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How to Become a Payment Facilitator

Online shopping and online transactions are no longer a novel concept, but eCommerce is now a multi-trillion dollar industry. It first passed $1 trillion in total sales in 2014 and is expected to reach $4.2 trillion by the end of 2020. 


With how more people are now shopping online with credit cards or debit cards, a more secure payment solution is needed, creating a huge opportunity in the payment facilitator industry. Many software and SaaS companies are now aiming to become a payment facilitator to try to gain profit from the boom of the online payment industry, and if you are also thinking of becoming a payment facilitator, there hasn’t been a better time. 


Here, we will discuss all you need to know about how to become a payment facilitator, the 5 key challenges to pay attention to, and key requirements you’d need to fulfill before you can become an approved payment facilitator.


First, however, let us discuss the concept of payment facilitator itself so we are on the same page. For more details click here.


What Is a Payment Facilitator?

In a nutshell, a payment facilitator or a payfac, is a company that represents an online merchant (i.e. an eCommerce company) with an acquiring bank and/or a credit card network. The payment facilitator will ‘share’ its ability to receive and process online credit card transactions with the merchant. 


The payment facilitator will take care of the lengthy approval process of gaining the ability to process online payment, and will work together with banks, card networks like Visa and MasterCard, and various other regulatory organizations to ensure a secure and reliable online payment for both the merchant and the buyer. 


How Does a Payment Facilitator Work? 

A typical process in a payment facilitator onboarding process goes like this: 


  1. A merchant open an account with a certain payment facilitator by providing its essential information 

  2. The payfac will then evaluate the merchant (underwriting), the payment facilitator may use an automation tool to help with this process, which can approve or decline the merchant’s application in real-time

  3. If a merchant is approved, the onboarding is complete and the merchant is now a sub-merchant under the payfac’s master MID.


To allow this process to come through, the payment facilitator must involve the following parties: 


A payment processor: the payment facilitator can also be a payment processor, or it may want to partner with a third-party payment processor. 

Acquirer. A payment facilitator must have a valid merchant account with the acquiring bank, and this is where the money processed from the sub-merchants is going to be held. 

Sub-merchants. The merchants that own an account with the payment facilitator. In a payment facilitator model, the seller doesn’t have an individual merchant ID but also acts as a sub-merchant under the payfac’s master MID. 


A Payment Facilitator Essentially Performs Four Key Tasks:


Underwriting: a very important step in a payment facilitator model where the sub-merchant is the responsibility of the pay face. So, ensuring that the merchant is a legitimate business that is viable to receive credit card payment is very important. The most important thing here is the KYC (Know Your Customer) process, which is a process to make sure the customer is indeed real while assessing the risks associated with this specific client. A key aspect here is to perform underwriting as efficiently as possible without sacrificing accuracy, so payfacs tend to use automation software for this underwriting purpose.  

Monitoring: after a merchant is approved as a sub-merchant, then the payment facilitator is responsible for monitoring the transactions received by this sub-merchant. The payment facilitator must check for suspicious activities according to the local regulation and the card networks’ rules and policies. 

Chargeback management: a chargeback is a payment that is returned to the customer’s credit card, typically after a dispute. When a chargeback happens, the acquirer will charge a chargeback fee which can be substantial. This is why a payment facilitator is also responsible for chargeback management and should investigate all chargeback cases accordingly.


Becoming a Payment Facilitator

As you can see, the hardest challenges in becoming a payment facilitator are meeting the compliance requirements of customer identification programs, as well as local regulations related to online money transmissions. 


This is where payment facilitation services by RPY Innovations can help in:


Meeting the Required Compliance

A consultant can help implement all the required procedures to meet the regulations and audit each policy annually. Compliance, as we have discussed, can be the biggest challenge in becoming a payment facilitator, involving day-to-day management of procedures and policies and regular audit. The assistance of a payment project consultant like RPY innovations can significantly help in this area, saving both your time and resources in meeting the required compliance. 


Building and Growing Your Infrastructure

Recruiting a team that is capable of executing your payment facilitation model can be quite challenging, and you also need to educate them regularly so they can have the required skills to perform effective services in accordance with the latest policies and regulations. In the payment facilitator model, obligations might evolve rapidly, so a proper education is very important. APY can help you educate your current personnel so they can gain new skills, eliminating the need to recruit new employees that can be costly and time-consuming.


Being Approved as a Payment Facilitator

This is arguably the biggest challenge in aiming to become a payment facilitator: the application process itself can be very time-consuming with very detailed examinations. Even if you already have a healthy relationship with an acquiring bank, most of the time they can’t help with the approval process due to the potential conflict of interest. This is where a consultant with a high application acceptance rate can be very helpful. 


End Words

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


However, considering the potential complexities of becoming a payment facilitator and setting up the right facilitation model, getting the help of a qualified payments consultant can be a very important investment. A consultant can help you save a significant amount of time in the approval process, so you can further optimize your business model and services to ensure that they will align with your payment facilitation model. 

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