Visa’s PayFac Strategy Eyes Embedded Payments’ Potential in Blue and Red Oceans

Blue oceans and red oceans beckon for payment facilitators.

As PayFacs choose where to spend their time and money, as they examine competitive landscapes, Bill Dobbins, senior vice president and head of acquiring at Visa, told Karen Webster that there’s an opportunity to change the way payments are done in growing “blue oceans” where payments acceptance is still in its nascent stages.

And in the “red oceans,” where payments are no longer a competitive differentiator, PayFacs must find a new approach.

“There’s room for PayFacs to play in both oceans,” Dobbins said.

The conversation between Dobbins and Webster came as the final installment of the PayFac series, done in collaboration between Visa and PYMNTS.

“You’ve got to have a strong processing platform and solid risk and client-centric management models,” Dobbins said.

The successful PayFacs also will develop some degree of specialization across verticals, he added.

The Blue Oceans

Through the past few decades, we’ve seen the proliferation of apps and smartphones. More recently, through the last few years and the pandemic, connected ecosystems have linked a far-flung set of daily activities and enabled companies to embed payments into the mix — opening up entirely new markets, and thus “blue” oceans.

Of those markets, Dobbins said, “These are segments with trillions of dollars of spending. I think about rent and loan payments and healthcare home services as verticals where there are still opportunities for PayFacs to drive change, add value and secure a large share of the total payments pie.”

In one example, rent payments in the U.S. exceed $500 billion. Historically independent software vendors (ISVs) provided property management solutions to offer tools that support key landlord activities around maintenance, parking, etc. As these ISVs became payment facilitators and embedded payment solutions for monthly rent and better management of deposit returns, the industry has seen significant movement from cash and check to card payment solutions.

The industrial economy is another “blue ocean” to explore, as online marketplaces are becoming firmly entrenched to bring buyers and sellers together, and as the digital channels evolve, to modernize B2B payments.

“There’s a great opportunity with that buyer/seller experience,” Dobbins said, and overcoming the inertia that may exist in the blue oceans, “especially on the receivables side.” Payments in the construction industry, to name one example in the industrial arena, are complex (and involve subcontractors), but the PayFacs that support invoice reconciliation and improve cash flow visibility will be the ones to win a significant amount of business.

“I’m one of those people that can see opportunity almost everywhere,” said Dobbins, who added that the connected economy will enable PayFacs to serve consumer packaged goods (CPG) companies seeking insights underpinned by data (and transaction-level information) to get their brands front and center with consumers.

The Red Oceans

The red oceans are verticals that are already well-served by providers but where there still exists a high degree of friction with transactions. Dobbins pointed to government, education and utilities as examples here. Customers have limited choice in how they pay or receive payments.

To make money here, he said, to stand out from the crowd, the key is to focus “on what the seller is thinking about — and that’s the customer experience.” That mindset moves beyond acceptance and processing and draws a bead on payments choice and multiple options presented to the end user.

There’s a challenge baked into those efforts, Dobbins said.

“The PayFac needs to convince the seller that their solutions are future-proof,” he explained.

To that end, he said, partnering with firms such as Visa, with its “acceptance fast track,” can help speed and improve money movement by adding risk scoring and data-driven analytics that improve the transactions themselves.

“We give them access to the solutions they need to create a payments experience, seamlessly, and incorporate it into their own offerings,” Dobbins said.

As PayFac models evolve, he said, more of these firms are moving into loyalty and card issuance — developing the specializations that will allow them to stand out.

Open a time capsule a few years from now and, Dobbins predicted, “the number of payment facilitators around the world are going to continue to increase at a steady pace. There’s still plenty of ISVs that have not incorporated payment into their offerings … and Visa’s going to be there offering front-line support.”