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.

4 Key Steps for Retaining Merchants in an Embedded Payment Model

The digitization of commerce has made it simpler than ever for consumers to choose from multiple vendors for goods and services – whether online with next-day delivery or in-store pickup.

Digitization has also ushered in a new era of choice when it comes to embedded payment processing partners, whether a traditional merchant acquirer or a payment facilitator. And with embedded payments on the rise, projected to reach $59 billion by 2027, many ISVs and SaaS platforms are coming to rely on payment processing revenue for growth and valuation. Choosing the right embedded payment solution is paramount.

Ease of use, performance and pricing are important. But transparency, customer value and service could be the difference between customer growth or customer attrition.

Attrition and churn are a multi-billion dollar problem across industries, but SaaS is particularly affected as new software entrants skyrocket and there is a shrinking pool of untapped customers.

How you enable embedded payments is as important as your software’s performance. Choosing the right partner is key.

There are four steps that ISVs, along with their payment partners, must consistently take to not only retain merchants but grow revenue.

What is Attrition and Churn?

Attracting new software customers takes time and effort. Marketing awareness campaigns, sales team prospecting and contract / pricing negotiations are just a few aspects of generating new business.

These efforts are bundled into customer acquisition costs (CAC), which Deloitte predicts will rise with the growth of Ecommerce and disruptions like climate change, inflation and economic uncertainty.

A customer leaving a business for a competitive product – called churn or merchant attrition – not only costs companies the upfront marketing and sales effort to gain that customer in the first place, but it hits bottom-line revenue targets. According to the CallMiner Churn Index, U.S. companies lose an estimated $168 billion annually from churn.

Compounding that loss, there’s the cost of attracting new customers to replace those who left on top of growing the business. Depending on your industry, studies suggest that acquiring a first-time customer can cost between 5 and 25 times as much as retaining an existing one.

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Step 1 - Be Transparent

Transparency in payment processing is integral to the overall ISV / payment processor relationship, but it’s crucial in retaining merchants.

ISVs, along with their payments partner, must walk merchants through each step of the process of working together. This starts with the merchant application, extending to approval, activation and onboarding. Simplicity is a big reason why payment facilitation, with a roughly 24-hour merchant approval and go-live turnaround, is gaining popularity.

Ensuring that merchants understand their processing costs is imperative. One of the biggest merchant complaints – and a major source of attrition – is lack of transparency around pricing and fees. This can be a trickly balance for ISVs and processors, since transactional fee increases are often imposed by the card brands and parties have no choice but to pass the additional cost onto the merchant.

However, concise and frequent communication with merchants about pricing changes can go a long way toward a merchant feeling informed and even empowered about what they are paying for and why.

Step 2 - Communicate Value

Merchant account pricing can be tied to value – which encompasses everything from the payment types offered, to fraud prevention and security solutions, to customer service.

When assessing which embedded payment solution will bring the most value for your customers and strengthen your brand, consider the following:

  • How do your customers like to pay and does the provider offer these solutions? Examples include point-of-sale devices, Ecommerce and mobile payments.

  • Will your customer want all payment types? These can range from standard credit and debit card processing to Automated Clearing House (ACH) for direct bank account debit, to mobile wallets like Google Pay and Apple Pay.

  • Do your customers require additional products to facilitate transactions that your payments provider should offer? Examples include the ability to split payments, add a tip or tie data from their payments dashboard to other software systems.

  • How will your processor secure and authenticate payment transactions? Authentication includes solutions such as 3D Secure (3DS) for Ecommerce payments and encryption and tokenization to secure payment data in transit and in storage.

  • What level of customer support will your payments partner provide? This includes the basics of a general email or phone number, to more white-glove solutions including a dedicated chatbot or phone line with a live representative and an assigned relationship manager for your partnership. 

It will be important for ISVs and SaaS providers to understand the value your provider brings in these key areas and consistently relay this to your customers.

Step 3 - Provide Superior Customer Service

There are two levels of service an ISV must consider in an embedded payments partner.

The first level is service to the partner themselves. There are many providers offering embedded payments, but not all are created equal when it comes to support. Having a dedicated relationship manager devoted to your company ensures that you can grow the partnership together, but they can also act as an escalation point for customer payment issues or questions.

The second level is direct support for your customers. In addition to availability, this means having customer service representatives with payments knowledge but who also understand the partnership. Sales training and staffing are key, but the best customer service teams are not reactive. Representatives make calls to merchants to check in and offer support – even when it’s not an emergency.

Having both of these service levels in place goes a long way in reducing merchant attrition.

Step 4 - Be Proactive

Too many times, customers attrit and companies have no idea why. Retention plans are then launched to get a business back after they have left, which wastes the time and energy of a service team.

If ISVs and SaaS providers have a payments partner that is transparent, provides value and offers superior customer service – all on a frequent communication schedule – then the chances of attrition are lowered. But that doesn’t mean payment providers should rely on that alone.

The best partners conduct proactive reviews and data analysis using standard models or now, artificial intelligence and machine learning. They understand the underlying factors that influence churn. They do deep dives to understand the root of the problem. And they take these learnings to launch proactive strategies to reduce attrition.

An embedded payments partner that is skilled at using all of their data to reduce customer churn will help drive ISV payment revenue growth and profitability.

Choose a Partner with Retention in Mind

The trend toward digital, one-touch commerce and an invisible, convenient payment experience is underway across industries. Payfactory’s no to low-code payment facilitation platform gets ISVs and SaaS platforms up and running with embedded payments in days, not weeks.

But our white-glove approach to partners and their customers is at the heart of our company. Founded by payment industry veterans, we believe that embedded payment processing should be simple, frictionless and fast – while also maintaining the highest level of security, customer service and human support. Contact us to learn more

The Rise of B2B Commerce Part II: Achieving Parity with B2C Commerce

By Dale Laszig

Digitization has improved the customer experience across mobile, omnichannel, B2B and B2C commerce channels.

But digitization is about more than customer service. Today’s B2C customer routinely shops online and now expects the same experience for B2B transactions, according to Forrester Research’s “The Future of Commerce Technology” report. Beyond improving customer and vendor relationships, researchers note that advanced digital technologies can drive efficiency, cash flow and profits.

“As this landscape shifts, [new, dual core technology stacks] center around experience and operations,” Forrester writes. “Digital businesses will gravitate toward either a complex but dually focused new stack or a new breed of all-in-one solutions that are more flexible, affordable, easy to use, and quick to deploy or update.”

Experts believe that these myriad form factors, technologies and use cases may soon be known simply as commerce. And as enterprises begin to transact across multiple channels securely, interactively and in real-time, they are expecting more choice, deeper engagement and service from their third-party providers and partner organizations.

In part two of our series on the rise of B2B commerce, we explore how the B2B tech stacks of operations and experiences benefit from digitization, the importance of embracing B2C commerce types that balance digital touchpoints with human assistance, and choosing partners with deep experience in building secure, compliant, flexible and modular payment solutions.

"Dual-Core" Commerce in Operations and Experiences

Forrester observed that legacy enterprises with monolithic tech stacks are ill-equipped to compete in the current commerce market, where personalized experiences, real-time stock checks and order tracking are baseline requirements.

Unless they innovate and iterate quickly, traditional players will lose share to digital-first companies with modular offerings that are easy to configure, upgrade and deploy, researchers warned. These capabilities enable businesses to selectively curate their own best-in-class solutions, and deeply embed commerce into adjacent, vertically focused ecosystems.

The notion of commerce as capability rather than product may at first be difficult to grasp, especially for a traditional enterprise, but is key to unlocking a scalable, interoperable and inclusive ecosystem that researchers positioned as the future of commerce.

“There will always be orchestration and personalization at the digital point of purchase,” Forrester notes. “However, when commerce is just that, it will be frequently folded into one of the new dual cores. Then vendors will assemble experience suites and operations suites around the data that each shares: inventory and orders for operations, and customer and content for experience.”

As core commerce functionality migrates to other areas of the ecosystem, Forrester predicts that vendors will expand front-end or back-end capabilities with low-code and no-code setups.

Balancing the Touchpoints

The same automated, self-attended technologies that create interactive consumer experiences can enhance B2B commerce, according to the 2023 State of B2B eCommerce Report, coauthored by Andy Hoar and Brian Beck of MasterB2B. Their survey of 100 B2B buyers and 100 B2B sellers found growing demand for streamlined, hybrid commerce that balances digital touchpoints with human assistance.

Using Amazon as a performance benchmark, 61% of executives surveyed said they could meet or beat Amazon’s customer experience, MasterB2B reported, and 81% claimed to provide a better experience than direct competitors.

“B2B sellers recognize that their online success rests in large part on how well they’re able to provide a personalized experience for their customers and, even more importantly, whether their site search provides relevant, actionable results,” the authors wrote, adding that 61% of sellers plan to implement AI-driven tech in 2023 to futureproof and streamline platforms and processes.

The authors acknowledge that B2B companies are not known for immediately embracing new technologies but emphasize AI’s potential to enrich the customer experience and data hygiene and help enterprises stay competitive. Ultimately, ecommerce success depends on choosing the right partners, they added, stating 84% of respondents believe good partners can help companies reduce time to market and overall cost of ownership and improve flexibility.

Overcoming B2B Technology Challenges

While B2B digital commerce methods could reach nearly $200 trillion by 2028, commercetools researchers would like to see faster growth in the sector, especially considering the current economic climate, which they noted brings opportunities and challenges. Ideally, they stated, the B2B customer experience will borrow from the consumer shopping playbook by blending easy-to-navigate product catalogs with abundant payment options.

“However, a pure B2C-like approach doesn’t work if B2B-specific features aren’t part of the deal,” commercetools researchers wrote. “B2Bs operate differently than business-to-consumer companies, and certain functions like reordering and order scheduling are crucial to managing inventory, for example.”

Chief among challenges facing traditional B2B service providers are manual, paper-based approaches to Accounts Payable, Accounts Receivable, invoicing and payouts, which experts have noted are costly, time-consuming, inefficient and error-prone. Paper checks, for example, were a B2B staple in 1915, when Deluxe Corp. unveiled its signature flat-pocket checkbook. 108 years later, paper checks represent less than 38% of the company’s revenue, according to an April 2020 interview with the company’s CEO, Barry McCarthy. After rebranding from DeLuxe Check Printers in 1988 and acquiring an electronic check services provider in 2015, the company is committed to digital transformation, McCarthy stated, in “Deluxe Isn’t Just Paper Checks Any Longer,” by Forbes contributing journalist Tom Groenfeldt.

“I think we are moving to a time when the consumer has a choice in how they get paid,” said McCarthy. “We’re into our second year of the e-check product and have been relatively quiet about it, but when you think of the billions of non-recurring checks written each year by financial institutions, health care and insurance, it is a huge problem solver. We take out all the handling cost and can get the customer paid much more quickly.”

Choosing the Right B2B Payments Partner is Key

As digitization continues to drive convergence of all types of commerce, partners with deep experience in building secure, compliant, flexible and modular solutions can help enterprises tap into advanced, automated, AI-powered technologies to improve time to market, increase profit, lower costs and harden security.

Payfactory’s low to no-code payment facilitation platform maximizes value for enterprises by delivering embedded commerce benefits without the cost of building a payfac platform. This gateway-agnostic model is modular, configurable and continuously updated in response to ever-evolving payments industry trends, regulatory compliance and technical innovation. Contact us to learn 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.

The Rise of B2B Commerce Part I: Agile, Digital and Embedded

By Dale Laszig

Lego logs are the perfect analogy for today’s software solutions. Individually, Legos and binary digits are small, uniform and dormant. Together, they’re a miracle of modular energy that can be molded and shaped at will. Not surprisingly, coding can be a lot like building with Legos, so it makes sense for developers to envision the features they would want in a technology stack, then find the right partners to help deeply integrate those capabilities. 

Designing payment software can be like building with Lego logs, according to Andre Machicao, global head of product at Visa. You can follow an outline to get a serviceable product, he stated, or create from scratch. At the Electronic Transactions Association’s April 2023 conference, TRANSACT, he walked the big stage, describing how children who build without blueprints outperform others who follow clearly defined patterns. The payments industry is building without a blueprint, he told the audience, and free builders are outpacing legacy architects.

In today’s blog, we will explore modularity as a principle of modern software design in B2B payments and B2B commerce, and how it is helping developers embed payments into highly flexible, configurable software applications.

Principled design at the core

In a digital-first world where consumers transact in real-time with wearables, smartphones and connected devices, surprisingly few business-to-business (B2B) transactions are conducted digitally, according to a recent study by Goldman Sachs, which identified B2B commerce as the next payments frontier.

“We believe B2B payments currently account for $127tn in payment flows – and we expect this figure to reach nearly $200tn by 2028, over 5X the volume of the retail payments market,” researchers wrote, noting that the vast majority of B2B invoices are still being processed manually and by paper check.

Modern B2B commerce has the potential to improve efficiencies and create new revenue pools for all types of enterprises, researchers stated, especially for small and midsize businesses that pay and process 80% of invoices by check. It seems self-evident, they noted, that faster, lower-cost payment and remittance options will continue to replace outdated systems.

In part one of our two-part series on the rise of B2B commerce, we explore the inflection point of B2B payments, including key drivers and consumer payment preferences, the explosion of subscription services and digital payment processing, and the role that embedded finance and SaaS is playing in the trillion-dollar B2B commerce market.

Fresh $1 Trillion Inflection Point

For decades, paper checks and Automated Clearing House (ACH) transactions have been the hallmark of B2B payments. Lately, however, new trends in ecommerce, digital payments and consumer payment preferences are changing the cadence of commerce. Gen Z consumers and executives, for example, use buy now, pay later (BNPL) mobile wallets, and alternative payment methods, underscoring the need for businesses to meet customers across all digital channels.

While digitization in business-to-consumer (B2C) payments has historically outrun the B2B sector, researchers suggest that B2B payments are approaching an inflection point, as systems and processes enter a new phase of sophisticated and seamless commerce. Technology and market pressures are key drivers of B2B payment digitization, Goldman Sachs researchers noted, as individuals and enterprises increasingly rely on real-time, omnichannel commerce. These trends create a fresh $1 trillion dollar opportunity in payments and software, they stated, and sizeable cost savings for payment providers, software companies and financial institutions.

“In total, we see a $950bn global revenue opportunity (with an estimated $186B in North America) across invoice processing, AP payment processing, working capital management and factoring, and cross-border payment optimization,” researchers wrote. “Our analysis assumes that B2B payment solutions can drive up to 75% savings in total costs (both direct and indirect) for business, with more savings accruing to small businesses than enterprises.”

Massive, Untapped Opportunity

With experts estimating that B2B payment volume will reach $200 trillion by 2028, subscription service offerings and digital payments options are poised to streamline processing and further propel growth. This equates to a massive, untapped opportunity, Manhattan Venture Partners proposed, for B2B payments, cross-border commerce and embedded finance applications.

“In addition to verticals including checkouts, processing solutions, and corporate spend management, investors are betting big on the startups in the cross-border payments, banking- as-a-service, and embedded finance space,” MVP researchers wrote. “The next phase of the disruption is plug-and-play solutions helping integrate financial products seamlessly with non-financial digital platforms.”

As Manhattan Venture Partners have noted, legacy systems, a lack of data standards, limited interoperability and fragmented approaches to accounts receivable and accounts payable have hindered market growth. Fortunately, advanced technologies are solving for these issues and driving market growth by creating new opportunities in the digital and virtual worlds.

Better Together

As businesses struggle to cope with the challenges of integrating with multiple banks and legacy systems, embedded finance could spark the next wave of innovation in financial services,” MVP researchers wrote, citing a study by Bain & Company, that predicts embedded financial services, led by payments and lending, will continue to scale.

Bain & Company observed that embedded finance, enriched by value-added insurance, tax, and accounting services, accounted for nearly 5% of U.S. financial transactions in 2021, and predicted continual growth from $2.6 trillion currently to more than $7 trillion by 2026. 

“Demand will grow because the ‘better together’ proposition promises to improve customer experiences and financial access, along with providing cost reductions and risk benefits to companies,” Bain & Company researchers wrote.

Additional survey data from the Boston Consulting Group found SaaS B2B revenue rose by 179% in 2022, due to strong demand among enterprise customers. Competition can be fierce, BCG researchers noted, and results have shown that not all SaaS B2B providers are created equal; digital-first companies that leverage technologies are outperforming others.

“As our analysis shows, a subset of fast-growing companies has grown faster than the pack,” they wrote. “Their actions offer a playbook for other B2B SaaS players to follow.”

Propelling B2B Payments Forward

In “The Future of Sales: Transformational Strategies for B2B Sales Organizations,” Gartner predicted that 80% of B2B payment transactions between suppliers and buyers will occur through digital channels by 2025. Researchers credited the global pandemic for helping to accelerate the business community’s migration to real-time, omnichannel, personalized digital commerce.

“B2B buyers increasingly want to engage with suppliers through digital and self-service channels,” Gartner researchers wrote. “To support this shift to multi-experience buying, and the associated growth in the number of touchpoints and interactions between buyers and suppliers, sellers will need additional skills and technology capabilities.”

Thanks to changing demographics, faster payment infrastructure and new software, the future of B2B payments will be agile, digital and embedded, conducted anytime from anywhere. And Payfactory is on the cusp of embedded, B2B payment processing with our low to no-code payment facilitation platform. Contact us to learn 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.

Monetizing SaaS and ISV Offerings with Embedded Payments

It’s not unusual for a SaaS company to hear from six or seven merchant service providers a day, all claiming to be adept at offering verticalized payment processing. Some may even drop a few acronyms to demonstrate their insider status without even mentioning pricing or interchange.

While industry knowledge can be an asset in a prospective partner, SaaS providers and independent software vendors (ISVs) that want embedded payments need partners with payment technology expertise.

As experts have noted, a bit of industry knowledge can go a long way, but financial fluency is equally important in a partner, because it can open adjacent opportunities beyond plain vanilla payment processing. The Strawhecker Group and ETA identified numerous options for ISVs to connect and monetize financial services and commerce within their ecosystems.“TSG has seen ISVs making ten times more revenue by monetizing the payment processing volume their systems support than they were earning on software license fees alone,” said company representatives, citing the following ways to leverage embedded finance and commerce: 

●    Expand customer services: ISVs can enable their merchant customers to accept downstream payments from their customers across a variety of payment methods.

●    Monetize payment models: ISVs can receive commissions or a percentage of payment volumes they help to facilitate.

●    Enhance operational capabilities: ISVs can benefit from a partner’s revenue sharing models as well as seamless onboarding, innovative technology and quality of support. 

Singular Solution, Multiple Options

Service providers that work with different types of businesses and industries recognize that business models vary but fundamental objectives remain the same, despite a company’s size or vertical focus. Companies leverage technology to drive efficiencies at scale and attract and retain customers, which is equally true for a ticketing agency, healthcare provider or pop-up retailer. Payment facilitators (payfacs) deliver these outcomes by aligning partner principles with payments capabilities to achieve a singular solution.

For ISVs contemplating embedded finance and commerce, TSG and ETA observed a plethora of available business models, such as working with a large in-house payment processor, a localized merchant acquirer, a pure payment gateway provider, or a payfac-as-a-service provider, each offering its own unique value proposition. 

“There is no shortage of options for ISVs in terms of available payment service providers they can connect to,” TSG and ETA wrote. “While true processing technology is held by a limited number of major payment processing entities, there are numerous service providers in the payments ecosystem that support ISVs in their payment and embedded finance monetization endeavors.”

Principled Software Design

Despite the nearly limitless programming languages available, universal principles apply to good software design. The process begins with building a solid foundation to support a highly flexible framework that can adapt to each stage of a company’s lifecycle. Modern software is more agile and self-reliant than earlier models that required on-premises maintenance and updates. Today’s versions can be monitored and updated remotely, making it easier than ever to incorporate new capabilities and meet ever changing security and compliance requirements. 

Payfacs work within a software provider’s native environment, mapping a software’s unique characteristics and integrating accordingly, bringing a fresh focus to each project. No two payments integrations are alike. Each unique collaboration embeds a payment flow directly into the software to make payments just happen at the right moment, without fanfare. The SaaS company is in the driver’s seat, choosing the right elements to seamlessly onboard new customers and fulfill orders, creating an excellent customer experience every time. 

Security and Compliance Expertise

Balancing security and customer convenience is a common challenge for businesses but a knowledgeable payfac partner can help SaaS companies and ISVs leverage available resources and technology to deliver an enjoyable customer experience without sacrificing security. Check the PCI Security Standards Council for Qualified Integrators and Resellers for assistance with installing and maintaining validated payment applications that are PCI DSS compliant.

In addition to being a PCI SSC validated provider, an ideal payfac partner can provide guidance on a range of security strategies and solutions, including point-to-point encryption (P2PE), end-to-end encryption (E2EE), and tokenization that converts sensitive data into cryptographic tokens that would be useless to a hacker, if intercepted.

Payments Industry Knowledge

Like software languages that evolved beyond JavaScript and C++, payment methods have expanded beyond plastic credit cards, creating more choice for customers across all channels. SaaS providers need to meet customers where they are, whether online, on premises, or using a mobile app, while enabling them to transact in preferred currencies and payment methods. Knowledgeable payfac partners can help SaaS providers navigate the complexities of cross-border payments and digital commerce in ways that best serve their businesses and clientele. 

To succeed in today’s fast-paced global environment, B2B and B2C SaaS companies need to maximize payments optionality by supporting a variety of payment schemes, which may include, but are not limited to, digital wallets, wearables, in-app commerce, peer-to-peer (P2P) payment schemes, cryptocurrency, QR code payments, mobile commerce, in-app payments and payments that are deeply embedded into accounting, ERP, CRM and other enterprise-scale systems. Manifesting these capabilities requires strategic guidance and planning. 

Build with Payfactory

A knowledgeable and experienced payfac partner can help SaaS companies and ISVs navigate the dizzying choices of digital commerce within a single point of integration. Designed exclusively for each business and co-created with trusted partners, these solutions deliver the best of all worlds: exceptional software design, best-in-class security, and deep payments industry expertise to deliver an enjoyable customer experience every time.

Payfactory, an embedded payment facilitator, provides a gateway-friendly and processor-agnostic platform that requires little to no development, allowing partners to create new recurring revenue streams with minimal integration costs. Founded by payment industry veteran Ruston Miles, a member of the PCI Security Standards Council’s Board of Advisors, Payfactory is built on solid principles of security, customer service and innovation. Contact Payfactory to learn 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.

How to Get Modular, Embedded Payments Without Going to Pieces

By Dale Laszig

Lego logs are the perfect analogy for today’s software solutions. Individually, Legos and binary digits are small, uniform and dormant. Together, they’re a miracle of modular energy that can be molded and shaped at will. Not surprisingly, coding can be a lot like building with Legos, so it makes sense for developers to envision the features they would want in a technology stack, then find the right partners to help deeply integrate those capabilities. 

Designing payment software can be like building with Lego logs, according to Andre Machicao, global head of product at Visa. You can follow an outline to get a serviceable product, he stated, or create from scratch. At the Electronic Transactions Association’s April 2023 conference, TRANSACT, he walked the big stage, describing how children who build without blueprints outperform others who follow clearly defined patterns. The payments industry is building without a blueprint, he told the audience, and free builders are outpacing legacy architects.

In today’s blog, we will explore modularity as a principle of modern software design, and how it is helping developers embed payments into highly flexible, configurable software applications.  

Principled Design at the Core

As Machicao noted, software designers frequently go off script and their bold experimentations are taking payments from simple hardware to ever more nuanced forms of digital commerce.  Payment facilitation (Payfac) is a case in point. The idea of supporting sub-merchant customers under a single merchant ID was revolutionary a decade ago, but merchant acquirers saw Payfac’s ability to onboard customers with blazing speed, and a movement was soon underway. 

Like other aspects of PayTech, Payfac evolved from fast onboarding of merchants to diverse capabilities, driven by APIs, and backed by strong partnerships and 24/7 support. A good Payfac partner absorbs the related risks of payment processing, enabling independent software vendors (ISVs) to focus on high-value priorities and more importantly, meet customers where they are, while delivering frictionless checkout experiences across all points of interaction, including mobile, virtual, in-store and online channels.  

Modularity Creates Flexibility

Modularity is a big want in today’s digital commerce ecosystem, especially among multinational enterprises that transact in numerous languages, currencies and regulatory environments. These organizations strive to meet customer expectations and payment preferences while protecting their privacy and personal data. Their approaches in the fragmented payments landscape have created a patchwork of workarounds, some more effective than others. 

Like their customers and partners, ISVs expect flexibility and choice in how to connect, collaborate and share data with other service providers, but integrating disparate technologies has never been easy. ISVs tend to be out-of-the-box thinkers, which is great for building a business but challenging when communicating with other innovators. It takes more than APIs to fully embed payments; a Payfac partner provides the essential connectivity that powers unified commerce. 

Bolt on or Embed?

The best collaborations between ISVs and Payfacs are those that unlock their limitless potential. Modularity holds the key. As we’ve seen with providers and enterprises around the world, there are all kinds of approaches to integrating payments, some more effective than others. 

Over the years, the payments industry’s concept of integration continues to evolve as technology becomes more responsive, intuitive and open-ended. Here are some examples:

Legacy: Standalone equipment and manual invoicing still exist but are less secure, efficient and agile than alternative digital commerce solutions. They function as appendages rather than integral components of your business and brand. 

Hand-off: Packet switching, transaction routing and payment gateways are all part of a transaction’s journey. It is crucial to tokenize and encrypt data at point of entry, in transit and at rest, because each hand-off creates a potential vulnerability that a hacker could exploit. 

Semi-integrated: Large POS systems can keep customer data out of scope by processing payments through adjacent processing devices. Large and small merchants have found it easy and cost-effective to keep these smaller peripheral devices compliant and up to date. 

Integrated: Integrated POS systems have evolved into cloud-hybrid and distributed models that can be managed remotely and continuously updated. Digital app marketplaces and business management capabilities in select models enable users to run their businesses from anywhere. 

Embedded: Ideally, with in-app payments, it’s impossible to see where one ends and the other begins. Commerce is deeply embedded within a brand. There’s no hand-off; customers are not redirected to a checkout lane or payment page. When there’s no daylight between an app and a transaction, that payment is agile, intelligent and secure.

Payfactory – Designed to Build and Scale

In the early days of application design, it was commonplace to use hardware terminology to describe software, because that’s what we knew. Today, we still think of digital commerce in physical terms because of how deeply it impacts our businesses and lives. Imagine physical and digital commerce coexisting in perfect harmony, then see it in action at Payfactory.  

Payfactory CEO Ruston Miles founded Bluefin in 2007, a recognized integrated payments leader in encryption and tokenization technologies that protect payments and sensitive data. Headquartered in Atlanta, with offices in Waterford, Ireland and Vienna, Austria, Bluefin was founded on the core belief that a brand’s value is tied to its ability to deliver a secure, yet frictionless, customer experience. 

In 2021, Ruston founded Payfactory to provide the benefits of agile Payfac that could seamlessly be built into any software system – or as they call it, free building. The company’s free builders understand hardware and software from the inside out and bring principled design and client-first focus to every project. Payfactory’s heritage of security is reflected in every module, from state-of-the-art tokenization and PCI-validated point-to-point encryption (P2PE) to its suite of restful APIs, facilitating choice, collaboration and discovery. 

Built by software innovators for software innovators, Payfactory is here for the long ride and will make that first small step of the embedded payments journey productive and rewarding. Contact Payfactory to learn 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.

Securing Embedded Payments: The Role of Encryption and Tokenization

Data breaches, data compromises, identity theft, hacked accounts. It’s not a matter of whether consumers or businesses will be targeted, but a matter of when.

According to IBM’s 2022 Cost of a Data Breach Report, ransomware attacks have skyrocketed (41% from 2021 to 2022), and the average U.S. cost of $9.44M for a breach is more than double the average global cost of $4.35M.

Ensuring that financial and sensitive information is protected from hackers is the responsibility of every party that receives, transmits and stores data – including the merchant, payment gateway, financial institution and third-party vendors.

In the ongoing fight to protect payment and sensitive data, two technologies – encryption and tokenization – have emerged as integral to a holistic security strategy. Each can serve a specific purpose based on acceptance channel or can serve multiple purposes depending on business use case and implementation.

But choosing the best security solution for your business – particularly in embedded payments – isn’t always easy. Today we boil down the mechanisms and uses of encryption and tokenization and considerations when choosing a solution for your business. 

Defining payment data and sensitive data

“Data breach” became a household term in 2013, when cybercriminals stole 40 million credit and debit card records and 70 million customer records from Target. This watershed breach was soon followed by a series of other attacks against major brands, including Home Depot, Michael’s, Neiman Marcus, Sally Beauty, PF Chang’s and more.

Retail and hospitality were prime hacker targets because the initial focus was payment card data, which could be quickly sold on the Dark Web. But as breaches became more commonplace and attack vectors evolved, hackers realized the enormous market for consumer data, including addresses, emails and social security numbers, and expanded their attack surface to include healthcare, higher education, insurance and more. 

Today’s fraudsters target everything and anything. Essentially, any piece of consumer information gained from a hack can be monetized. Payment data and sensitive data can encompass the following:

  • Credit /debit card and ACH account data – Credit / debit card numbers, expiration dates and CVV’s or ACH account data, including bank account information. Depending on what information is transmitted in a financial transaction, it can also include Personally Identifiable Information (PII).
  • Personally Identifiable Information (PII) – First and last name, home address, birthdate, social security number, driver’s license number, email address and more. This is information that is both publicly available via the web in a Google search and information that is private to the consumer. 
  • Protected Health Information (PHI) – Medical records, health conditions, prescriptions, appointments, clinical trials, insurance numbers. Depending on the item breached, PHI can also include debit / credit card data and PII.

Security solution: encryption

Encryption stretches all the way back to 1900 BC when the first evidence of cryptography, the underlying scheme for encryption, was found in an Egyptian tomb.

At its core, the goal of all encryption solutions is to scramble data so that its original makeup – whether letters or numbers – cannot be deciphered by a hacker. The only way to “unscramble” the data is with an encryption key held by one of the parties in the payment or data acceptance and transmission process.

In payment processing, encryption is most often used for card present transactions to secure payment data upon dip, tap or key entry in a payment terminal. There are two primary types of payment encryption offered for card present transactions:

  1. PCI-validated point-to-point encryption (P2PE). P2PE was introduced by the Payment Card Industry (PCI) Security Standards Council (SSC) in 2013 to provide a uniform method and process for payment terminal encryption. P2PE requires that payment card data be encrypted immediately upon entry into the payment terminal and cannot be decrypted until securely transported to, and processed by, the payment processor. 

    To provide P2PE, payment gateways, payment processors and other third-party vendors must receive PCI validation for their solution, with P2PE being considered by many to be the gold standard of point-of-sale (POS) payment encryption. P2PE brings numerous benefits, including cost savings on PCI compliance, reduced technical overhead and fewer questions to answer in the annual self-assessment questionnaire (SAQ).

  2. End-to-end encryption (E2EE). Solutions that have not achieved PCI validation are typically referred to as end-to-end encryption, or E2EE solutions. These solutions encrypt payment data but they have not been validated by the PCI SSC as adhering to the strict encryption, decryption and payment terminal chain of custody requirements of listed solutions. Encryption that is not validated will typically be included with most gateway and processor setups, whereas P2PE solutions can only be obtained through validated providers. 

Tip: Make sure when you are looking at a new processor or gateway that you ask about their encryption solution, how it works and whether it is PCI-validated. You can learn more about P2PE in the PCI DSS Guide.

Security solution: tokenization

Much like encryption, the goal of tokenization is to mask data so that it is unrecognizable. So, what’s the difference between tokenization and encryption? Encryption focuses on scrambling data that cannot be unscrambled – or decrypted – without a key. Tokenization focuses on replacing payment or sensitive data with a token that consists of letters, numbers and symbols, and which can then be used to represent any type of payment or sensitive data. 

Tokenization is applicable to numerous types of transactions but is most often used for data that needs to be “at rest” or stored. For example, when a consumer agrees to keep their payment card on file with a merchant, the processor or gateway should be storing the card details only as a token (masked) and never “in the clear.” 

Encryption and tokenization are considered the 1 – 2 punch in payment security (encryption for payment data in motion and tokenization for payment data at rest).

And like encryption, there are different types of tokenization to adapt to any business use case. Merchants can choose who tokenizes their data, whether their gateway or processor, a third-party token vendor or even Visa, Mastercard and American Express with their network tokenization service. It is also important to understand the tokenization technology, how it works and how it stores sensitive data and the corresponding tokens. There are two primary types of token storage:

  • Vaulted tokenization involves a secure database where the sensitive data and corresponding tokens are stored. When it comes time to detokenize data, a lookup of the original information must be performed. But as the database becomes larger, the processing time for detokenization increases, making vaulted tokenization less efficient than its counterpart, vaultless tokenization. 
  • Vaultless tokenization does not require a database or a token mapping table, rather it uses secure crytptographic devices for data storage. These devices use standard-based algorithms to convert sensitive data into non-sensitive data or to generate tokens. Vaultless tokenization reduces latency and also provides greater security because it does not maintain a database. 

Tokenization also extends beyond payment card data to sensitive consumer data. Thanks to regulations like the California Consumer Privacy Act (CCPA) and Europe’s General Data Protection Regulation (GDPR), more companies are turning to tokenization to mask PII and PHI entered into online forms or on websites.

Tip: Tokenization should always be offered as part of any gateway or processing arrangement. It will be important to understand what kind of tokenization your partner is using and what kind of data you want to tokenize – just payment data or also PII? Learn more about tokenization from TechTarget.

Payfactory puts security at the forefront

Payfactory’s CEO, Ruston Miles, has been a member of the PCI Security Standards Council Board of Advisors since 2019. He was at the forefront of developing North America’s first PCI-validated point-to-point encryption solution, introduced in 2014, and is a frequent speaker and expert panelist on encryption, tokenization and cybersecurity.

Founding Payfactory in 2021, he knew 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. 

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. Learn more about our platform or contact us to set up a consultation. 

How 2023 Payment Trends are Shaking Out

The halfway mark of 2023 is almost here. New reports and consumer surveys are solidifying some of the top payment trends of 2023 and reinforcing many 2022 predictions – from increased digital payment adoption to embedded payment and lending integration – while others, like payment sustainability, are emerging as new topics.

Today we look at how 2023 trends are shaking out and what to watch for in the second half of the year. 

Digital payment adoption in B2B and B2C rise

Cash and checks are going by the wayside, which may not be surprising in the B2C market but more B2B companies are now embracing digital payments.

A new report by Citizens Bank surveyed 205 treasury executives at middle-market businesses in February and March 2023. Citizens found that more B2B businesses are now providing online payments, and 80% of B2B transactions are expected to be digital by 2025. Corporate treasury departments are embracing social tokens, real-time payments and virtual cards. But the report also found that B2B has not abandoned checks, automated clearing house (ACH) and physical credit cards just yet.

This differs from the B2C market, where Juniper Research estimates that by 2026, 5.2 billion people will use digital wallets to make payments, up from 3.4 billion in 2022. The research also identified QR code payments as the most popular digital wallet transaction type in 2026, reaching 380 billion transactions globally, and accounting for over 40% of all transactions by volume.

This adoption of digital can be attributed in part to the pandemic, which accelerated interconnected commerce and brought the brick-and-mortar shopping and payment experience online. Consumers are now accustomed to paying digitally and want improved, and expanded, digital channels.

A new report by Salucro demonstrates this trend in healthcare. The company surveyed 1,348 U.S. healthcare consumers this spring and found that 62% of respondents favor patient portals for paying medical bills. This digitalization expands beyond just payments, with Salucro finding that patients’ interest in receiving text message notifications about their medical bills rose by more than 30% in 2023 from 2022, with an additional 51% of respondents saying that a text message reminder would prompt them to pay their bill faster.

Learn more about the different types of digital payments available in our blog, Demystifying Digital Payments for your ISV and SaaS Platform. 

Businesses get behind real-time payments

Real-time payments (RTP) are about moving money faster than checks and more securely than cash worldwide. According to ACI Worldwide’s March 2023 report, more than 70 countries on six continents support real-time payments, with $195 billion in transaction volume in 2022.

These payments are made between bank accounts that are initiated, cleared and settled within seconds, regardless of day of the week or holidays. Not only does this help consumers manage their money better but real-time payments speed aid in crises. Take the pandemic and issuance of stimulus checks, where the rollout was slow and it took weeks, sometimes months, for consumers to get aid. Payment speed is also key in disaster relief.

Venmo, Zelle and other peer-to-peer (P2P) payment methods are accelerating the adoption of real-time payments, since consumers get instantaneous fund transfer and payment and are now expecting this from their everyday payment methods. According to PYMNTS’ Real-Time Payments Tracker® released in March:

  • Four in five Americans are interested in faster payment options when paying businesses for goods and services
  • 61% of millennials and 59% of bridge millennials say they are highly interested in real-time payments.
  • 23% of consumers interested in using real-time payments find them convenient and easy to use
  • 22% appreciate the instant availability of funds
  • 14% believe real-time payments could help them better track their financial situations.

Lending options become a standard in the payment mix

There is a new industry term to familiarize yourself with – embedded lending. This allows consumers to get lending tools through non-financial services or products.

The most mainstream and popular form of embedded lending is Buy Now Pay Later (BNPL). The increasing popularity of online shopping and demand for quick checkout is propelling the BNPL market to a 26% CAGR from 2023 to 2030, currently standing at $6.13 billion in 2022. 

BNPL brings consumers flexibility with instant credit, interest-free payment terms, shopping via apps and a simple checkout experience. While there is still concern over uncertain economic conditions and consumers’ ability to pay back purchases, regulatory oversight is ensuring that BNPL systems are robust, making them a payment method that is here to stay. In fact, more industries like healthcare, grocery, retail, legal services and grocery are adopting BNPL, making it a mainstream and accepted purchasing method. 

SaaS payments are the new normal

Given the evolution of digital payments and one-touch commerce, it should come as no surprise that consumers expect to pay for goods and services in their software applications, whether that is a gym app, a healthcare portal or when booking a massage or haircut online.

Thousands of software companies around the world have either adopted embedded payments or are considering adoption. These payments are “invisible” to the consumer and baked into the SaaS experience. According to Bain & Company, embedded payments (along with embedded lending) will continue to be the fastest-growing categories of embedded financial services.

Embedded payments bring numerous benefits to both consumers and software platforms. On the consumer side, they satisfy the desire for seamless and quick payments in their app or portal. On the ISV and SaaS platform side, embedded payments make companies more competitive and increase revenue by sharing payment profits with the acquirer or processor.

Payfactory specializes in embedded payment facilitation for ISVs and SaaS platforms. Learn more about the growing need for embedded payments in our blog, Integrated Payments and Embedded Payments: A Trillion-dollar Opportunity. 

The growing interest in sustainability

The 2023 Merchant Payments Ecosystem (MPE) conference had a panel dedicated just to sustainability in payments – and we are poised to see more of these discussions. 

The payments industry processes trillions of dollars in transactions every year and there is a growing awareness, both from the business and the consumer side, of the effect these payments may have on climate change and our carbon footprint. A great example is the continued use of paper receipts and what that means for the environment – another factor that is putting digital front and center.

The Paypers reports that MPE panelists who joined the session on sustainable payments in March discussed that informing customers about the sustainability of a payment method is an important first step in promoting sustainable payment practices. 

Visa reports that recommerce – resale, returning and redistribution of goods – is also gaining popularity, with 69% of participants in a recent survey saying they would choose retailers based on recommerce activities. A card reward system or loyalty program for choosing sustainable payment options are some of the ideas being floated by processors and merchants.

Additionally, Payfactory believes that consumers will begin demanding real-time refunds – the ability for instantaneous funding of refunds to a consumer card or bank account by pushing funds to their credit card or through their debit card to their bank account. This would allow for 24/7, 365 real-time refunds, fixing a service issue in seconds that normally takes days on the traditional payment refund rails, conserving time and energy.

What’s next in 2023

Consumer demand and preference will continue to drive payment trends. Integrating, embedding and changing the way we process transactions takes time to implement across the payments value chain. But the continued drive toward digital, one-touch commerce and an invisible, convenient payment experience is underway across industries, with more to come from standards including PCI DSS 4.0 and ISO 20022, all of which will make transactions more secure and seamless.

Our CEO, Ruston Miles, a 23-year payments industry veteran, believes that payment facilitation is the future of merchant acquiring and in-line with industry trends for faster, more secure and seamless payments. The result is Payfactory’s payment platform that is plug and play for ISV and SaaS providers, enabling companies to swiftly embed payment processing into their software with minimal work while benefiting from an attractive revenue sharing model. Learn more about how you can start processing payments today with Payfactory.

Considering Payfac? A 4-Step Guide to Choosing Your Solution

According to Bain & Company, ISVs have the potential to address $35 trillion in payments, or 15% of the worldwide total, by integrating payments into their platforms. The digitalization of payments combined with consumer demand for one-touch commerce is driving software vendors in every industry to adopt payment processing within their platforms.

Payment facilitation, or Payfac, is a specialization of payment processing characterized by faster onboarding, faster funding and greater flexibility than traditional payment processing. Not every solution provider offers Payfac as part of their processing package – the reasons for this are varied and we delve deeper into the differences between traditional payment processing and Payfac in our blog, Payment Facilitators Versus Payment Processors – What are the Differences?

But more ISVs and SaaS companies are considering Payfac options when embedding payments into their platform to provide a seamless payment experience, satisfy customers and in many cases, gain a new revenue stream. And there are many options, from owning the Payfac experience to Payfac through direct providers to Payfac as a Service – and, in the case of Payfactory, real-time Payfac that involves minimal development effort.

Step 1: Evaluate Your Business

The first thing to know is “how” digital payments can be used. The three primary methods are at the point-of-sale (typically a brick-and-mortar store or restaurant), online or over the phone. Note that online purchases can be made through a computer, tablet or laptop (Ecommerce) or through a mobile phone (mCommerce).

  • POS: Point-of-sale (POS) typically refers to the customer paying for a purchase in a physical location via a payment terminal (and can also be called card-present payments). Payment terminals should be equipped with chip card acceptance for credit and debit cards and near-field communication (NFC) technology for contactless credit and debit card payments (also called tap-to-pay) and mobile wallet payments.
  • Online (Ecommerce and mCommerce): These are typically payments initiated via a computer or a mobile phone. These two pieces of hardware act as the “virtual” point-of-sale but because you are not purchasing goods in a physical location, they are card-not-present transactions. Credit and debit cards can both be used online, as well as mobile wallets, mobile apps, bank transfers (also called Automated Clearing House transactions or ACH) and alternative credit solutions, such as buy now, pay later (BNPL).
  • MOTO (mail order / telephone order): These are typically payments initiated by the cardholder over the phone with a call center attendant or via physical mail. While the card is still not present with MOTO transactions, the difference here is that the merchant is keying in the data themselves and the cardholder is only speaking the number over the phone or writing it down on paper and mailing it in.

Step 2: Do the Research

It’s easy to get overwhelmed when starting out in payments research, but there are two primary integrated payment options – traditional merchant acquiring offered by a payment processor versus payment facilitation offered by a Payment Facilitator (Payfac).

Traditional payment processors (also called merchant acquirers) provide the systems and technology that processes the payment transactions, routing them to the card networks and the banks, receiving authorization and declines, and settling funds. Payfacs offer payment processing to companies, known as sub-merchants, through their own links with payment processors. Payfacs serve as an intermediary, gathering sub-merchant transactions and passing them to a payment processor for completion. You can learn more about both models in our blog.

It also helps to familiarize yourself with common industry terms, such as:

  • Payment gateway
  • Merchant onboarding
  • Sponsor bank
  • Sub-merchant
  • Convenience fees, surcharge, service fees and platform fees

Get answers to commonly asked processing questions and definitions for payment processing terms on Payfactory’s FAQ page.

Step 3: Define an Ideal Integrated Payments Partner

Within traditional payment processing and Payfac, there are different models for ISVs to consider. What model is chosen depends on a number of questions that are helpful to define once the ISV has become familiar with payment processing. These can include:

  • What is my desired revenue share from a partnership?
  • What level of payment security compliance do I want from my partner?
  • What kind of customer relationship management and support will I, and my merchants, receive from my partner?
  • How involved do I want to be in the sales process?
  • How quickly do I want to board merchants for payment processing? 

Check out our blog, 6 Factors for ISVs to Consider When Choosing a Payment Processor, to learn more about other factors to consider, including transaction type, payment processing pricing, payment terminals, point-of-sale hardware, deposit timing and payment security.

Step 4: Choose a Payfac Model

There are many reasons why more ISVs and SaaS companies are turning to Payfac for their processing needs. The Payfac model simplifies the merchant account enrollment process and provides increased levels of control to ISVs. Seamless and paperless underwriting is at the heart of this model, accelerating standup times for merchants.

Once you have completed steps 1-3, you should have a good idea of how you want to process payments and what type of integrated partner is best for your business. Payfac comes in different models:

  • Software Platform as the Payfac: Many ISVs are moving towards the value of Payfac by actually becoming Payfacs themselves. However, this is the most aggressive model typically only adopted by the largest ISVs because the time to become a Payfac can range from 12-18 months, the cost can reach into the millions, the ISV assumes 100% of the risk and liability for their sub-merchants and payment experience is required.
  • Payfac Direct Providers: There are some larger providers that now provide payment facilitation as a direct service to sub-merchants that ISVs can integrate to. Here, the ISV can integrate to the payment platform and provide the platform’s Payfac services to their merchants directly. However, this is considered more of a “pay to play” model where the ISV is leveraging their processing only and there is no revenue share.
  • Payfac as a Service: Payfac as a Service is the newest entrant on the Payfac scene. In this hybrid payment facilitation model, the Payfac payment service provider becomes a Payfac with Sponsor Banks; they act as a master merchant account and can set up sub-accounts for merchants same-day. The provider offers revenue share while taking on risk and liability.
  • Real-time Payfac: Offered by Payfactory, real-time Payfac provides all the benefits of Payfac as a Service but with minimal development effort – in most cases, ISVs can be up and running with payments in less than one week. This is because Payfactory is gateway-friendly, meaning that we have integrations to over 100 gateways.

Scale Payment Processing with Payfactory

Payfactory was founded in 2021 by CEO, Ruston Miles, a 23-year payments industry veteran that believes payment facilitation is the future of merchant acquiring and in-line with industry trends for faster, more secure and seamless payments. He wanted to create a payment platform that was plug and play for ISV and SaaS providers, enabling these companies to swiftly implement payment processing into their software with minimal work while benefiting from an attractive revenue sharing model. 

Today, Payfactory serves software vendors across healthcare, government & utility, retail, higher education and more with our gateway friendly, real-time Payfac service that encompasses 3 core pillars:

  • Agility: A simple, fast payments integration for all software platforms.
  • Seamlessness: A frictionless, fast merchant account go-live process.
  • Integrity: No sacrificing of human service and support for the sake of speed and flexibility.

 Contact us to get payment facilitation for your platform today.