What actually is a payment facilitator? What is the difference between payment facilitator with payment gateway, payment processor, and other terms related to online payment? Is it hard to become a payment facilitator?
Here, we will try to answer those questions.
What Actually Is a Payment Facilitator?
To really understand the concept of a payment facilitator, we have to first discuss a brief history of online payment.
In the past, to be eligible to receive credit card payment, an eCommerce merchant must first apply for a merchant ID and sign an individual agreement with an acquirer or a bank. This is called the onboarding process, and this process can take a significant amount of time and typically require a lot of paperwork.
This is where a payment facilitator comes in.
A payment facilitator, or payfac, is a company that essentially acts as the middleman between the said merchant with an acquiring bank. The payment facilitator will take care of the lengthy paperwork and approval processes, and the merchants using the help of a payment facilitator platform no longer need to build relationships and get approved by the acquiring banks.
In short, a payment facilitator will take care of ensuring your eligibility to accept a payment, while at the same time ensuring the security and reliability of the payment ecosystem by working together with banks, card networks (i.e. Visa, MasterCard), and various regulatory organizations
Key Challenges in Becoming a Payment Facilitator
In general, there are 5 key areas to focus on before we can become a legitimate payment facilitator:
1.A compliant infrastructure
In order to become a payment facilitator, the company must meet the standards and regulations implemented by the acquirer and card networks, and this can be a very challenging, time-consuming process.
This is why the company must have the right infrastructure (human resources, software, hardware, etc.) to address the unique challenges in a payment facilitator model like underwriting, due diligence, transaction monitoring, and more. This might mean that you’ll need to hire and train new managers and employees to meet this compliance.
Not only the acquiring bank will assess your company’s compliance, but as a payment facilitator, you are going to be responsible for protecting your acquirer and card network from financial losses in the form of performing underwriting and monitoring your sub-merchant.
As discussed, there are now various automation solutions that can help us automate the underwriting and monitoring functions. Yet, having the right team that can supervise and monitor this automation process is still very important.
Last but not least, a compliant infrastructure is very important to ensure the success of your payment facilitator business by properly managing financial risks.
2.Developing policies and procedures in building agreements with sub-merchant
You’ll need to have clear terms and conditions to efficiently and securely operate as a payment facilitator. While this might vary depending on the service you are going to provide, the two most important things to consider are policies for underwriting sub-merchants and policies for monitoring transactions.
Regarding underwriting, you have to set clear policies to ensure that the merchant meets certain standards according to set criteria for items such as:
- Policies regarding KYC (Know Your Customer) and KYB (Know Your Business)
- How to complete a due diligence check for the merchant’s website, social media profiles, etc.
- Criteria where a manual review is necessary
- How to deal with changes in business ownerships
Regarding transactions monitoring, you should set policies such as:
- The necessary approach in reviewing suspicious/high-risk transactions
- Thresholds for when a transaction needs to be manually reviewed
- Chargeback management policies
3.Partnering with the right acquirer
To become a payment facilitator, you’ll need an acquiring bank (or other acquiring institution) to ‘sponsor’ your business. This acquirer would then provide processing and settlement functions through the card networks (Visa, MasterCard, Amex, etc.)
There are many different acquirers to choose from, and each might offer dramatically different programs/benefits that may affect your business’s approaches. Some acquirers might be more familiar with your business niche than others, while others might offer more affordable fees.
You’ll need to make sure that your contracts with your acquirer/sponsor and your merchant clearly cover all potential issues regarding fees and settlements. So, it is very important to compare different acquiring partners and work with the right one. This, admittedly, can be a major challenge.
4.Meeting the security requirements
A payment facilitator is legally responsible for the fund and any sensitive data that is transferred between the buyers and sellers during online payment. So, the payment facilitator is exposed to risks related to fraud, non-repudiation, data breach, chargeback frauds, and other threats.
This can include situations like a compromised credit card, for example in the case of a lost or stolen wallet, and the fraudster might try to use the credit card before the owner realizes that it is compromised.
With these risks, a payment facilitator must meet the following security requirements:
- Authentication: the ability to authenticate the identity of the credit card user is the one that it claims to be
- Integrity: the payment facilitator model must be able to confirm that the received data is 100% identical to the sent one and no modification takes place during the data transfer
- Confidentiality: the payment facilitator must ensure the protection of consumer’s sensitive data
- Non-repudiation: the payment facilitator must ensure that the consumer can be authenticated securely during the transaction, and the data is not modified. This is to prevent repudiation (a consumer denying the payment transaction that they indeed have performed.)
Creating a secure payment facilitator model is very important not only to minimize potential losses but also to build trust and credibility, which are very important in attracting potential merchants.
As we can see, there are various challenges involved in the process of becoming a payment facilitator, and this is why the process of being accepted as a payment facilitator can be lengthy and difficult.
However, considering how payment facilitation is still a lucrative opportunity, it is still worth chasing, and getting the help of a trustworthy payment facilitation services can be a great investment to improve your success rate of getting approved as a facilitator, and also optimize your business to ensure you can provide a reliable payment facilitation service with healthy profitability.