More and more eCommerce stores and online businesses have emerged in recent years, and more and more consumers have become familiar with online transactions throughout the global pandemic period.
With that being said, more and more businesses are now looking for ways to quickly, easily, and securely start accepting credit card payments online.
Traditionally, the process of being approved as a business eligible for accepting credit card payments is complex and time-consuming, but this is where PayFacs or Payment Facilitators can help streamline the process.
The payment facilitation model allows businesses to start accepting online credit card payments in just a matter of hours or even minutes, and in this article, we will cover all you need to know about PayFacs and the payment facilitation model.
Without further ado, let us begin.
What is The Payment Facilitation Model?
As the name suggests, a payment facilitator is a business or organization that facilitates other businesses so they can start accepting online payments, especially online credit card payments.
Why is this facilitation necessary?
To really understand the importance and benefits of the payment facilitation model, we have to understand the process of how a business can be eligible for accepting credit card payments without payment facilitation.
The traditional method of accepting card payments
Without payment facilitation, when a business wants to start accepting credit card transactions, they must submit their application to an authorized bank or a bank-sponsored firm that is certified for accepting payments from credit card networks. This bank or firm is called an acquiring bank or merchant acquirer.
The bank will review the application process and will either approve or reject the business as a merchant, and when approved, the business will then receive a Merchant IhttpD (MID) that will be the key in processing and accepting credit card payments.
However, before being approved, the business in this traditional model must undergo a complex and often lengthy underwriting process that can take days or even weeks, which can stop the company from doing any business. What’s worse, even after this lengthy process, approval is not guaranteed.
Payment facilitation model: the solution
Payment facilitators essentially act as a bridge between a business and an acquiring bank, eliminating the otherwise lengthy underwriting process mentioned above.
A payment facilitator has been approved by an acquiring bank as a merchant and is in possession of a special Merchant ID called Payment Facilitation ID (PFID)
PFID essentially allows the payment facilitator to share its ability to accept online payments with other businesses, so a business that has been approved as a sub-merchant by a payment facilitator can start accepting online credit card payments right away.
Instead of the lengthy and complex underwriting process in the traditional model, a business will only need to be approved by the payment facilitator, which typically involves a much simpler, faster, and even automated underwriting process.
As you can see, the payment facilitation model enables streamlined, more efficient ways for businesses to start accepting online payments and processing online credit card transactions.
Anatomy of The Payment Facilitation Model
While the actual process of accepting and approving sub-merchants may vary with each payment facilitator, the basic process will go as follows:
- A payment facilitator sets up a website or application.
- A business (merchant applicant) registers for an account on the payment facilitator’s website or platform. The registration process is typically fairly simple and will only require the business to provide basic business information (Name, Address, Phone Number, other details) and sometimes, a basic financial statement as required.
- The payment facilitator will validate the information provided by the applicant. Typically the payment facilitator will leverage the use of automated underwriting tools to speed up the approval/rejection process and to improve accuracy. If necessary, however, manual reviews might be conducted.
- Based on the assessment, the payment facilitator either approves or rejects the application.
- If approved, the applicant is taken under the payment facilitator’s wings as a sub-merchant and can start accepting online credit card payments right away.
As you can see, the whole underwriting process is fairly simple and will only take minutes instead of days or even weeks in the traditional model. This is why the demand for reliable payment facilitator business has surged in recent years, making it a lucrative business opportunity.
The Roles of a Payment Facilitator
The main function of a payment facilitator is to enable other businesses to start accepting credit card payments. In practice, however, a payment facilitator must also perform the following roles:
Onboarding and underwriting
A payment facilitator must offer a quick, streamlined, reliable, and preferably automated onboarding process while ensuring security.
Risk assessment and transaction monitoring
In a payment facilitation model, the payment facilitator assumes all liabilities of its sub-merchants. To protect itself and its reputation, the payment facilitator must establish clear security policies and monitor all transactions for suspicious activities.
Funding the sub-merchants and allowing easy withdrawal, offering more versatility for the sub-merchants but maintaining a proper level of control for the payment facilitator. When funding sub-merchants, it’s crucial for the payment facilitator to stay compliant with the relevant regulations.
Chargeback fees can be a major expense for both the sub-merchants and the payment facilitator. So, the payment facilitator is responsible for managing and controlling the chargeback processes and disputes with the acquiring bank. In the event of a chargeback request, the payment facilitator will ask for documentation related to the chargeback from the sub-merchant and forwards the documentation to the acquiring bank.
Closing Thoughts: Becoming a Payment Facilitator
While starting a payment facilitator is an interesting business opportunity, the entry barrier is fairly high. Before you can become a payment facilitator, you’ll need to establish the required policies and procedures as well as build the necessary infrastructure.This is where working with professional payments processing consultants can help your business in preparing infrastructure and company-wide policies, as well as helping your business throughout the underwriting process of getting approved as a payment facilitator, so your business can get approved with a much higher chance of approval.