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Every electronic payment transaction is handled by several companies serving different roles as it travels through the payments ecosystem.

How those companies fit together – and how the revenue from each transaction breaks down among them – is the subject of a recent webinar hosted by Infinicept, titled Understanding the Payments Revenue Food Chain.

The webinar described this ecosystem as the “payments revenue food chain,” and presenters shared where software companies fit in, and how they can move up the food chain to earn more revenue if they choose.

According to the webinar, the food chain typically boils down to a handful of primary players:

  • The acquiring bank, which is responsible for funding the payment facilitator or the merchant, depending on the arrangement.
  • The processor, which is responsible for processing and settlement of transactions.
  • The payment gateway, which packages and encrypts cardholder data for routing on to the networks.
  • The card networks, such as Mastercard or Visa, which manage the rules and regulations that everyone who is a part of the payments ecosystem is required to follow.
  • The issuing bank, which issues the consumer’s credit card.

Where do software companies fit in?

Presenter Savannah Krieg, director of partner experience for Infinicept, pointed out that many different types of software companies are getting involved in payments. As a result, the payment facilitator space is not one-size-fits all. Instead, there is “nuance to each of those use cases, with different things that are going to be important to them and their customers that are going to compel them to go this route,” she said.

Regardless of the particular use case, however, “there is value for software companies to consider adding a payments component in some way,” Krieg said. Doing so enables them to participate in a new revenue stream while serving customers as a sort of “one-stop shop.”

Software vendors commonly participate in this chain in one of two ways, she said:

The referral model is the more traditional route, where software vendors refer their customers to a payments provider to obtain an account and begin accepting payments. This model may be a better fit for companies who serve customers in high-risk categories or those that want to start participating in the payments revenue stream but have low payments volume.

The payment facilitator model, on the other hand, is often embraced by companies with significant payments volume (greater than $50 million annually), those that wish to control the payments process for their customers, and those that want to fully integrate payments into their offering.

When choosing the best fit for your own company, it’s important to realize that accepting more responsibility for the transaction results in more revenue, Krieg said.

“When you become a payment facilitator, you get more (revenue) because you’re doing more,” Krieg said.

In either model, the software company manages the software platform as well as the sales and marketing of the product. The processor or acquirer onboards the merchant to their platform and handles the transaction authorization.

However, Krieg pointed out four key functions that shift from the payments companies to the software provider in the payment facilitator model:

  • Underwriting. Performing checks on prospective merchants before they are onboarded, helping to guard against fraud, illegal activity, or other risk.
  • Reporting. Sharing transaction data with merchants, enabling them to gain insights into and effectively run their business.
  • Funding. Ensuring that the money merchants earned from electronic transactions is moved into their bank accounts.
  • Merchant Management. Managing payment customer service and chargebacks, conducting risk monitoring, and performing any other needed activities.

Taking on these additional responsibilities shifts payment facilitators’ position in the food chain. Webinar presenter Ted VanDeburg, VP of sales and marketing for Infinicept, noted that payment facilitators receive more revenue, “because you’re doing more work. You’re delivering more value, so you get to earn more money,” he said.

VanDeburg also pointed out that, in addition to increased revenue, control of the payments experience gives payment facilitators control over key parts of the overall customer experience. These include the application, timelines for funding, and even onboarding decisions – whether that customer will be approved to accept payments.

“That leads to a better product – a more integrated product and a more seamless experience – and it’s because you know your customers better,” he said.

To learn more about the payments revenue food chain, including the breakdown of how revenue is distributed among the companies involved in it, check out a replay of the Infinicept webinar, or download the associated white paper.