Stripe and WePay(now Chase) have made a significant impact on the eCommerce world through their cutting edge UI and easy to integrate API’s. These Payment Facilitators or PayFacs, along with Square have changed customers expectations of payment processors. These companies help set new expectations for boarding, funding controls and ease of integration.

The industry has since caught up and much of the technology they provide has become ubiquitous.  As early adopters, they enjoyed a brief runway, servicing many direct merchants and software providers with relatively high pricing and little to no, residual share for integrated partners. We are going to focus on the relationship between ISVs and PayFacs.

Integrated software providers continue to target ISVs, guiding them through a roadmap from integration to channel adoption. Many ISVs start with a referral relationship which requires the least amount of time, resources and commitment. From there they often progress to a fully automated experience or un-registered PayFac structure, and can eventually move to a fully registered Payment Facilitator. Some providers offer one or two paths for partnership; Stripe and WePay limited by the fact that they are Payment Facilitators themselves and not actual processors. Each step generally requires a more robust integration and stronger commitment which mirrors a scaling compensation structure when using more traditional payment processors. Most processors understand that larger companies with a clear, significant interest in payments want to work towards ownership of their portfolio.

ISVs can always recognize the revenue from a payments partner, however becoming a full Payment Facilitator gives larger ISVs ownership of the merchant contract and an increase in their valuation multiple as a result. Growing into a true payments facilitator can seem like a daunting task. It creates challenges, has strict requirements and generally a time frame extending out to longer than a year.

A new group of payment servicers have emerged. These companies recognize that although painful, becoming a PayFac is the right strategic decision for larger technology platform with $50-$100M or more in volume. These companies offer tools and APIs to handle some of the most painful parts of becoming a PF and bridging the connection that must be created between the ISV and Processor/Sponsor Bank. Ultimately, for large fast growing ISV, a processor, not an another PayFac is the best path for strategic growth.