In an era dominated by digital transactions, the seamless integration of payments into the end-customer experience is no longer a mere preference; it’s now a necessity. For eCommerce marketplace merchants, independent software vendors (ISVs), and software platforms, payment facilitators (PayFacs) have become pivotal in addressing this critical challenge.
In an interview with PYMNTS last year, Casey Porter, vice president of merchant sales and acquiring at Visa’s Global Acceptance Fast Track, discussed the evolution of PayFacs from their 1990s’ roots, when merchant acquirers handled enrollment, boarding, underwriting and settlement.
Today, even though the acquirer remains involved in the transaction from a risk and revenue perspective, Porter said PayFacs now have “control of the transaction and the merchant experience, from end to end.”
PayFacs in the software sector are taking advantage of this control to venture further into the digital wallet space — a strategic move that could redefine their market stance, according to findings detailed in “The Embedded Finance Ecosystem: Software Publishing Edition,” a PYMNTS Intelligence and Carat from Fiserv collaboration.
This latest edition draws on insights from a survey of over close to 300 executives working at PayFacs, ISVs and marketplaces to examine the evolving role of embedded finance in the software producers and publishers segment.
Per the report, the software publishing business is starting to use digital wallets as a standard for processing transactions. As a result of their adoption of this technology, 71% of PayFacs are innovating and expanding their digital wallet capabilities to gain a significant competitive edge in the industry.
This rate is considerably higher than that of ISVs and marketplaces in the sector, with only 26% and 25%, respectively, currently offering digital wallets and showing the same level of enthusiasm for enhancing their services.
Read more: Nearly 3 in 5 PayFacs Exclusively Support Digital Payments Online or Via an App
Furthermore, the study reveals that PayFacs in the software industry processed 38% of all payment transactions via digital wallets in the last 12 months — the second-highest share across four industry segments, with retail processing only 26% of payments via digital wallet. Overall, PayFacs in the software sector process nearly 50% more payments via digital wallets compared to those in the retail segment.
The report further delves into the innovation strategies of PayFacs, ISVs and marketplaces in the software industry. For instance, PayFacs prioritize risk management and compliance, while marketplaces emphasize operational enhancements. ISVs, on the other hand, consider operational enhancement and strategic business growth equally important.
However, rolling out payment processing innovations in the software publishing sector is not without its challenges. A significant hurdle is system integration, cited by nearly 30% of ISVs in this segment as the primary obstacle — double the average across all ISVs. In contrast, PayFacs and marketplaces report fewer difficulties in this area, with only 8% and 15%, respectively, identifying system integration as a major challenge.
Overall, the report emphasizes the significance of embedded finance solutions, such as digital wallets and short-term credit offerings, in the software sector. PayFacs, ISVs and marketplaces actively exploring these innovations are not only poised to better serve software publishers and drive new revenue streams but stay ahead in the rapidly evolving eCommerce landscape.