Why It Pays to Be a Payment Facilitator

Payment facilitators. You already know of them and what they do, even if you’re not familiar with the term. In fact, PayPal®—which might be described as the original payment facilitator—is sometimes referred to as a kind of “Super Facilitator,” with Square® being a more recent player.    

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Why It Pays to Be a Payment Facilitator

Jun 3, 2019

Why It Pays to Be a Payment Facilitator

Payment facilitators. You already know of them and what they do, even if you’re not familiar with the term. In fact, PayPal®—which might be described as the original payment facilitator—is sometimes referred to as a kind of “Super Facilitator,” with Square® being a more recent player.  

But there are more and more payment facilitators all the time, which explains the existence of PF World—an annual conference devoted to the payment facilitator industry, one which expanded to two days in 2019. In fact, the conference’s home page teases that “leading research projects that by 2021 Software as a Service (SaaS) providers and independent software vendors (ISVs) will reach half a trillion in gross payments volume, generating $4.4 billion in revenue. Want in?”

Perhaps, but first you need to understand more about payment facilitators and whether your business can benefit from payment facilitation in any way. 

What is a Payment Facilitator?

Pymnts.com does an excellent job of providing a succinct explanation, noting, “A Payment Facilitator is a merchant service provider that simplifies the merchant account enrollment process. PayFacs operate on a sub-merchant platform where merchants no longer require their own merchant identification number (MID), but are boarded directly under the PayFac’s master MID account.”1 

So if you’re a small- or medium-size business (SMB), you can potentially take advantage of the services of a Payment Facilitator to smooth the path to accepting payments. Typically, you only need to provide a modest amount of information to get a real-time decision on your merchant account application and—assuming your account is approved—you are able to start processing payments within hours (as a sub-merchant under the payment facilitator’s master account). That’s an attractive timeline, especially as compared to the days or weeks it might take to get an account approved via the traditional route.

Super Facilitators aside, how do you find out if there’s a payment facilitator that’s right for your SMB? For one, Mastercard® publishes a list of approved Payment Facilitators on its web site. Most likely, there are already one or more software vendors in your industry that have a payment solution integrated into their software; that is, SaaS providers who are—to one degree or another—operating as payment facilitators. In fact, if you’re currently utilizing vertical-specific software—like a practice management solution for a medical practice—you may already be taking advantage of the services.

Anyway, if you’re a small business, it makes perfect sense for you to be using vertical-specific software with integrated payments. After all, the creator of such a software probably knows your business (and like-minded businesses) exceptionally well, and processing payments inside the software is much more convenient than the alternative. As such, you may be willing to pay a little more for what is likely a better merchant experience.

Is Your Business a Candidate for Becoming a Payment Facilitator?

At the same time, the above information may have you asking the question: Is my business well-suited to take advantage of the benefits of becoming a payment facilitator? Namely, the potentially large revenue stream that comes from the payment fees charged to end users, not to mention the ease and speed which you are able to board new customers.

The businesses that are best-suited tend to be SaaS companies or ISVs that sell to small businesses, are focused on a particular vertical, and have payments integrated into the software. To date, there are just a few hundred full-fledged Payment Facilitators in the U.S., but there are thousands of potentially good candidates nationwide.

So why haven’t more businesses taken the leap and completed the process? For one, it takes time, technology, and a large upfront investment that can reach six figures. It also involves significant financial risk, because payment facilitators are liable for financial losses incurred as a result of chargebacks and fraud involving their sub-merchants. Then once you’re up and running, maintaining your own payments infrastructure typically requires an investment in full-time employees with expertise in payments, including compliance and risk mitigation. Typically, it takes many hundreds or thousands of users who are processing to justify the investment and ongoing maintenance.

On the other hand, there are now solutions that can provide you with the tools and technologies you need. Another option is to become a managed or hybrid payment facilitator, which have been described as “sub payment facilitators.” In that scenario a full-fledged payment facilitator assumes the compliance and infrastructure costs, while you still retain many of the benefits of being a payment facilitator. Yet another option is a payment processing partnership, in which you share revenue with the processor in question, while the processor takes care of the services needed to essentially conform to the payment facilitator model.

To learn more about payment solutions for payment facilitators, SaaS platforms, marketplaces and software providers, visit ProPay’s Payment Facilitators page, or give us a call at 1.888.845.9457. We understand the unique operating environment surrounding payment facilitator and can help you differentiate yourself from competitors and capitalize on growth opportunities.

1 Just the Pay(Facs), Please, Pymnts.com, https://www.pymnts.com/news/payment-methods/2016/nmi-payment-facilitator/

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