The Role of Payment Facilitators in Merchant Services

Could Your Company Realistically Function as a Payment Facilitator?

A payment facilitator is legally responsible for funds between the time a buyer pays for a product or service and the time the seller receives that money.

There are several obstacles to overcome for companies that want to function as payment facilitators.  It is certainly possible for your company to overcome these obstacles provided you understand them thoroughly and make of all the right tools and products available.  One tool that can be very helpful to you is payment gateway software that takes care of much of the work for you.

The History of Payment Facilitators

At one day, merchants had to deal with aggregators, third party processors, and Independent Sales Organizations (ISOs) to manage their accounts.  Aggregators primarily served merchants who were too small to obtain merchant accounts on their own, particularly merchants that needed recurrent billing and payment options.  Third party processors, along with ISOs worked to simplify transaction.  The ISO was an intermediary, assisting merchants with completing documentation, though they played no role in the actual underwriting process, either in merchant on-boarding or funding.

It wasn’t long before before super-ISO started to emerge and become more involved with underwriting, though they still avoided risks as much as possible.  Currently, ISOs of all sizes are less important due to such issues as market consolidation.

Acquirers found that administrative work was just as extensive for small merchants as for larger ones, resulting in less return on the investment of effort compared to larger merchants.  As a result, payment facilitators started to fill in the gap, which have gradually become more popular and widespread.

The Evolution of ISOs to Payment Facilitators

Essentially, payment facilitators are simply the next level of ISO.  Like the original ISOs, payment facilitators do no underwriting, they simply assist the underwriter with certain administrative tasks related to approval of accounts and sub-merchant funding.

Payment facilitators receive discount rates on transaction processing, and in exchange they take on some of the underwriting risk, and handle preliminary underwriting, and merchant funding and support.  The profit is the difference between the discount rate they receive and the rate they charge the merchant.

Soon, some software companies figured out that they were losing money to these third party payment facilitators for gateway services.  These software companies became payment facilitators and took more control over their transactions.  Many aggregators began to follow suit.

How a Company Becomes a Payment Facilitator

Now that you have an idea of how payment facilitation has evolved over time, you have a better idea of what it actually takes to become a payment facilitator.  Arrangements that need to be made include:

  • Negotiating contracts with acquirers.  You will need to provide evidence of financial liability as well as financial statements and certain other documents.

  • Establish a Customer Relationship Management (CRM) system for tracking clients.

  • Develop a method of merchant background verification, including credit history checks.

  • Integrate a payment gateway to process transactions.  Payment gateway software will need to have connections with all involved acquirers.

  • Successfully complete a PCI audit in order to obtain PCI compliance certification.

  • Select a merchant funding strategy.  You may either incorporate the functionality into your company’s platform, or use an acquirer.

  • Establish fraud prevention measures.  In most cases, these should be built into your platform.

If this sounds overwhelming, we understand.  But you can become a payment facilitator without having to start from scratch.  If you use a unified platform that can handle all stages of the transaction, becoming a payment facilitator is not as complicated as it seems.

The International Payment Gateway may well be able to help your company become a payment facilitator.  Call now to find out how we can help you.