Digital commerce platforms continue to process more sales via in-house payment solutions

Digital commerce platforms will process $375.57 billion in customer payments in 2024. But growth will decelerate this year on the heels of slower ecommerce sales at industry heavyweight Shopify.

Digital commerce platforms’ payment programs will capture a higher share of their overall sales. These platforms processed $271.25 billion in payment value in 2022—equivalent to 55.3% of their retail ecommerce sales. By 2026, we expect them to process $471.37 billion, capturing 72% in equivalent sales share.
The key driver behind payment value growth is the trend of platforms operating as payment facilitators (payfacs). Of the five major US digital commerce platforms, four have become payfacs. Here’s why:

• It allows digital commerce platforms to capture a new revenue stream. As payfacs, platforms can charge merchants roughly 2.5%, plus a small fee, for each processed transaction. For every $1 billion in payment volume, that's $25 million in gross revenues (and $10 million in net revenues). Otherwise, they must outsource to third-party payment processors, earning less from revenue-sharing agreements.
• It makes for stickier customer relationships. Merchants—particularly small to midsize ones—are relieved of navigating complex tasks they are not equipped to resolve on their own. They get a smooth, centralized payment experience for a reasonable price—and operational headaches if they switch providers. This creates longer-term relationships that allow platforms to benefit from merchant sales growth over time.
• It creates cross-sell opportunities. As payfacs, platforms can integrate payment processing into a broader array of payment and nonpayment products and services. This sets up cross-sell opportunities that drive even more revenues to the payfac across more of its products.

Payment facilitators (payfacs) set up merchants' payment services, underwrite accounts, and process transactions for acquirers. They onboard merchant subaccounts under their master account, simplifying the process and managing relationships on merchants’ behalf. By taking on these duties, payfacs earn a portion of the revenues acquired by merchants.

Among digital commerce platforms, Shopify leads the payfac pack by a wide margin. Since adopting the model in 2013, Shopify has realized its payfac potential and its ecommerce sales have grown. It will cross the $100 billion mark in payments processed this year. Shopify wraps more services around payment processing every year, and in doing so, the company’s merchant solutions business now dwarfs its subscription business.

Wix, GoDaddy, and Squarespace have followed suit. Each introduced their respective payfac solution with a smaller sales base—and GoDaddy and Squarespace are just getting started. Their contributions to digital commerce payment value are, therefore, small but expected to grow over time.

Read the full report, Payments and Digital Commerce Platforms Forecast 2024.