{"id":3008,"date":"2017-05-15T21:50:02","date_gmt":"2017-05-15T21:50:02","guid":{"rendered":"http:\/\/paymentfac.wpengine.com\/?p=3008"},"modified":"2021-06-15T14:57:39","modified_gmt":"2021-06-15T14:57:39","slug":"investors-lured-by-hockey-stick-growth-of-payment-facilitators","status":"publish","type":"post","link":"http:\/\/infinicept.com\/payment-facilitator\/archive\/investors-lured-by-hockey-stick-growth-of-payment-facilitators\/","title":{"rendered":"Investors Lured by Hockey Stick Growth of Payment Facilitators"},"content":{"rendered":"

Bailey Reutzel<\/em><\/p>\n

While most people outside the industry don\u2019t know what a payment facilitator is by name, the process of simplifying merchant onboarding to allow merchants to quickly start accepting payments is a business model seeing increased interest from the venture capital community.<\/strong><\/p>\n

According to panelists at Payment Facilitator Day during the ETA\u2019s TRANSACT 17 conference, the payment facilitator industry is still in the very early days, but there\u2019s substantial interest both by software companies looking to follow the PF model and investors looking to funnel money into the model.<\/strong><\/p>\n

\u201cThere are a lot of software companies with an interest, looking through the payment volumes going through their business and wanting to make money on it,\u201d said Marcus Dagenais, president of BluePay Canada, an integrated payment processor. \u201cMost are still on the boxed software fee that\u2019s a monthly or annual software fee. Their eyes light up when we tell them about the payfac model.\u201d<\/p>\n

The PF model lets these companies offer their software for free while reaping revenue from transaction volume.<\/p>\n

\u201cThe [revenue] growth goes from linear to an exponential growth curve when they start monetizing payments,\u201d Dagenais said.<\/p>\n

Ned May, the fintech growth equity investor at Napier Park Financial Partners, agreed about the impact of monetizing payments, saying, \u201cCompanies are starting to recognize payments is no longer a means to an end but that there\u2019s embedded value there.\u201d<\/p>\n

According to Todd Ablowitz, president of Double Diamond Group and co-publisher of PaymentFacilitator.com, the industry has projected that half a trillion dollars of the independent software vendor market\u2019s $1.6 trillion in spend would get routed through PFs by 2021.<\/p>\n

And this growth, obviously, is enticing to the investor community.<\/p>\n

According to the panelists, the convergence of software and payments is a main focus of venture capitalists today. \u201cBut,\u201d said Roy Burns, managing director of TA Associates, \u201cI don\u2019t think the venture community knows \u2018payfac\u2019 yet.\u201d<\/p>\n

And while the saying goes, \u201csoftware is eating the world,\u201d Burns said, not all payments will be sold by software vendors because there are huge differences between the payments and software industry and the experts in those subsequent fields.<\/p>\n

\u201cThe partnership model will drive penetration forward; it won\u2019t all live under software,\u201d he said. \u201cIt isn\u2019t the easiest thing in the world to manage all that [payments] complexity under one roof.\u201d<\/p>\n

But for Burns, seeing a vertical-specific software company that\u2019s not monetizing payments is very exciting because his company can help them take on the opportunity. And it\u2019s not an opportunity that will vanish anytime soon, he thinks.<\/p>\n

\u201cValuations are as high as any I\u2019ve seen in the last 20 years. In many cases, it\u2019s not a cycle you\u2019re going to see roll over; there\u2019s lasting lifetime value for clients,\u201d he said.<\/p>\n

For PFs looking to secure venture capital money, Napier Park\u2019s May said his team looks closely at how durable a company\u2019s differentiation is, which is steered by a great team with experts in the payments market that knows the regulatory challenges.<\/p>\n

And, Burns said, he\u2019s interested in a company\u2019s total addressable market.<\/p>\n

\u201cA tiny niche can be a great business but I might not be that interested in it,\u201d he said. \u201cA company needs to have the ability to have a large enough addressable market and have adjacencies that can be seen.\u201d<\/p>\n

Burns also looks at the characteristics of how a business is generating revenue. For instance, he said: Is it fair? Does the company have the business logic that revenue is tied to a customer\u2019s benefit? And most importantly, does the company deserve to win?<\/p>\n

While the industry is still relatively quiet here in the U.S., the panelists acknowledged possible competition coming from international providers soon.<\/p>\n

\u201cSomething like hundreds of thousands of merchants are being onboarded in India…largely thought the payfac channel. There\u2019s just staggering growth,\u201d said Ablowitz.<\/p>\n

Dagenais agrees, although the environment in India is vastly different than in the U.S. and most other western markets. Paytm, an India payment and commerce company, has become the largest payment method in the country somewhat because of the Indian government\u2019s demonetization about six months ago.<\/p>\n

Paytm, which is sometimes seeing 100% day-over-day transaction volume growth, is looking at Canada as its first international market, Dagenais noted.<\/p>\n

\u201cYou\u2019ll see a lot of international companies come into the U.S. market with a lot of investor interest,\u201d Dagenais said.<\/p>\n

But, according to Burns, U.S. payment facilitators can jump on opportunities internationally too. For instance, countries like Nigeria where electronic payment penetration is low are good markets for U.S. companies to investigate.<\/p>\n

\u201cIn markets that don\u2019t have dozens of competitors and a scarcity of talent,\u201d Burns said, \u201cthe opportunity is monstrous.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

While most people outside the industry don\u2019t know what a payment facilitator is by name, the process of simplifying merchant onboarding to allow merchants to quickly start accepting payments is a business model seeing increased interest from the venture capital community.<\/p>\n

According to panelists at Payment Facilitator Day during the ETA\u2019s TRANSACT 17 conference, the payment facilitator industry is still in the very early days, but there\u2019s substantial interest both by software companies looking to follow the PF model and investors looking to funnel money into the model.<\/p>\n","protected":false},"author":7,"featured_media":334,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":"","_FSMCFIC_featured_image_hide":"","footnotes":""},"categories":[1015],"tags":[421,943],"class_list":["post-3008","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-archive","tag-investors","tag-venture-capital"],"acf":[],"_links":{"self":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/3008","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/comments?post=3008"}],"version-history":[{"count":1,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/3008\/revisions"}],"predecessor-version":[{"id":6783,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/posts\/3008\/revisions\/6783"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/media\/334"}],"wp:attachment":[{"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/media?parent=3008"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/categories?post=3008"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/infinicept.com\/payment-facilitator\/wp-json\/wp\/v2\/tags?post=3008"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}