The rise of the Payfacs
One of the biggest drivers for digital payments has been the rise of payment facilitators, or Payfacs. Payfacs act as a master merchant, signing merchant acceptance agreements with sellers on behalf of an acquirer, and receiving settlement funds for the sub-merchant.
They're a relatively new phenomenon, with only 1,075 in existence in 2019, but that number is expected to more than double by 2025, with the global gross payment volume processed by Payfacs expected to grow at a 28.4% CAGR and exceed USD $4 trillion6. The rise clearly demonstrates the demand within the micro, small and medium sized business community for access to electronic payment acceptance.
Acceptance on the rise
Since 2018, the CEMEA region has witnessed an impressive increase in acceptance locations - but there's still a long way to go1. In 2020, less than half of consumer spending worldwide took place using a payment card, and more than 60 million merchants in CEMEA still don't accept digital payments2.
And digital payments don't just benefit consumers - they also stimulate economic growth, creating a virtuous economic cycle whereby increased consumption leads to increased production, more jobs and greater income and, ultimately, stronger economic growth. A 1% increase in electronic payments, indeed, brings $67 billion more GDP globally3.
Around half of small and medium businesses that went online during the Covid-19 pandemic had no or minimal online business beforehand - but those that made the change increased sales by 20% to 30% more than those that didn’t4.
Global acceptance standards increase merchants' reach by allowing them to accept cross-border payments via Point of Sale (POS) terminals or online.
And as the use of cash falls, central banks spend less on handling, printing, transporting and safeguarding notes and coins, improving overall efficiency. Consequently, expanding and improving acceptance locations makes a marked difference in cash displacement. It’s a significant economic opportunity with immediate benefits for the whole ecosystems.
For example, increasing acceptance and supporting payment cards reduces the informal economy. This not only helps to combat financial crime and increase financial inclusion, but also creates a digital audit trail, reducing unreported transactions and increasing tax revenues.
However, says Michael Berner, "The challenge is that we still have more than 500 million people across CEMEA remain unbanked, and there are more than 60 million merchants in the formal economy that do not accept digital payments and estimated 64 million informal merchants. Expanding financial inclusion and enabling access to payments for all is crucial and presents both an opportunity for industry– how can we make payments accessible for all?”
New acceptance drivers
Access to capital, says Berner, is an important driver in persuading such merchants to make the switch - and solutions like Tap to Phone and the Visa Acceptance Cloud make this possible. Visa’s Tap to Phone solution can empower millions of merchants and improve their quality of life – by expanding acceptance and turning smartphones into POS devices. By removing barriers and expanding access, Tap to Phone helps people who are currently excluded from financial institutions gain a foothold in this space, setting them up to expand their access to banking and other financial resources. In the CEMEA region, Visa already has 144,0000 enabled devices and in 2022, facilitated 3.6 million transactions.
Visa continues to accelerate acceptance growth by enabling new types of merchants and distributors, focusing on low-cost solutions for everyday use segments such as utilities, quick service restaurants, government, education, and transit.
"We put POS software up in a cloud that we host, and we allow our clients and partners to take that software and put it on a mobile phone so that they can start accepting payments," he says.
"You can accept payments physically, and we also have solutions where you could be able to kick off through WhatsApp or similar and invoice, request payment and have a consumer push money directly back to you."
Cybersource delivers flexible, creative commerce solutions, and Merchant in a Box allows sellers to get started quickly and easily: "The solution includes onboarding, store front set-up, integration into social media pages, payment acceptance, inventory management, order and delivery management, dashboard," says Berner.
New distribution and commercial models can also help increase acceptance, with partnerships with Payfacs, mobile network operators and marketplaces helping to widen reach. Group acquiring can build on this further, with banks coming together to create a single acquirer that works with Payfacs and other third parties to sign up customers.
Mapping the opportunity
There is a great opportunity to expand acceptance across the CEMEA region, where acceptance points are evolving as payments undergo a transformation.
One common early growth area for acceptance is the use of digital payment for transport, which not only makes life easier for customers but also brings benefits for cities and transport operators - regular riders bring a growth in spending of around 7%. It's been introduced in more than 40 countries across CEMEA; in Kiev, Ukraine, it's been brought in for buses, trams and trolleybuses, with more than two million transactions since 20225.
Facilitating acceptance growth
Visa can assist in increasing acceptance though its advanced technologies, particularly when it comes to addressing the SME segment with low-cost acceptance solutions and prepaid issuance.
Partnerships allow new distribution channels to be leveraged for scale and merchant pricing to be optimised and segmented, especially for cash-heavy segments and SMEs. Visa can help partners define clear targets and measure success and can influence and help execute market-wide and policy changes.
"At Visa, we continue to accelerate acceptance growth by enabling new types of merchant and distributors," says Berner, "by focusing on developing low-cost, turn-key and easy-to-implement solutions for all merchant segments and use cases."
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All brand names, logos and/or trademarks are the property of their respective owners, are used for identification purposes only, and do not necessarily imply product endorsement or affiliation with Visa.
1Source: Visa insights, MS&A data
2Source: i2c Partners with Visa for Fintech Processing in MENA Region, Business Wire, 29 March 2022, https://www.sttinfo.fi/tiedote/i2c-partners-with-visa-for-fintech-processing-in-mena-region?publisherId=58763726&releaseId=69936583
3Source: Acceptance and access – unlocking significant benefits to individuals, businesses and entire economies, Visa Path to Access, https://cms.megaphone.fm/channel/visapathtoaccess
4Source: The New Acceptance Landscape https://navigate.visa.com/$/v/5/cemea/m/x/u/208295bd-644e-475b-a513-885e31c77ed0.pdf
5Source: Visa insights
6Source: Per the Infinicept and AZ Payments Group report as referenced in Insider Intelligence: Payment Facilitators - How These Providers Are Eating the Payments Value Chain, June 2021
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