Why Does It Pay to Be a Payment Facilitator?

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Written By Adeyemi Adetilewa

eCommerce stores and online transactions are literally everywhere nowadays, and more and more businesses, even those who have always been reluctant to adopt online transactions, are now looking to add an online shopping experience for their target audience.

For businesses looking to start accepting online credit card payments, using the service of a payment facilitator is arguably the most viable and cost-effective solution. This fact has effectively increased the demands for reliable payment facilitator solutions all over the world, turning payment facilitators into a very lucrative business opportunity in 2022.

Are you currently exploring the option of starting a payment facilitator business but are still not sure? In this post, we’ll discuss why it pays to be a payment facilitator, and how you can start your own payment facilitator business.

Let us begin, however, by having a brief discussion about the payment facilitation model.

What Is The Payment Facilitation Model?

A payment facilitator, in a nutshell, is a business that facilitates other businesses to easily and quickly accept online payments, especially online credit card payments.

To understand the necessity and benefit of a payment facilitation model, however, we must first understand the traditional process of how a business can start accepting online credit card payments without the help of a payment facilitator.

The traditional model

In a traditional model, a business must contact an acquiring bank (a bank authorized by credit card networks to process credit card transactions) and apply for a Merchant ID (MID). Alternatively, the business can apply to a firm-sponsored by this acquiring bank, called a merchant acquirer.

This process, however, will often involve a lengthy and potentially complex underwriting process. The acquiring bank will conduct thorough (and repeated audits) to ensure that the business has the required compliance and infrastructure for processing online transactions before the application is approved.

Even after the lengthy underwriting process that can take days or weeks to complete, there’s also no guarantee of being approved as a merchant.

The payment facilitation model

The payment facilitation model is essentially developed to solve this issue.

In this model, the payment facilitator is a business that has been approved by the acquiring bank and has received a special Merchant ID called Payment Facilitator ID (PFID).

The PFID essentially allows the payment facilitator to aggregate (i.e., share) its capabilities of accepting online payments with other businesses. This allows the payment facilitator to take other businesses under its PFID as sub-merchants.

Why Does It Pay to Be a Payment Facilitator?

Why Does It Pay to Be a Payment Facilitator?

By aggregating its PFID, a payment facilitator allows other businesses (the sub-merchants) to start accepting online payments without the lengthy underwriting process in the traditional model. 

As we can see, the payment facilitation model offers a real solution for a real problem, and it offers some clear benefits for both the payment facilitator and the sub-merchants.

Benefits for the Payment Facilitator Business

1. Predictable source of revenue

Most facilitator businesses use a flat-fee model where they make revenue on each transaction received by the sub-merchant.

Typically online credit card transactions will cost the payment facilitator around 2.5 per cent, and payment facilitators can make 0.5 per cent in profit by charging 3 per cent to their sub-merchants.

So in a payment facilitator business, we can get a predictable and stable source of revenue: the more transaction volume you have, the more profits you’ll make.

2. Lower processing costs and better scalability

The payment facilitation model allows a payment facilitator to get as many sub-merchants as they can attract, so they can potentially generate a large transaction volume on a monthly basis. 

As a result of this large transaction volume, the payment facilitator can potentially negotiate a lower cost per transaction with the acquiring bank or the credit card networks, which will translate into lower operational expenses. 

This makes the payment facilitator business a highly scalable business.

3. More control over your sub-merchants

As a payment facilitator, you have the utmost freedom of establishing policies and implementing underwriting/onboarding/monitoring solutions as you see fit. The sub-merchants are not in direct contact with the acquiring bank and only interacts with you as the payment facilitator. 

While this can be a double-edged sword as the payment facilitator will also need to assume liabilities of its sub-merchants, this will also translate into more versatility and control from start to finish.

4. Better customer experience equals more clients

Becoming a payment facilitator allows the business to provide quality service to its sub-merchants, ensuring a quick and streamlined underwriting process so the sub-merchant can start accepting online credit card payments in just a matter of minutes.

Also, since you are the only party the sub-merchant interacts with, they wouldn’t need to contact another party, including the credit card issuer and acquiring banks, for any issues in the transaction. 

This will translate into a better client experience, which ultimately will allow you to attract more clients while maximizing retention.

Benefits for the Sub-Merchants

If you are a business currently considering using the payment facilitation model to accept online credit card payments, here are some key advantages to consider:

Benefits for the Sub-Merchants

1. Start accepting payments right away

Without a doubt, the biggest benefit of the PayFac model for sub-merchants is the fast and easy underwriting/onboarding process, so you can start accepting online credit card payments almost immediately.

Typically you’ll only need to register for an account on the payment facilitator’s website or platform, undergo a simple underwriting process, and be ready to accept payments within minutes.

2. Less risk and lower potential costs

In a payment facilitation model, the payment facilitator assumes all your liabilities. Also, although the fees tend to be higher (since you’ll need to pay the payment facilitator), you’ll only need to pay when the transaction is actually processed, which can be the preferred solution if your transaction volume is still fairly low.

3. Compliance

If you use the service of a payment facilitator, they will ensure their platform is PCI compliant, which means you as a sub-merchant will also be compliant with the relevant regulations.

4. Better Security

The payment facilitator is also responsible for establishing policies and ensuring thorough monitoring to prevent fraudulent activities.

In the event of chargeback requests, the payment facilitator will also help you in submitting evidence to the card networks, making the whole process easier and more secure for you as a sub-merchant. 

Becoming a Payment Facilitator

While the process of becoming a payment facilitator does have its challenges, it is a lucrative opportunity to explore, especially if you are already in the SaaS industry.

Utilizing payment facilitation consulting services can help you in preparing your infrastructure and improving your business’s chance of being approved as a payment facilitator by the acquiring bank and the credit card networks.

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