Payment facilitators can lead small business out of the crisis

Desy Papper

As vaccines roll out, brick and mortar small businesses are thinking about what the future looks like. For many, reopening and recovery is an opportunity to change or improve their operations. Given the economic devastation that the pandemic has wrought, it’s more important than ever that they run smoothly and […]

As vaccines roll out, brick and mortar small businesses are thinking about what the future looks like.

For many, reopening and recovery is an opportunity to change or improve their operations. Given the economic devastation that the pandemic has wrought, it’s more important than ever that they run smoothly and efficiently, and optimize their resources. One way they can do that is by investing in business management software that also provides financial services.

In the $200 billion beauty industry for example, financial technologies (fintechs) are changing the way financial products such as payment processing, capital lending, card issuance, payroll processing and bank accounts are offered and supported. As an industry that was hit particularly hard by mandatory closures, salon and spa owners are invested in doing everything they can to help their businesses thrive. With integrated fintech, salons and spas can offer a simplified purchasing experience for their customers, while also streamlining their own processes.

In the past, financial services, like point-of-sale (POS) systems, were separate from the platforms that salons and spas used for appointment scheduling, customer marketing, inventory management, labor management and reporting. That meant business owners had to toggle between different systems, which could affect both the client and the employee experience, as well as the bottom line. Today, there are SaaS providers that are also fintechs, and this integration has clear benefits.

Reducing the number of providers can improve operational efficiency and present economic advantages, especially for SMB or mid-market businesses that don’t have the staff or expertise to navigate the nuances of the financial products.

Fintechs add value by offering financial products through the same platform used for business operations with no additional paperwork, phone calls or back and forths necessary. SaaS providers are taking over selling, supporting and servicing the payment processing needs of businesses by integrating these capabilities into their platform and building internal subject matter and operational expertise.

SaaS players generally fall into two categories when it comes to offering integrated payments. Most only integrate payments from a technology standpoint—the processing relationship is still managed and maintained by a third-party provider such as a bank, ISO or processor.

The second category consists of a handful of best-in-class players that not only integrate payment technology into their platforms, but also price, support and service all payment needs. These providers, known as payment facilitators (PayFacs), reinvest the money they earn through payment processing right back into the software platform. This enables PayFacs to provide additional features and functions that benefit businesses, rather than contributing to the profits of a third-party payment processor that has no interest in making the software platform better.

A key advantage of PayFacs is that they work on leveraging the business operations data of their clients to offer tailor-made financial products, such as loans or card products. For instance, if a salon owner gets pre-approved for a loan that fits the needs of their business, repayment could be managed automatically from daily sales and adjusted based on business conditions. Traditional banks cannot offer services with that degree of nuance because they don’t have the most up-to-date information on a specific client’s business conditions. In contrast, PayFacs have the unique advantage of knowing and understanding the critical signals that are continuously being emitted by a client’s business environment.

Those capabilities can also extend to issuing credit card products or offering bank accounts. Best-in-class players constantly innovate by putting the right building blocks in place so that one day, they can meet all financial product needs of their clients. Even if a platform doesn’t have all these capabilities today, a mark of a good partner is that they are thinking about the possibilities for the future and taking steps towards that goal.

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