Ways to Stay Competitive as a PayFac, Even if Business is Booming
November 16, 2021
Table of Contents
- What Does PayFac Mean?
- How Do Merchant Services Work?
- Whats to Stay Competitive as a PayFac
- The Solution
- Best Merchant Payment Solution: Agreement Express
The payments industry is at an inflection point.
The pandemic only sped up what everyone knew was coming: the age of software. The payments industry is no different; with everything from the rise of cryptocurrencies to automated merchant onboarding, payments is seeing a huge shift in favor of technology.
The payments industry is seeing this shift because clients want faster and more accurate turnaround times and services, a paradox that can only be answered by the brute force of software solutions.
However, there are other ways PayFacs can stay competitive in the hardened payments landscape. Keep reading for insights on merchant processing solutions and best PayFac practices in 2021 and beyond from sources such as the McKinsey Global Payments Report and the payments industry experts here at Agreement Express.
But first, a quick refresher on payment facilitators and the services they provide for merchants.
What Does PayFac Mean?
A PayFac, or payment facilitator, is in the business of enabling merchants and/or vendors to accept electronic payments (cards) for their goods and services.
PayFacs open one large merchant account with a bank and approve merchants to use their account, charging a fee for every transaction processed.
How Do Merchant Services Work?
PayFacs take on the responsibility of processing electronic payments for merchants. Payment facilitators are responsible for moving a customer’s funds to the merchant’s bank account when they swipe a card, which is a responsibility that can be quite risky because of fraudulent payment methods.
Because PayFacs take on the risk of accepting electronic tender for their merchants, it is important that they take the utmost care in determining the merchants they allow to use their merchant account, and continue to monitor them throughout their tenure with the PayFac.
Learning and using best practices to avoid risk and improve merchant processes as a PayFac can be a key difference between making good profit versus excellent profit; seeing satisfactory employee production rates and amazing employee production rates; underwriting several merchants and underwriting many merchants.
As the payments industry continues to experience growth and leverage innovative technologies, what follows are merchant processing solutions and tips that will help PayFacs thrive in the unique niche in which they exist.
Ways to Stay Competitive as a PayFac
The payments industry has shifted immensely in the last few years; thus PayFacs should seek to change with these shifts. Here we have compiled a list of the top tips for PayFacs as 2021 comes to a close.
Create a Smooth Merchant Onboarding Process
Developing a smooth merchant onboarding experience has dual purposes: both your employees and your merchants will benefit from the increased organization, single point of contact, and automated checks for things such as NIGO and KYC compliance. Merchant onboarding is the process of getting merchants set up in a payment facilitation platform after they have been underwritten and approved. This process, if not optimized, can be riddled with difficulties and take up a lot of time.
Merchant onboarding can run into several different issues. Firstly, an onboarding process that lacks the ability to be scaled to different industries tends to cause problems for PayFacs. These types of merchant onboarding processes are a huge lift, yet lack the wide scope of usability that would justify that amount of work. If a payment facilitator’s merchant data collection process isn’t able to onboard all types of merchants, then these PayFacs will miss out on opportunities to do business with all types and sizes of merchants.
David O’Brien, CEO of Agreement Express, said of staying competitive in the payments marketplace, “History has spoken. Companies that have done really well [in the payments industry] have… been able to create a seamless onboarding experience. This enables merchants to start processing payments quicker than ever before.”
Staying up-to-date with ever-changing compliance rules can also be difficult. Updating a merchant onboarding process every time a compliance rule is added or changed can involve a lot of upkeep and work that creates more friction than ease.
Lastly, non-optimized merchant onboarding processes can have long approval wait times, which can cause a merchant to abandon their application and go to a different payments company with a quicker onboarding experience. In fact, payment facilitators that have optimized their merchant data collection processes usually experience a 70% reduction in merchant abandonment.
Smoothing out the merchant onboarding process makes both merchants and PayFac employees happier, which benefits your business and bolsters your revenue.
Maintain an Efficient and Effective Underwriting Process
Having a seamless onboarding process goes hand-in-hand with making sure your underwriting process is an effective way to approve or deny merchants. “Efficient” and “effective” underwriting processes are going to look different for every PayFac, which is why it is important to have an underwriting model that can easily adapt to function for different merchant sizes and types.
Digital underwriting tools are often dynamic in this way, allowing PayFacs to underwrite many more merchants than normal because of tools such as automatic NIGO checks and customizable risk alerts. These tools speed up the time to approval or denial, which means PayFacs are able to underwrite more merchants in a given amount of time and ultimately bring in more revenue.
Diversify Merchant List by Taking on SMEs
SMEs, or small and medium enterprises, are a growing part of the payments market. In fact, they have accounted for around ¾ of new revenue growth in the merchant-services space over the last three years. Investing in and catering to the diverse needs of SMEs has up-front costs, but could be much more lucrative in the long term, seeing that they are taking up a sizable portion of the market.
In fact, diversification in a merchant list is advantageous in and of itself. Diversifying your merchant list will insulate you from risk, as there are different and ever-changing risk levels associated with various merchant types. SMEs are the merchant types that are currently on the rise, and therefore providing services to them would be a strategic way for PayFacs to diversify their merchant portfolio.
PayFacs can easily offer services to multiple different types of merchants using digital merchant processing solutions, such as Agreement Express. Digitizing merchant processing saves time by automating tasks, and by performing customizable risk checks for each type of merchant, allowing you to take on more merchants with less risk and time.
These risk checks can be created and set for each type of merchant taken on by a PayFac, so that merchants automatically get siloed into different risk categories. This alleviates the need for a team of employees to perform this task, instead giving them the information they need to make the decision to approve or deny a merchant upfront.
Invest in an ISV-Led Model
Digital merchant processing solutions like those offered by ISVs, or independent software vendors, allow PayFacs to easily scale to provide services to different types and sizes of merchants. Scaling integrations with digital solutions offered by ISVs and other software companies ties into merchant list diversification; a digitized, and therefore faster and smarter, merchant data collection process will improve overall merchant experience, meaning happier merchants and ultimately more business.
Investing in a PayFac model that leverages ISV software in the next 18 to 36 months before the market tilts towards them will result in a competitive positioning as a PayFac.
Simplify Your Tech Stack
Simplifying can happen in two ways. The first is simplifying the actual software used. One of the main reasons so many people think software is complicated is because there is a plethora of it out there that has poor user experience due to issues in design. Software is only as strong as its usability; a slow and unintuitive software program can hinder PayFacs more than it can help.
Therefore, when payment facilitators decide to improve their merchant experience and utilize a digital merchant processing solution, they need to look for software that is simple and functional.
The second way PayFacs can simplify their tech stack is by reducing the number of software platforms they use. Many PayFacs that have acquired other companies have redundant data and software platforms; technologies that overlap in their scopes and therefore cause confusion and a lack of harmony in business protocols. To avoid this efficiency pitfall that can negatively impact PayFac processes and employee performance, choosing a software solution that can perform multiple time-saving and risk-averting tasks to smooth out PayFac operations.
Capitalize on Your Data
Any data that isn’t being actively taken, interpreted, and used as guidance for better practices in the future is a waste of valuable resources for a PayFac. Effectively monetize data with software that gathers, organizes, and interprets data to provide insights about things like best practices, risk, and market trends.
Since the advent of digitization, there has been a demand for services such as increased data-enabled fraud, sub-merchant underwriting decisions, and enhanced authorization. All PayFacs have very valuable data, but most are not able to collect it due to platforms that lack integration with each other, no strategy to utilize the data, and poor data architecture.
Start leveraging your data to make better decisions by switching to an automated software that collects and organizes your data. Merchant processing solutions, like Agreement Express, have built-in data collection capabilities and provide a quarterly analysis of the payments industry to help PayFacs understand the payments landscape, merchant trends, and best practices for avoiding risk. Not to mention, we can integrate into any platform in any tech stack, making set-up absolutely seamless.
Avoid Complacency with Current Payment Methods
There are some things in business that have remained true from the inception of the very first LLCs: Businesses that don’t change to keep up with their current industry landscape fail. It happened with the agricultural and industrial revolutions, and it’s happening now with the revolution of software and technology in the 21st century.
The payments industry is following the same paradigm as the world at large: current payment methods are heavily trending in the direction of innovative digital solutions. And where technology provides immense opportunity for PayFacs to use digital tools to improve processes like merchant onboarding, these digital tools have most importantly changed the expectations of PayFac customers.
In this age of automation, people want answers and approvals fast through efficient and effective processes that take little to no thought. Many PayFacs recognize how quickly the payments industry is evolving, but PayFacs that have not adapted to the current trajectory of payments need to get on board with this digital revolution before merchants switch completely to using the services of PayFacs that have already seized the benefits of digitization.
Overall, the industry is trending towards innovative software because it provides a better merchant experience, which allows PayFacs to bring in more revenue and make their employees more efficient and satisfied.
Always Keep Your Customer in Mind
One of the most quoted rules of business reigns true in the payments industry as well: The customer always comes first. As a successful payment facilitator, aggregating, triaging, and monetizing the best merchant processing solutions for your customers will result in more satisfaction with PayFac services.
Shifting perspectives to view the PayFac experience from the merchant’s point of view is critical to understanding the audience that is going to be looking for services from a PayFac. PayFac clients want a fast and easy experience, from the moment they contact a PayFac for services, to the onboarding process, to the compliance checks after they have been onboarded.
Taking this client mindset into account when it comes to analyzing and improving merchant processing will ensure that the PayFac experience is catered to the correct merchant audience, leading to more satisfied merchants.
The Best Merchant Payment Solution
There is one thing PayFacs should seek to do before anything else: implement software as a first step in building a merchant processing solution. PayFacs should seek to implement all of these best practices in their business models in order to stay relevant and profitable in the payments industry; which is why investing in a software solution should be their first step.
The best place to start with implementing any of the above suggestions is by discovering a merchant processing solution that will help you improve your merchant processes. Starting with software will make the other actionable suggestions much more achievable.
Benefits of Switching to Automated Merchant Processing Solutions
Investing in an automated software solution is beneficial for a PayFac’s merchant processes for a multitude of reasons.
- Compliance. In the realm of payments, achieving compliance can seem like trying to hit a moving target. As the payments industry continues to expand and change, so do the regulations defining it shift and grow. Keeping up with the changing compliance rules can be difficult, but software that continuously updates to match current compliance means PayFacs don’t have to think twice about the compliance of their merchant processes.
- Software increases underwriting time-to-decision. Software solutions like Agreement Express’s Merchant ScanXPress allow you to expedite the underwriting process with tools like risk flagging, customizable risk scorecards, and automatic NIGO document checks. This speed advantage does not end with the underwriting process; it spans the entire merchant process, with Agreement Express able to onboard merchants in as little as ten minutes.
- Increased transaction security. Performing merchant processes that deal with important documents and information like underwriting and onboarding is rife with the chances of a data breach or data loss. Companies that specialize in producing software are experts at embedding security measures into their platforms. Rather than a PayFac building a custom solution for their merchant processes, outsourcing that technology takes the weight of security checks and updates and puts it on the shoulders of a team of experts.
The Best Merchant Payment Solution: Agreement Express
As a PayFac in today’s overwhelming payments landscape, there is no room for choosing a software solution that doesn’t provide all of these benefits.
With automated underwriting, a single point-of-contact onboarding platform, and the ability to integrate to a PayFac’s existing tech stack, Agreement Express’s software keeps you compliant at all times, underwriting merchants with less risk, onboarding at the speed of light, all with less error and time for you. Our software solves the customer desire paradox of a faster yet more accurate merchant process.
Automated underwriting is one of the easiest ways PayFacs can begin approving more merchants and subside their risk simultaneously. Automation sounds technologically advanced and a risk in and of itself, but in reality it is quite simple: automation is just software performing simple tasks efficiently.
Agreement Express’s Merchant ScanXpress automates much of the tedium of underwriting and performs it accurately and automatically. This innovative solution allows underwriters to develop customized scorecards for various merchant types, with over 127 risk criteria to choose from and the ability to save an unlimited number of scorecard configurations.
Agreement Express’s software consolidates the 3-5 days typically taken to manually complete the 127 risk criteria to as little as 10 minutes.
Our single-point-of-contact onboarding platform allows merchants to submit documents and fill out paperwork all in one place with secure e-signature technology. It has an intuitive interface that reduces merchant frustration and abandonment during the process of onboarding.
This dashboard also gives insights into your merchants and their financial activity by continuously monitoring their risk. Our software comes with the added bonus of being optionally white-labeled, allowing your company to customize our platform according to your style.
Finally, our software integrates into a wide variety of existing technologies, such as KYC Sitescan; integrations that are vital to our risk-scanning capabilities. Agreement Express works with a company’s existing tech stack to get our software up and running as quickly as possible, fully integrated into your technology.
Bottom Line: The Time for Innovation is Now
Finally, the conclusion behind all of these tips: The most advantageous thing a PayFac can do to keep up with the payments industry and maintain their merchant list is to implement software into their merchant onboarding and underwriting processes. Doing so will make the entire merchant experience faster and smoother for both employees and merchants, lead to a larger and more diverse merchant portfolio, and increase revenue while lowering costs.