Payment Facilitators' Role in Merchant Services

in Blog
on Wednesday, 15 October 2014 23:24

Realistically, Can My Company Become A Payment Facilitator?

Companies that want to become payment facilitators face a number of challenges, but your company may be able to meet those challenges if you clearly understand what’s expected of you and take advantage of the right tools and products, including payment gateway software that does the hard work for you.

As the entity that takes legal responsibility for funds when they aren’t still with the buyer and aren’t yet with the seller, payment facilitators couldn’t be more important.

The Emergence Of Payment Facilitators

In the past, the merchant services market dealt with aggregators, third-party processors and Independent Sales Organizations or ISOs for managing their merchant accounts. Aggregators served mostly small merchants who couldn’t get their own merchant accounts, especially those who needed recurring billing and bill payment capabilities. Third-party processors worked with ISOs to simplify transactions. An ISO played an intermediary role by helping merchants complete documentation and handling other services but didn’t participate themselves in the underwriting process, in merchant on-boarding or in funding and remittance.

Eventually, super-ISOs emerged. These larger ISOs were more involved in underwriting but still tried to keep clear of risks. Today, however, because of market consolidation and other issues, ISOs have become less important.

Acquirers began to find it hard to work with smaller merchants because administrative efforts for small merchants were just as involved as they were for larger merchants. This led to a need for payment facilitators in the merchant services industry. Today, payment facilitators are becoming more numerous and popular.

The Product Of ISO Evolution

Simply put, payment facilitators are the next step in the evolution of ISOs. While payment facilitators don’t underwrite, they free the underwriter from a number of administrative tasks, including those related to merchant account approval and the funding of sub-merchants.

In exchange for reduced-price access to transaction processing, payment facilitators take on risks related to underwriting, handle initial underwriting, merchant funding and merchant support. They then make their profit from the difference between what they charge and the low transaction rates they can obtain.

Software companies that once worked through payment gateways began to realize that they were losing a lot of revenue to third parties for merchant and gateway services. By becoming payment facilitators, these software companies were able to take more complete control over transaction processing. At the same time, some aggregators decided to take on the role of payment facilitators themselves.

How To Become A Payment Facilitator

Armed with a better understanding of how payment facilitator evolved, you can better understand that you need to make several kinds of arrangements to become a payment facilitator. These arrangements include:

  • Setting up contracts with acquirers. This will require you to present proof of financial liability along with financial statements and related documents.
  • Setting up a Customer Relationship Management or CRM system for managing clients.
  • Creating a mechanism for merchant background verification. This includes a check of credit history.
  • Arranging some kind of payment gateway software to actually process the transactions. The gateway software must have established connections and relationships with all acquirers that will be involved.
  • Acquiring PCI certifications. PCI compliance certification comes from successfully completing a PCI audit.
  • Selecting of a merchant funding strategy. This must be done through an acquirer or the functionality must be part of your company’s own platform.
  • Establishing consumer and merchant fraud prevention measures. This is usually built into your platform.

Sounds daunting, doesn’t it? But it’s possible for your company to become a payment facilitator, especially if you don’t try to reinvent the wheel. With the involvement of a unified platform that can manage the entire lifecycle of a merchant and the merchant’s transactions, becoming a payment facilitator is realistically possible for your company.

Could the UniPay payment gateway software be the solution you need for becoming a payment facilitator? Contact us now for information on how we can be part the solution for you.

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