Payfac infrastructure company Finix announces that it is now operating its own payfac and competing directly with Stripe and others in offering payment processing services to independent software vendors (ISVs).
Finix launched as a software company building a turnkey infrastructure platform to help other software companies bundle payment processing functionality with their platform by launching their own payfac. A payfac, industry shorthand for payment facilitator, enables the ISV to become what’s known as a master merchant, enabling them to easily offer payment services to their SaaS customers as submerchants. Becoming a payfac means that the ISV as master merchant is responsible for paying their submerchants for processed sales every day, having tools in place to screen for fraud and ensure regulatory compliance, and also provide customer service on any exception items that arise.
Finix software drastically shortens the time to market for ISVs looking to become a payfac with a turn-key platform. The challenge for the ISV is, even with the Finix software, they must still staff appropriately and integrate Finix into their core platform, making the cost for a typical ISV to stand up a payfac for payments around $3-5M investment and a 12-18 month launch timeline. Building business in what has turned out to be a narrow target market is an educational process with a long sales cycle, a difficult topic is quarterly business reviews where the board expects to see solid and steady revenue growth.
According to Finix CEO Richie Serna:
“We were building technology that would take a three-year in-house build by dozens of engineers, with tens of millions of dollars of technical R&D and investment, and taking that down to a number of months by getting developer-friendly APIs to start monetizing their payments,” he said. “That was our biggest core offering. What we’ve done now is become the payments facilitator ourselves, so that we can not only provide the payments, but also all the back office requirements and compliance certifications, so that our customers can get up and running in a matter of days, rather than months.”
Offering a turn-key payfac platform greatly expands the ISV target market for Finix, with the ability to build more immediate opportunities with a much clearer and shorter sales cycle. It is also a great strategy move for the company since they can now offer customers the ability to “grow into” their own payfac at a later date, something that Stripe and others doesn’t offer.
Finix recently raised a $35 million Series B led by Sequoia, and in an unusual twist just one month later, Sequoia walked away from the deal in which it reportedly wrote the self-described payments infrastructure company a $21 million check. Finix later told employees that Sequoia concluded that Finix competes too directly with Stripe, the payments company that represented one of Sequoia’s biggest private holdings and that in turn counted Sequoia as one of its biggest outside investors.
Overview by Don Apgar, Director, Merchant Services Advisory Practice at Mercator Advisory Group