Integrated Software Vendors (ISV) that choose a PayFac path for their payments strategy, over the long term, can have the capacity to earn more revenue than traditional payment models or referral programs.  They accomplish this through varying methods but the three core tenants for driving maximum revenue are adoption, functionality and commercial terms.

First adoption rates, driving a high adoption rate is a key component to maximizing the volume and therefore revenue across your platform. Two high profile examples of successful adoption strategies would be Shopify and Toast. They drive extremely high payments usage by automatically enrolling customers to use their payments offering or create penalties for customers that want to choose a different path. This carrot  and stick approach makes almost every SaaS client also become a payments client.

The second lever is determined by the functionality. An ISV’s customer that boards to the platform and uses the “preferred payments path” are often given sight line to activities like funding, chargebacks, batch reporting etc. which are not available with third party providers. Settlement data is the most common and significant data included or omitted, a result of both design and practicality. ISVs do not want to have to code and support endpoints into every processor that their clients desire, especially where the commercials terms are not favorable.

The last lever and often the most impactful are the commercial terms.  ISV’s that choose to become a Registered Payment Facilitator enjoy high multiples that are only available to payment providers that carry their own liability called full-liability Independent Sales Organization(ISO’s), Acquirers or leading edge Fintechs. Referral models are a great introductory go-to-market but don’t allow for the ISV’s to account for the top line revenue created by payment processing. Carrying ownership of the merchant contract, Payment Facilitators are often vertically focused limiting the liability exposure often associated with this higher liability, higher reward model.

There is no one right answer when it comes to ISV’s and their payment strategy. Coronavirus has shown us that even low risk verticals, like retail and restaurants can carry substantial exposure during these uncertain times. Even with Payment-as-a-Service (PaaS) companies like Finix, Payix and Infinicept that have all shortened the road to becoming a Payment Facilitator, it is still a significant strategic decision for every software company.