It’s now common knowledge that the COVID-19 pandemic has triggered a huge shift in the world of payments, resulting in the rise in contactless, mobile, and ecommerce-based transactions. But over the last couple of years, there’s been an even bigger payments
revolution happening, hidden in plain sight.
Recent MasterCard figures show that around
$120 trillion worth of B2B payments are made each year, and in retail, less than
8 percent of global commerce is thought to occur online. But until recently, B2B software platforms have not generated revenue on what is a vast market opportunity. While a multitude
of tech platforms have wanted to cash in on the action, traditionally it's only been payment facilitators - or PayFacs - gateways, banks, and credit card companies that had access to it.
A revolution gathering pace
To set the scene, the insurgence of cloud computing ten years ago resulted in a host of B2B tech platforms vying to disrupt every industry. As a result, a wave of management platforms were born, each tailored to their specific sector and all run as independent
software vendors (ISVs). Retailers had commerce management platforms, restaurants had restaurant management platforms, gyms had gym management platforms, and so on. What all of these platforms had in common was that they helped clients manage their operations
and interactions with consumers or other businesses.
But ISVs didn't get involved in the payments processes, which was strange considering the opportunity at stake, but it’s also understandable why. The world of payments is a complicated one, and PayFacs have to go through a lengthy and stressful process to
service a merchant account, including taxing know-your-customer (KYC) and anti-money laundering (AML) checks, amongst other burdens.
And if you run a B2B platform, you’d be excused if payments were the last thing on your mind. Previously, these businesses have formed integrations with a range of PayFacs and then let their clients choose which one to use. But that’s a lot of integrations
to maintain and, quite simply, isn’t sustainable.
The rise and rise of integrated payments
But over the last couple of years, B2B tech platforms have been waking up to the opportunity that is right in front of them. The world of payments is big business:
recent figures suggest that the European digital payments market is expected to hit $802 billion in transaction value this year, and McKinsey estimates that revenue from global B2B payments alone totalled
$930 billion in 2019.
However, most companies can’t afford the time, money, or human resource needed to become PayFacs in the careful and considered way that this needs to be handled. And at the same time, PayFacs realised that they could board merchants at scale and work with
B2B platforms in a way that was beneficial to both parties, where revenue is actually shared between the ISV and PayFac. If B2B platforms used their technology and offered it as an integrated part of their service, PayFacs could provide smoother customer experiences
and more efficient payments journeys overall. This is the premise on which the trend for integrated payments is based.
Everyone’s in the payments game
Due to these changes in the wider industry, B2B tech platforms are rapidly becoming payments companies. PayFacs are competing to integrate their technology into such platforms, which drive an ever-growing number of transactions and offer some competitive
advantages to their customers as well as the end-user. Revenue sharing deals and features like fraud protection, B2B invoicing, and cross-border payments play a role in winning over B2B platforms to a certain PayFac.
As a result, those B2B platforms that used to leave the choice of gateway to their clients have needed to upskill. They need to understand the nuances of payment technology and the payments journey more broadly, and therefore what different PayFacs can offer
them, in order to ensure they can create the optimum customer experience but also benefit from a business perspective. But the stakes can be high - if you play it wrong, you could lose out on a significant amount of revenue and cause disruption and upheaval
for your clients along the way.
The opportunity is there, right now
The race is still on, and PayFacs are now competing to become the integrated payments system for the B2B platforms that dominate entire industries. So take note if you run a B2B platform: you have an opportunity, right now, to tap into a new revenue stream
but also provide a better payments service and onboarding experience for your customers.
The bottom line is that B2B platforms that go into the payments business - which is, I would argue, all B2B platforms - need to think wisely about who to integrate with. The wrong PayFac has the potential to hurt a business and disappoint it’s clients. But
by finding out which payment providers your customers use, any challenges they currently face and what they like to get out of their payments processes, you could not only increase revenue but also solve a problem for your customers - it’s win-win. We’re all
in payments now, and the sooner you realise this the sooner you can reap the benefits.