4 Integrated Payments Models for Your Software Platform
At a glance it’s hard to imagine how pizza has anything to do with payments, but here at Finix we sometimes like to use analogies to describe complex concepts, and we’re especially fond of food analogies (payments layer cake, anyone?). Basically, there are four ways to get pizza, and when you break it down, there are also four ways to integrate payments into your SaaS or ecommerce platform.
Say you’re craving a pizza for dinner tonight. You’ve got four options for how you get and eat that pizza. The first option requires very little effort from you so you’ll pay a premium for that convenience. The fourth option requires a lot more effort, but you have complete control over the final product. Options two and three fall somewhere in the middle: you have more control over things like your dining atmosphere and what drinks are available, and you’re saving time and effort by still outsourcing the kneading of the dough to someone else. No matter which option you choose, the outcome is the same—you eat pizza—but, the amount of time, effort, and money you have to put in to get to that end point varies a lot.
Each time you dine out, the cost isn’t that high, but over time if you add up the amount you’ve spent on dining out, with nothing really to show for it, it starts to feel like a lot of money.
When you order delivery, someone else (e.g. Domino’s) is still providing all the pizza ingredients and the oven for cooking it, but you save some money by eating at home, at your table, with your own beverages.
Take & Bake
The next level is to buy a pizza at your local grocery store and use your own oven to cook it at home (e.g. DiGiorno). You own that oven, which is an upfront investment, but you can cook pizzas forever for very little additional cost.
Made at Home
You can make your pizza entirely from scratch. You buy all the ingredients, make the dough, and put it all together before reaching the baking stage. This is the lengthiest way to put pizza on the dinner table.
Applying the Model to Payments
Now that we’ve covered the pizza options (probably familiar - unless you don’t eat pizza - in which case, we need to talk), let’s move onto the four distinct approaches to payments. Each model splits up the work, risk and scope between you (the platform) and the payments partner, with a unique balance at each level depending on your specific needs.
The four models, as you can see in the graphic below, are:
ISO or Referral Model
An Independent Sales Organization (ISO) contracts with a member bank to provide merchant or cardholder solicitation. ISO representatives sell payment processing solutions to merchants so they can accept card payments, as well as card readers and payment processing rate contracts for a given acquirer or ISO. This model has limited risk, but also produces a lot less revenue for the platform, and often causes a disjointed user experience for the end consumer.
Outsource to an Existing PayFac
A PayFac or Payment Facilitator is a service provider for merchants who want to accept payments online or physically. This is an integrated solution where control is restricted by the underlying PayFac. You get more control over the user experience and more insight into submerchant reporting and chargeback disputes—you also often own the chargeback liability.
Become a PayFac with an Enablement or Middleware Partner
This model provides a seamless experience because you own the merchant contract and experience, but a lot of the heavy lifting is done for you. This is possible when you are leveraging a technology partner like Finix to serve as the middleware between the platform and the processor.
Become a PayFac with Custom In-House Solutions
This model requires you to build the entire payment stack from scratch, connecting directly to the processor. While you have full control over the user experience, the time and money required to build from scratch is prohibitive and usually not worthwhile.
Less Work, More Control
By focusing on integrated payments and payfac enablement, Finix allows software companies to start earning revenue from payments today, while allowing for flexibility in the future.
Starting with integrated payments allows you to get more control over the user experience than you would under an ISO model (i.e. white-label merchant onboarding forms) and puts you on the path to owning your payments integration and allows you to grow your revenue over time. Not having to worry about switching providers as your company grows is also an important element to consider.
- BlogPublished 04.23.20
Your Payments Layer Cake Questions, AnsweredAs the landscape of the payments ecosystem continues to evolve, innovation and improved technical capabilities from legacy organizations and challengers alike continue to create new economic opportunities. During our Payments Layer Cake webinar, we gave an overview of the connected network of organizations that work together to facilitate transactions AKA the Payments Layer Cake. We shared the economics of transactions, how financial institutions make money on interchange, and how companies are rethinking their payments strategy to realize more growth and revenue.
- BlogPublished 12.17.19
Understanding the Payments Layer CakeIt seems everyone -- from traditional corporations to challenger, neo-banks -- wants to offer customers a card, lending, or faster access to their funds. Now that technology has finally arrived to financial services, legacy financial institutions are rethinking service delivery as new models and businesses emerge. An overview of the infrastructure underneath the payments that power our lives helps to paint a clear picture of how financial institutions work together to move money through this complex network.
- BlogPublished 02.24.22
The Minimum Gross Payment Volume You Need to Integrate PaymentsGross Payment Volume (GPV) is a term we use in payments to describe the total monetary value of transactions that pass through a payments system (Merchant, Payment Facilitator, Payment Processor, etc.) within a defined period of time. We tend to focus on this number because the bulk of payment fees are percentage-based, not flat, so the number of transactions matters less than the value of those transactions. It’s also the metric by which payments businesses are measured, as it indicates relative size and growth of the company.