Organizations that permit their clients to process electronic payments via their platform are classified as payment facilitators. The payment facilitator is responsible for managing the onboarding process for submerchants and taking care of elements of the payment procedure.
Payment facilitators (or PayFacs) are an increasingly popular way for businesses to process payments. They provide a secure and convenient way for customers to pay for goods and services by allowing them to pay directly from their bank accounts, credit cards and other payment methods. PayFacs are becoming increasingly popular among businesses of all sizes, from small startups to large corporations. They provide a streamlined payment processing solution that is both secure and efficient.
This article will provide an overview of what PayFacs are and how they work, including the benefits and challenges that come with using them. We will also cover the types of payment facilitators available and what businesses should consider when choosing one. By the end, you will have a good understanding of the basics of payment facilitators and how they can help you streamline your payments.
Table of contents
- What are Payment Facilitators?
- Payment Facilitator Model
- Payment Facilitator Ecosystem
- The Role of a Payment Facilitator
- Benefits of Using Payment Facilitators
- Challenges of Using Payment Facilitators
- Types of Payment Facilitators
- Factors to Consider When Choosing a Payment Facilitator
- Security and Compliance for Payment Facilitators
- Payment Facilitator Solutions
- Choose Zenti
What are Payment Facilitators?
Payment facilitators, also called payment service providers (PSPs), are third-party providers that help businesses process payments online. They act as an intermediary between customers and businesses to facilitate payments and remove the need to store sensitive payment data. Payment facilitators are increasingly being used by businesses of all sizes as a streamlined solution that is highly secure and efficient. As online shopping continues to grow, facilitating payments online has become a necessity for many businesses. Payment facilitators enable businesses to accept many different types of payments, including credit cards, debit cards, bank transfers, and third-party payments (e.g., gift cards or PayPal). You can also use them to charge customers a subscription fee or recurring payment.
Payment Facilitator Model
The payment facilitator model was created to simplify the electronic payment acceptance process for businesses. Before, companies that needed to accept credit card payments would have to establish an account with a merchant acquirer, which is a bank or an entity affiliated with a bank.
Merchants used to find the process of acquiring a merchant account from an acquirer to be quite lengthy and complicated, hindering their ability to quickly get their business off the ground. Payment facilitators provide a solution to this problem by setting up a master merchant account with an acquirer, allowing them to provide their customers with credit card acceptance without as much friction.
Businesses soon realized that by taking on the role of payment facilitators, they could provide a smoother onboarding experience for their customers, maintain greater control over the payments process and substantially enhance their profits from payments. This has contributed to the notable rise in the number of payment facilitators in the last few years, across a wide range of industries and sectors.
Payment Facilitator Ecosystem
Payment facilitators are a type of payment processor that serves as intermediaries between merchants and financial institutions. They are responsible for the processing of payments by providing an array of services, such as fraud prevention, customer service, and payment gateway solutions. Additionally, they can provide merchants with the ability to accept a variety of payment forms, including credit cards, direct debit, and more.
The payment facilitator is responsible for giving sub-merchants the infrastructure for accepting credit card payments. This company is involved in the process of onboarding sub-merchants and supplying them with the technology for processing electronic payments and receiving the funds resulting from them.
A company that specializes in providing services to those who accept payments from customers electronically
A sub-merchant (traditionally known as a merchant) is the customer of a payment facilitator who is set up to begin taking digital payments. These could be in-person stores that accept card-present purchases or online companies that accept card-not-present transactions.
To be accepted as a sub-merchant, a series of verifications must be completed before being included in the payment facilitator’s system. After being integrated, the sub-merchant can start to accept credit card payments from their clients.
Obtaining financial institutions
For a payment facilitator to launch, they are required to come to an agreement with either a payments institution or an acquiring bank that has been accredited by the card networks. The acquiring bank assumes the risk connected to the payment facilitator, so they first inspect the payment facilitator to make sure they have the necessary infrastructure, technology, policies and procedures to function properly.
The bank that completes the acquisition is in charge of keeping a check on the payment facilitator, guaranteeing that they are adhering to regulations and are properly onboarding and assessing sub-merchants.
The acquirer is required to keep track of the payment facilitator’s adherence to rules and regulations but also has the part of receiving data and funds from the card networks and sending them to the payment facilitator.
Processors of payments
To act as a payment facilitator, having a relationship with a processor is required in addition to the bank that is being acquired. The processor is accountable for settling and carrying out the transactions that were initiated by the sub-merchants of the payment facilitator.
Once a customer employs their card for a purchase, the processor is the one that gets the initial authorization request and sends it to the appropriate card network. The network then transmits back the authorization response. Upon completion of the transaction, the transactions are reconciled on a daily basis, and then the cardholder’s bank transmits the funds to the acquiring bank.
Sponsors are often referred to as financial backers, as they provide the necessary means to allow an event, organization, or individual to reach its goals.
The term ‘sponsor’ can be used to refer to the body that gives a payment facilitator access to the payments system. In many cases, an acquiring bank and a processor are bundled together, in which instance the sponsor is then referred to as the two combined. An organization that wants to be a payment facilitator needs to apply for an account with a sponsor which will be underwritten by them if accepted. After this, the payment facilitator is integrated into the sponsor’s payments technology platform.
The Role of a Payment Facilitator
A payment facilitator is responsible for a number of tasks. This includes processing payments, managing customer accounts, and ensuring that payments are securely conducted. Additionally, they are responsible for the collection of taxes and fees associated with the transactions. In some cases, a payment facilitator may also be responsible for fraud prevention and customer service.
Completing the underwriting process and initiating onboarding
The traditional merchant setup involves a cumbersome paperwork process that is difficult and sometimes lengthy to finish. Payment facilitators, however, provide a faster and more specialized onboarding experience that is tailored to a merchant’s particular field, making it a far more satisfying experience.
Prior to onboarding a sub-merchant, the payment facilitator must complete the necessary underwriting to ensure the sub-merchant does not present a hazard to the payment facilitator’s system. This process entails conducting “Know Your Customer” (KYC) practices. This includes KYC on the proprietor(s) and verifying that the business applying to be a sub-merchant is a bona fide business that sells the goods and services they state they offer.
The sub-merchant, both the proprietors and the company, are also evaluated against two of the primary catalogs related to high-risk traders. Mastercard’s MATCH list (Member Alert to Control High-Risk Merchants) and the list managed by the Office of Foreign Asset Control (OFAC) are these two. This list contains people and entities that have links to illegal activities or terrorism.
Payment facilitators have adopted frictionless underwriting to accelerate the process for sub-merchants who are deemed to be of low risk. This automation enables sub-merchants to begin accepting credit card payments in a matter of seconds, instead of having to wait for days or weeks. For those that do not pass the checks or are deemed to be at higher risk, manual review is required.
Keeping track of transactions
Payment facilitators, who assume liability for transactions handled by their sub-merchants, have the task of keeping track of these transactions for any irregular or suspicious activity. A software system is usually used to record and analyze the transactions per the pre-established policies and procedures to determine which of them require additional investigation.
Regulations and protocols are in effect to investigate any suspicious transactions and outline the necessary action for remediation.
Financing for businesses
Funding sub-merchants and reconciling transactions are the responsibility of many payment facilitators. By controlling the funding process, the payment facilitator is able to provide a better experience for sub-merchants. In contrast, the traditional model limits merchants to a predetermined schedule set by the acquirer. Payment facilitators have the ability to manage funding for sub-merchants, which can greatly enhance the funding process.
Payment facilitators must meet the criteria of banking regulations and the rules established by card brands and government agencies. To simplify the process of fulfilling these requirements, top-tier sponsors have created a disbursement system for their payment facilitators.
Administration of chargebacks
Chargeback processing is typically handled by payment facilitators in conjunction with the acquirer. The sub-merchant that has been charged back will frequently require additional evidence in connection to the chargeback. The payment facilitator must then submit the relevant documents to the acquirer, who will then return the money to the cardholder’s bank by starting the chargeback.
Benefits of Using Payment Facilitators
There are many benefits to using payment facilitators, including:
- Reduces risk and liability – With payment facilitators, you don’t have to worry about the risk or liability of storing payment data. Instead, it is securely stored in the provider’s systems. This is especially important for businesses that store sensitive data, like healthcare providers, charities, and financial institutions.
- Greater payment options – Payment facilitators allow you to accept a wide range of payment options, from credit and debit cards to cash-based payments. This can help you expand your customer base, as some customers may not own credit cards or bank accounts.
- Improved customer experience – Payment facilitators are intuitive and easy to use, reducing the friction for customers when they purchase your products. This can go a long way toward improving your customer experience and increasing sales.
- Improved cash flow – With payment facilitators, you can receive funds almost immediately, which can improve your cash flow. This is particularly useful for businesses that need to make a large upfront investment and need to forecast their cash flow.
- Reduced costs – Payment facilitators charge you a fee for their services, but this is often less than the cost of setting up and maintaining your own payment system.
- Scalable payment solution – Payment facilitators provide a scalable, plug-and-play solution that can grow your business.
Challenges of Using Payment Facilitators
While payment facilitators can provide many benefits, they also have some challenges that businesses should be aware of:
- Lack of control – With payment facilitators, you do not have direct control over your customers’ data. This can be problematic if you need to view or amend data for any reason.
- Lack of customer insight – In the same way, you will not have direct access to your customer’s data. This is not necessarily a bad thing, but it can make it more difficult to provide exceptional customer service.
- Lack of brand awareness – Payment facilitators are typically a “black box,” meaning that customers do not see your brand or company name when they make a payment. This can make it harder to build trust and awareness of your brand.
- Higher up-front costs – While payment facilitators can provide a lower-cost solution in the long run, they often have higher up-front costs. This may not be a good fit for cash-strapped startups that cannot afford the initial outlay.
- Lack of control over payment integrations – Payment integrations are essential to most businesses, but they are difficult to set up. Payment facilitators make it easy to set up integrations, but this is one of the areas where they lack control.
Types of Payment Facilitators
There are many types of payment facilitators, including merchant service providers, payment service providers and third-party payment processors. Many payment facilitators provide a combination of these services.
Merchant service providers (MSPs) are payment facilitators that are focused on merchant services and payment processing. They provide a variety of services to businesses, including accepting payments and managing their inventory.
Payment service providers (PSPs) provide a variety of payment processing services to a wide range of businesses, including subscription billing, recurring payments and micropayments.
Third-party payment processors (TPPs) focus on facilitating third-party payments, such as gift cards and PayPal. They are often used by businesses that want to accept third-party payments but do not want to deal with the regulatory and compliance requirements of payment processing.
Factors to Consider When Choosing a Payment Facilitator
When choosing a payment facilitator, there are a variety of factors you should consider, including:
- The types of payment methods offered
- The regulatory compliance requirements
- The available customer support
- The available integrations
- The available data insights
- The available security measures
- The available scalability
- The available compliance certification
- The available fraud prevention services
These are some of the most important factors to keep in mind when choosing a payment facilitator. They can help you make an informed decision that is right for your business.
Security and Compliance for Payment Facilitators
All payment facilitators are required by law to meet certain security and compliance standards. Many are also certified by one or more third-party regulatory bodies. Payment facilitators are governed by the same data privacy laws as businesses themselves, including the GDPR. Depending on your payment facilitator, you may be able to view the security and compliance measures in their systems, giving you an added level of confidence. Most payment facilitators have a robust security and compliance team that works to ensure their systems are secure and meet regulatory requirements. They employ a variety of safeguards to protect your data, including data encryption and data anonymization. They also have a compliance department that works to ensure their systems meet all regulatory requirements, including the GDPR.
Payment Facilitator Solutions
There are many solutions available for payment facilitators. The following describes each solution and its benefits:
- Payment gateway – A payment gateway is a critical part of any payment solution. It enables you to accept payments from customers and pass those payments on to your payment facilitator.
- Personal account manager – A personal account manager is a team member that works with your business to help you meet your payment processing goals. This can include helping you set up your payment solution if needed.
- Customer account manager – A customer account manager manages a single customer account, making it easier for you to manage your relationship with your customers.
- Dedicated account manager – A dedicated account manager manages multiple customer accounts, allowing you to receive dedicated support and attention.
Payment facilitation is an increasingly popular way for businesses to process payments. They provide a secure and convenient way for customers to pay for goods and services by allowing them to pay directly from their bank accounts, credit cards and other payment methods.
- Payment facilitators provide a streamlined solution that is highly secure and efficient. They enable businesses to accept many different types of payments, including credit cards, debit cards, bank transfers and third-party payments. They can also be used to charge customers a subscription fee or recurring payment. There are many benefits to using a payment facilitator, including reduced risk and liability, greater payment options, improved customer experience and improved cash flow.
- There are also challenges that come with using a payment facilitator, including a lack of control over your customers’ data and a lack of customer insight.
There are many factors to consider when choosing a payment facilitator, including the types of payment methods offered, regulatory compliance requirements, available customer support, available integrations, available data insights, available security measures and available scalability. Ultimately, payment facilitation can provide a streamlined solution that is secure and efficient. For businesses, this is an ideal solution that allows them to receive payments and make sales online, while also protecting sensitive customer data.
At the current moment, there are only a few hundred payment facilitators in existence. However, it is projected that this will expand rapidly in the upcoming years due to the elimination of certain market obstacles, as well as heightened attention to the payment facilitator industry. This is predicted to result in tens of thousands of payment facilitators across the world, which will consequently result in hundreds of millions of new electronic payment users.
Make sure you’re choosing the right one for your business. Contact us today and learn why Zenti is your best choice.