The conventional wisdom is that all software companies will, at some point, become payments companies.
But, as Deirdre Cohen, senior vice president of acquiring at Visa, told Karen Webster: Not all software companies should become payments facilitators (PayFacs).
For almost all software firms, she said, “integrating payments is a natural extension of the services that you are delivering … and driving a seamless customer experience.” The restaurant that has a software solution running the business that helps build menus and schedule servers can find extra value when payments are woven into the mix, so they buy inventory and even disburse tips.
As Cohen noted, payments are not simple; they’re complicated. There are several players in the value chain and software companies (and their enterprise customers) must figure out where their sweet spots lie.
“If you’re a consumer-facing business, customers are demanding a seamless experience, and they’re demanding seamless payments — they’ve gotten used to this,” she said.
Software companies that may want more control over their customer economics and experience and want to become a PayFac need to examine the impact going down the PayFac road might have.
The conversation between Cohen and Webster was the second in a multi-part series intended to unravel the complexities of PayFacs and why they should be considered in the first place.
The savvy Software-as-a-Service (SaaS) provider that takes a measured approach to payments integration can become a de-facto operating system for client companies that prove sticky and create value for the ecosystems they serve.
Before making the leap into controlling transactions and the merchant experience overall, “there are a few questions that these companies should ask themselves because becoming a PayFac comes with a lot of obligations and responsibilities,” Cohen said. “You really need to think this through.”
There are businesses where it makes sense to pursue that model. Software companies that focus on specific verticals, such as healthcare or childcare, are natural PayFac candidates.
But no matter the vertical, the build versus buy question — that perennial technology consideration — looms.
At a high level, she said, many software companies are enthusiastic about becoming PayFacs, building the capabilities on their own.
“They think, ‘I want to be all in on the payments flow,’” said Cohen.
Many of these companies are by their very nature technologically savvy and have built their own software in-house, so they’re ready to tackle payments.
But upon reflection, and through conversations with Visa, she said a significant number of these same software companies find that a partnership offers the most effective way to set up payment functions. The software companies are not all that ready to tackle underwriting or other aspects of the payments continuum. Visa, for its part, has launched its Acceptance Fast Track program, which offers frameworks and information that bring small and medium-sized businesses (SMBs) and PayFacs together.
“We walk them through the process and help them to discover — and think strategically about — next steps,” she said.
The best approach often means taking baby steps. Thinking about the three-to-five-year strategic plan — geographics expansion, adjacent services and products, and even new end customers — can help sharpen the focus on PayFac options, she said.
The ever-expanding payments ecosystem also means that software companies need not take an “all or nothing” approach to payments facilitation, she said.
“There’s a broad set of providers out there in the market providing tools to these SaaS companies so they can move along that PayFac continuum,” she said.
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