For Developers For ISVs, Integrators & Aggregators

Payments for a Changing World … But Wait, Perhaps Not So Fast

Payments technology and the services that surround them are changing rapidly showcasing the importance of Channel Technology Service Providers managing MDF, Rebate, SPIF and emerging use cases.

Payments technology and the fintech services that surround them are changing rapidly. And so are the business models they serve. For example, Forrester reports that for the first time in 38 years, the percentage of revenue flowing though indirect channels has flattened. And they forecast that the trend is for decreases in that percentage for the next decade.

The traditional reseller, or the transactional channel, as Forrester’s Jay McBain describes them are but one partner type in the new world of ecosystems. He cites an Accenture survey in his recent blog that “76% of business leaders agree that current business models will be unrecognizable in the next five years — ecosystems will be the main change agent.” With the rise of non-transactional channels – influencer channels such as affinity partners, affiliates, advocates, ambassadors, alliances and referral partners and retention channels including consultants, integrators, adjacent ISVs, accountants, digital agencies, etc. – what do these trends portend for companies making channel payments?

Importance of Channel Technology Service Providers

The prognosticators can make whatever projections they like as to how rapidly these trends will take hold; this much appears certain – as these new models continue to evolve and mature, both the data and value exchanges between entities in these new ecosystems will be embedded within the systems and business processes. Meanwhile, the primary use cases for transactional channel payments – incentives, MDF and rebates – aren’t likely to go away.

But new partner types and new business models will spawn new use cases for exchanging value monetarily as well as relationally. The channel technology stack will continue to mature and although there will likely be a lot more consolidation in the coming years, the channel agencies, ISVs and consultants, or collectively, channel technology service providers, will need to incorporate the data, relationship and payment needs of their clients to compete.

Payment technology continues to evolve, and the channel technology service providers will continue to lead the push to streamline operations by embedding payments functionality within their solution architectures to improve partner experiences. An intelligent payments platform is designed for use by any company – or their agent/service provider – that needs to make payments to anyone, company or individual, anywhere. That extends to present-day use cases as well as new use cases as they emerge.

Agent/service providers, of course, need additional functionality that enables them to manage payments on behalf of their clients including access to connected accounts information to view transactions and provide first-line customer service. Global payments program capabilities now require the use of multi-currency digital wallets to make payments more efficient today as well as to support the use cases that are sure to emerge in the era of ecosystems.

Not Every Use Case is the Same

We’ve written extensively on global channel incentive use cases for partner rep SPIFFs paid to the partner sales rep directly or indirectly through the partner firm. In the current landscape of channel partner payments – ones paid to the partner firm rather than to an individual sales rep – the primary programs beyond SPIFFS requiring payments include MDF and Rebates. These program types also serve the purpose of making clear why the connected account and multi-currency digital wallet constructs are important both now and in the future.


MDF is used as both an acronym, Market Development Funds, and as a generic term for many types of contingent development funds such as Joint Marketing Funds (JMF), Business Development Funds (BDF), etc. What is common to all these funds is that they are likely to be performance-based at both the ‘approval’ stage’ and at the ‘disbursement’ stage.

Accrual-based MDFs are based on the prior period’s performance (e.g. sales revenue in a fiscal year quarter) and therefore they are effectively pre-approved based on the accrual earned. The funds typically are available only if used in the following period and only for specific, qualifying purposes. Hence, they also require proof of performance prior to the release of payments to show that expenditures were made for qualifying activities within the qualifying time period and for a specific amount not to exceed their accrual.

For accrual MDF, expenditures are pre-approved up to the limit of their accrued funds. From the vendor’s perspective, the accruals are based on a percentage of revenue; thus, if revenue grows, then the MDF accruals grow as well – and if revenue is down the accrual budget falls in synch.

Some vendors, however, prefer to allocate marketing budgets as a fixed amount so managing MDF as a variable expense is problematic at best. To manage their marketing budget, many set a quarterly or annual budget and track approved and paid claims against the budget, declining new requests once all the funds have been accounted for by approved activities.

Proposal-based MDFs are based on proposals submitted by the channel partner to conduct a qualifying activity subject to approval by their account rep for qualifying activities. Each request is approved for a specific amount and once the qualifying activity Is completed, a claim for reimbursement is submitted with the required proof of performance. Many vendors operate a combination of both accrual and proposal-based MDF.

The common practice for either type includes a matching funds component for some or all activities. For example, most activities may be subject to 50%/50% funding between vendor and channel partner. However, some activity types may be promoted by change the matching fund percentage, e.g.,100% vendor funded. And many, if not most, vendor programs require additional reporting to include measurable results, calculated MROI, lists of attendees, lead and deal data, etc.

MDF Disbursements

MDF payments are claims-based, often requiring proof of expenditure in order to reimburse the channel partner. Reimbursements, by definition, mean that the partner is out of pocket until they receive the MDF payment. Cash flow is extremely important to most partners. So, speed of payment – from approved claim to partner’s account is very important. By using digital wallets, payments can be made immediately. That’s the first step. Unsurprisingly, there are different approaches to keep the partner whole as possible:

  • One way is to use the payment platform capabilities for wallet-to-wallet exchanges. The partner can, at their discretion, use their digital wallet to pay their suppliers directly so they are not out of pocket or elect to transfer the funds to their bank account while paying suppliers using their accounts payable routines. Wallet-to-wallet exchanges are unrestricted giving the partner complete autonomy in selecting their suppliers.
  • Another way would be to use connected accounts to allow the vendor to directly transfer funds to the supplier on behalf of the partner. While this approach requires more effort by the vendor, the trade-off ensures that they can promote the use of preferred suppliers and makes it a bit simpler for the partner.

These are but a few examples. Channel technology service providers, to be sure, have many more variations on these processes.


Channel Partner Rebates have been a common practice in technology channels for many years and their use has expanded to other industries as well albeit in differing forms. Arising from the stated need to protect partner profitability, rebates were offered in lieu of deeper discounts which were nearly always passed along to the end-customer in a highly competitive market.

Rebate frequency and values vary widely, however, the most common implementations are based on quarterly sales activity and often tiered based on volume and/or a channel partner’s medallion level (Gold, Silver, Bronze, etc.) in a vendor’s partner program. This enables the vendor greater leverage in assuring partner engagement by placing non-revenue criteria such as training and certification, deal registration, etc.

While these criteria are critical to the vendor’s channel program objectives, partners’ biggest complaints about rebates is often how long they have to wait for payments. Channel technology service providers can help vendors streamline processes and automate rebate calculations. The final step, making the distributions, can be embedded with multi-currency digital wallet capabilities to simplify global payments both for their client vendors and their partners globally.

Cross-border Payments and Global Payments Flexibility

Service providers can configure rebate programs so that their client vendors can create and fund digital wallets in as many currencies they need – USD, Euro, British Pound, Yen, Yuan, etc. In the past, creating currency-specific accounts has been limited to the vendor’s legal structure and where they do business.

While this continues to be a key program design/configuration consideration, the ability to create multi-currency digital wallets gives the program designer choices in how to accommodate cross-border payments:

  • Handle currency exchange at the partner level by creating two wallets — one in the vendor’s payment currency, e.g. USD, and one in the partner’s local currency, e.g. euros. The vendor then pays the rebate in USD into the partner’s USD wallet and the partner converts it to Euros via wallet-to-wallet exchange.
  • Handle currency exchange at the vendor level by creating as many currency-specific wallets as needed to pay their partners in their local currency. The vendor then funds the rebates using the vendor’s payment currency, then the vendor converts to the partner’s local currency via a wallet-to-wallet exchange, prior to sending to the partner.

One would think that most vendors will elect to continue the practice to make rebate payments in their currency and leave the currency exchange to the partner but as partner experience heats up as a competitive differentiator, stay tuned!

No matter the use case: global, instant and mobile payments are the new norm. Encompassing digital payments in a platform that surrounds them with the security, privacy, tax and regulatory compliance needed to conduct global channel business enables channel technology service providers to focus their service and technology innovations in a rapidly changing marketplace.

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