizations experienced more than one data breach in 2022. With threat vectors like ransomware on the rise – with the 2022 Verizon Data Breach Investigations Report finding that the total number of ransomware attacks surged by 13%, a rise equal to the last five years combined – the payment provider that an ISV partners with will only be as good as the security features they offer.

Once payment touchpoints expand, as in the case of omni-channel commerce, these security features become more paramount.

  • There is the protection of payment data with technologies such as tokenization and encryption as discussed in our blog, Securing Embedded Payments: The Role of Encryption and Tokenization.
  • There is the authentication of a consumer online with tools such as reCAPTCHA and 3D Secure.
  • Finally, there is PCI compliance, which is required for every merchant who accepts credit cards and includes – depending on the merchant level – security tools such as firewalls, scanning and specialized software.

Payment providers not only should have tool in place to protect payment data, authenticate consumers and ensure merchant PCI compliance, but they should also have a team well-versed in the latest threat vectors to protect ISVs.

Payfactory – The Right Partner for ISV Payments

The right partner for integrated payments should check the box in each of these areas – while also keeping an eye on future trends for additional value-add products, such as embedded finance products and real-time payments.

With Payfactory’s payment facilitation platform, we get ISVs implemented for payments in a matter of days and provide their merchants a completely frictionless payment process with self-serve merchant and partner options – all backed by security solutions to protect payment data and our ISV partners.

Our management team averages more than 18 years of payment and security experience each, with CEO Ruston Miles also serving on the PCI SSC board of advisors. Learn more about our platform or contact us for a free embedded payment consultation.

What’s In Store for 2024 Payments

By Dale Laszig

Retail analysts have much to celebrate at the close of 2023, as holiday sales return to pre-pandemic levels and next-gen supply chain and logistics solutions ensure healthy inventory levels and on-time deliveries.

According to the National Retail Federation (NRF), this year’s holiday spend is commensurate with the 3.6% year-over-year increase seen between 2010 and 2019. Online shopping is reaching new heights as it spreads to new categories, with estimates that online and non-store sales will reach between $273.7 and $278.8 billion, an increase of between 7 and 9% from last year’s $255.8 billion.

“For all that the consumer has kept the economy afloat, the composition of spending from goods to services will also define holiday sales trends,” said NRF Chief Economist Jack Kleinhenz. “Service spending growth is strong and is growing faster than goods spending. The amount of spending on services is back in line with pre-pandemic trends.”

With consumer spending increasing, we take a look at what’s in store for payments in 2024.

Service Purchases on the Rise

Kleinhenz’s astute observation, that shopping for services is outpacing shopping for goods, reflects a fundamental shift in traditional values such as home ownership. The physical-to-digital trend also manifests in the B2B sector, where subscription services are replacing infrastructure investment and physical asset ownership. Technology moves fast; business owners are gravitating from hardware investments to Hardware-as-a-Service and subscription service models that replace sunk costs and obsolescence with continuous software, firmware and equipment updates.

Aside from its well-known benefits, SaaS has lessened human dependency on things for consumers and business owners alike, especially in the commercial world, where it has never been easier to launch and scale a global business, using an API and a few white-label applications. Technologies have unleashed a renaissance in application design, as entrepreneurs use available platforms to transform rudimentary solutions into novel and agile methodologies.

Payment Innovation is Key to Differentiation

Juniper Research identified three primary forces shaping the future of payments in their white paper, Ten Top Payments and Fintech Trends.

  • The need to differentiate
  • Current economic pressures and uncertainties
  • The continuing migration away from traditional payment methods, such as credit cards, to fresh digital alternatives.

“Payments services have largely been [commoditized], making it difficult for vendors to stand out and offer truly distinctive services that offer businesses an edge,” researchers wrote. “As such, different trends are emerging that seek to create the ability to differentiate user experiences, and this will lead to more creative and innovative solutions being offered to market.”

These three drivers are prevalent in the software world, as vendors, distributors, partners and customers seek secure, intelligent, agile and transparent solutions. B2B commerce is rising to the challenge by delivering payment portals, text-to-pay solutions and other digital invoicing alternatives that are more efficient and cost-effective to manage and offer optionality and flexibility in a world that was formerly dominated by 30-day invoicing cycles.

Increased Demand for Fast, Intelligent and Frictionless Payments

“As we look at the top fintech and payment trends for 2024, it is important to examine the wider context before we get into the specifics,” Juniper research reports. “It is clear that this is a market undergoing seismic changes – payment preferences and technologies are changing quickly in different markets, all across the world.”

Juniper’s predictions for the top ten payment trends are well in-line with consumer demand for real-time, digital payments – whether in a store, online or through software.

  1. Account-to-Account Payments: A2A will challenge incumbent payment cards and digital wallets.
  2. CBDC Use Cases: CBDC spend will reach $213 billion by 2030, improving B2B commerce efficiencies and cost savings.
  3. Generative AI in Banking: Generative AI can be used effectively as banks shift operations to the cloud.
  4. Digital Identity, Digital Wallets: Despite competing standards for digital identity verification, there are positive signs that the industry is heading to global interoperability.
  5. AML Tools Leverage AI, Alternative Payments: These technologies can simplify CDD and KYC processes, allowing organizations to automate complex, time-consuming compliance processes.
  6. Sustainability, ESG Compliance: Growth of open banking will support a range of sustainability initiatives in 2024 among fintechs and financial institutions.
  7. FedNow’s value-added services will flourish: Exploration of value-added services that can be built on top of FedNow rails will help financial institutions brand and personalize instant payments.
  8. Mobile Financial Services, Bank Tech: MFS providers will shift focus to advanced services, leveraging MNO (Mobile Network Operator) data to offer tailored services.
  9. Biometrics, Innovative Checkouts: Biometric payments will gain mainstream adoption, fueled by Amazon and JPMorgan’s support.
  10. BNPL for SMEs: B2B BNPL offerings will scale as SMEs look to better manage cashflow.

Keeping an Eye on Software

In the flurry of predictions that typically circulate at the end of a calendar year, perhaps the biggest of all trends is software’s expanding role in shaping the future. As enterprises seek to differentiate, surpass economic uncertainties and move beyond traditional payment methods, service providers with payments deeply embedded in vertical solutions can confidently offer all of these capabilities and more.

Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn and Twitter.

2023: Fintech’s Kaleidoscopic Year

By Dale Laszig

Like kaleidoscopes that reconfigure shards of glass, fintechs transform and unify commercial transactions in ways that delight buyers and sellers and reshape the future of commerce.

2023 can be seen through multiple lenses, creating a colorful diorama of cross-border commerce, cybersecurity, embedded finance, faster payments, and regulatory oversight. Here’s our year-end review of the biggest fintech and payment developments in 2023.

RTP is Introduced – and is Scaling

The Deloitte Center for Financial Services, which has tracked real-time payment (RTP) methods for decades, suggests RTP is finally poised to scale. A July 2023 article by Zachary Aron, Val Srinivas, and Richa Wadhwani observed that RTP benefits extend beyond payments.

“In addition to driving business growth across borders and giving access to new markets, real-time payments would also add more transparency to the otherwise fragmented and unpredictable B2B payments landscape,” the authors wrote. “Many RTP systems use International Organization for Standardization (ISO) 2022 messaging standards that enable two-way communication, such as ‘request for payment,’ ‘request for information,’ and ‘confirmation of payment.’

Banks, armed with RTP, can enrich B2B transactions with deeper insights and value-added B2B services, the authors noted. In a world of fast-flowing information and money transfers, they suggested that services such as automated matching of purchase orders to invoices, virtual accounts and electronic would become table stakes.

But security analysts view faster payments through a risk management lens, emphasizing its potential for misuse and abuse by opportunistic fraudsters – suggesting there is more work to do in this area.

“Unfortunately, fraudsters have wasted no time in [capitalizing] on these systems,” said Nathan Close, head of solution consulting at Outseer. “They employ various techniques, including social engineering, to deceive unsuspecting consumers into voluntarily sending funds to them. This rise in fraud attacks, particularly mule activity and consumer-authorised push payment (APP) fraud, has compelled financial institutions and regulators to be on high alert.”

Additional data from UK’s Payment Systems Regulator found rising APP fraud revenues and transaction volumes at the region’s top 14 banks and 9 smaller firms. Fraudsters trick people into sending a payment to an outside account, policymakers explained, stating the PSR will introduce stricter reimbursement and security measures to stem these attacks, which accounted for 40% of fraud losses in 2022.

The Journey to a Passwordless Future

In the face of faster, more sophisticated forms of fraud, security experts advocate replacing passwords with strong authentication methods that are resistant to phishing, pharming, whaling and other prevalent attack vectors. FIDO Alliance unveiled passkeys in March 2022, a simple, secure alternative to passwords, currently available at Google, Apple, PayPal and other leading tech companies.

FIDO’s annual “Online Authentication Barometer,” released in October at the alliance’s annual Authenticate conference, shows passkeys gaining worldwide adoption, paving the way to simpler, stronger authentication backed by open, scalable, interoperable frameworks.

Andrew Shikiar, executive director and CMO of the FIDO Alliance, believes a passwordless future is within reach. “This year’s Barometer data showed promising signs of shifting consumer attitudes and desire to use stronger authentication methods, with biometrics especially proving popular,” he stated. “That said, high password usage without 2FA worryingly reflects how little consumers are still being offered alternatives like biometrics, resulting in lingering [password] usage.”

Customizing Security and Fraud Prevention

Recent updates at FIDO, PCI SSC, nexo, ISO, and other global standard bodies reflect new levels of maturity and self-regulation in payments and tech sectors. For example, PCI DSS v4.0 introduced the Customized Approach Objective, opening new pathways to validation.

Lauren Holloway, Director, Data Security Standards, PCI Security Standards Council, discussed how risk-mature organizations can design, implement and maintain controls to achieve PCI DSS 4.0 compliance. And Verizon prescribed an integrated approach to achieving PCI DSS compliance, using predictable outcomes and measurable performance models to assess control environments.

“The overall organizational goal of a PCI security compliance program is to develop, maintain and continually improve a mature control environment that offers reasonable assurance for the effective, ongoing protection of payment card data in a consistent, predictable and sustainable manner,” Verizon reported in their 2023 Payment Security Report insights.

The Borders of Commerce Crumble

Businesses face delays, complexities, fragmented customs and fluctuating exchange rates in cross-border ecommerce, according to Avalara. Despite these challenges, researchers projected $1 trillion in cross-border ecommerce revenues in 2023, led by Asia-Pacific, Latin America, Middle East and North Africa.

Avalara and Reuter’s survey of 732 supply chain professionals cited costs and compliance as top concerns, followed by documentation issues that compromise prompt, affordable service expectations. Technology solves these issues, researchers added, noting that most respondents agreed cross-border ecommerce is getting easier. Evan Wright, senior director of growth, cross-border, at Avalara, has also seen improvements, fueled by digitized international trade.

“Now, companies can draw on databases and automation to instantly understand the terms of trade, present these to the buyer and maintain a consistent pathway from seller to customer that [minimizes] the costs of crossing borders,” he said. “With this in mind, we are highly optimistic about the future, and you should be too.”

The Future of Payments is Embedded

In the B2B arena, next-generation payment facilitators and independent software vendors (ISVs) are delivering frictionless customer experiences that are similar to B2C commerce. These partnerships leverage APIs to meet growing demand for embedded payments and finance.

Juniper Research predicts embedded commerce will surpass $59 billion by 2027, with over a third of that revenue stemming from B2B ecommerce and software integrations.

“The research also forecasts that by 2027, 35% of embedded payments’ revenue will be from the B2B segment,” researchers wrote. “B2B payments have seen less implementation of new payment types to date, with complex accounts payable and receivable processes creating a difficult ecosystem to manage. Embedded finance vendors must focus on bolstering payment integration with key B2B access channels, such as B2B eCommerce marketplaces and accounting software, to [maximize] their appeal in this high-potential market.”

Closing out 2023

At the close of Q4, fintech, payments and financial services leaders may try to spin 2023 into an emblematic catchphrase. Was 2023 the year of small business, real-time borderless payments, regulatory clarity, mature security standards, or embedded finance and commerce? Perhaps the rearview mirror will display all of these and more, in a colorful collage of moving parts that play well together as they spiral forward to an ever-brighter future.
Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn and Twitter.