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PayFacs: A Guide To Payment Facilitation

4 Mins read

In this always-online age, online shopping and online transactions are becoming the norm for so many people, and it’s no secret that the global pandemic throughout 2020 and 2021 has further accelerated the adoption of online transactions all over the world. 

With that being said, it’s now crucial for virtually any business to offer secure and reliable online payment options for their clients, especially online credit card payment, a method that is universally used all over the world. 

Using the help of payment facilitators, or PayFacs, is one of the most viable options for businesses to start accepting online payment right away, and in this guide, we will cover all you need to know about the payment facilitation model.

Let us begin right away.

Payment Facilitation: The Concept

A payment facilitator is essentially a company that facilitates other businesses to start receiving online (electronic) payments. 

Why is facilitation necessary? 

Traditionally without the help of a payment facilitator, a business that wanted to start accepting credit card transactions must first set up an account with a bank, or a bank-sponsored firm that is authorized to acquire payments from credit card networks. 

This bank or firm is called a merchant acquirer or acquiring bank.

However, setting up an account with an acquiring bank is actually not an easy process. The business must first undergo a time-consuming and complex underwriting process, which may hinder the speed of launching the business, and even then approval is not guaranteed

Payment facilitation essentially solves this problem

A payment facilitator business is a business that has been approved as a merchant by an acquiring bank and has possessed a Master Merchant ID. The payment facilitator is authorized to share or aggregate this merchant ID with other businesses. 

Thus, these other businesses, treated as sub-merchants can start accepting online payments while bypassing the complex underwriting process of an acquiring bank. This sub-merchant will only need to be approved by the payment facilitator, which is typically a faster and simpler process. 

Therefore, payment facilitation enables a streamlined, more efficient way to credit card acceptance for businesses and online sellers. 

Becoming a Payment Facilitator

A payment facilitator fills the gap between businesses and online sellers and the acquiring banks, making it a viable solution for a real problem. 

As a result, many businesses began realizing that becoming a payment facilitator is a lucrative opportunity: a payment facilitator can provide a better and faster onboarding process for their clients, offer more control and versatility to the payment experience, and at the same time can generate a stable and growing revenue from transactions.

Below, we will discuss how a company can become a payment facilitator, but first, let’s discuss its important roles. 

The Roles of a Payment Facilitator

As discussed, the main role of a payment facilitator is to share its Merchant ID with its sub-merchants, but there are also other core functions to consider:

Onboarding and Underwriting

A payment must offer a fast and frictionless onboarding process, or else it’ll lose its value. However, it still needs to minimize the risks of fraud.

Monitoring Transactions

In a payment facilitation model, the payment facilitator assumes all liabilities of its sub-merchants. So, to protect itself the payment facilitator must monitor all transactions for suspicious behaviors.

Chargeback management

A payment facilitator is responsible for managing the chargeback process of its sub-merchants with the acquiring banks. Typically the payment facilitator will ask for documentation related to the chargeback from the sub-merchant receiving the chargeback and then submits the necessary documentation to the acquiring bank. 

Funding

Funding the sub-merchants and balancing transactions. As a result, a payment facilitator can offer more versatility for the sub-merchants, while also having an adequate amount of control. However, the payment facilitator must always stay compliant with the relevant banking regulations, as well as the regulations of credit card networks and relevant government agencies.

Key Steps In Becoming a Payment Facilitator

Develop policies and procedures

Before a company can be approved as a payment facilitator by the acquiring bank and credit card networks, there are a few sets of procedures and policies that must be implemented first: 

  • Underwriting policies

The payment facilitator company must develop clear policies and procedures for underwriting its sub-merchants, including but not limited to:

  1. How to complete a due diligence check 
  2. When to perform a manual review (if you are using an underwriting tool)
  3. Criteria of KYC (Know Your Customer) and KYB (Know Your Business) 
  4. How to deal with changes in ownerships or business practices
  • Guidelines on monitoring sub-merchants

The second set of policies that must be developed is how to monitor the sub-merchants ongoing transactions to prevent frauds, including but not limited to:

  1. When anomalous transactions need to be manually reviewed
  2. How to review high-risk transactions
  3. How (exact steps) to investigate high-risk transactions
  4. Policies for handling chargebacks

Building the required infrastructure

To make sure the company can be approved as a payment facilitator, it must first build or integrate the required technical infrastructure needed to properly onboard, underwrite, and service its sub-merchants. 

To ensure a fast and frictionless underwriting process, a key infrastructure to be considered is an automated underwriting solution allowing you to automatically conduct proper KYC assessments. You may also need an infrastructure that can automatically board the sub-merchant to its processors. 

How a Payment Consultant Can Help

As we can see, the process of developing the required policies and procedures as well as building the necessary infrastructure can be very challenging. 

Only after the needed policies/procedures and infrastructure are in place can the company apply for a master account with an acquiring bank and a payment processor, and there’s no guarantee for approval.

This is where working with professional payments processing consultants can help your business get approved with a much higher likelihood of approval. Payment consultants will help you develop the required policies, ensuring your team’s compliance with these policies, and also make sure you have the adequate infrastructure to ensure approval. 

Once approved, you will be provided with a payment facilitator ID (PFID) or a master merchant ID, and you can begin onboarding and underwriting sub-merchants. 

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