Dive Brief:

• Payment processor Global Payments rolled out a new payment facilitation service during the second quarter geared toward independent software vendors, CEO Cameron Bready said Tuesday.
• Bready referred to the service as a hybrid option for ISVs, and it’s resonating with those clients. “It’s all of the gain that ISVs perceive come from being payment facilitation businesses, without the pain of actually being a payments company,” he told analysts during the company’s second-quarter earnings conference call. 
• The Atlanta-based company has “a strong pipeline of partners seeking to board in the coming quarters,” Bready said. A Global Payments spokesperson declined to identify the number of ISV clients currently using the service or how the company generates revenue from the service.

Dive Insight:

The Global Payments move to add the hybrid payment facilitation service comes as legacy payment processors try to compete with newer entrants in the market, such as Stripe and Adyen, said Brian Abernethy, founder of Charlotte, N.C.-based consultancy Utopaya. A payment facilitator handles acceptance and processing of electronic payments for a merchant’s customers.

“All of their competition is going to market like this” with payment facilitation-as-a-service options, Abernethy said. “They just had to make the move.”  

In the ISV market, payment-facilitation-as-a-service has become an increasingly attractive, middle-of-the-road option for companies looking to incorporate payment services into the software they sell to merchants.

That’s because becoming a payment facilitator is a long and costly process for ISVs, Abernethy said. At the other end of the spectrum, outsourcing the entire payment experience to a processor is largely hands-off for ISVs, which means they’re missing out on a share of the payments revenue.  

Global Payments’ hybrid offering allows ISVs the benefits of payment facilitation; such as control, merchant onboarding experience and funding options on the back-end; without having to deal with compliance, risk management and underwriting, Bready said. 

The middle-of-the-road option allows ISVs “to achieve that on economic terms that are advantageous for us, and also beneficial for them,” he told analysts. The service falls under the integrated payments segment of the company’s merchant business. “It’s something that we think is really going to continue to grow in popularity in the market.”

The company has seen generally consistent growth with its direct integrated option over the past couple of years, and Bready said he expects that to continue alongside uptake of the hybrid approach, as different models appeal to different ISVs.

Becoming a payment facilitator may be the right option for some ISVs, but “it’s not the silver bullet that’s going to work for everybody,” Bready said. 

“Quite frankly, we have a number of ISVs in our portfolio that went the pay-fac route, determined it's incredibly difficult to build the infrastructure to support a payment and have now come back towards either our (hybrid) model, or even in some cases back to a just direct integrated model, abandoning sort of the pay-fac approach entirely,” Bready said.

Bready expects rivals will seek to provide a similar type of offer in the future, but he pointed to Global Payments’ scale as an advantage in a competitive arena. That scale “and the breadth of Global Payments capabilities continue to be key differentiators,” William Blair Analyst Robert Napoli wrote in a Tuesday note to investor clients.

Bready also addressed the possibility of future acquisitions, noting business-to-business is “absolutely” in the mix as the company considers potential mergers and acquisitions. In May, Bready noted M&A is a lever the company can pull to accelerate its presence in the B2B area.

“We’re getting ourselves in a position where we have a more refined and more clear-cut approach to how we want to pursue the B2B opportunities,” he said. Under the B2B umbrella, the company is focused on software-driven workflow automation, money-in and money-out fund flows and employer solutions, he noted. 

In the latter half of the year, the company expects to give more attention to M&A, “and it’s something we expect to pursue in a disciplined fashion going forward,” Bready said.

The company reported second-quarter net income of $284.2 million, compared to a loss in the year-earlier quarter of $665 million. Revenue for the quarter rose 7.5% to $2.45 billion over last year, according to a news release.