Payments Presentation Outline/ What is a Payment Facilitator?
* Prior to October 2010, it was not allowed or a merchants were not allowed to use another merchants processing account (the coffee shop could not run credit/debit card transactions through the salon's merchant account next door). In a Payment Faciliator relationship, the acquiring bank “give's” merchant acceptance solutions to the Payment Facilitator. IE: they give the “keys to the kingdom” to someone else, which can be quite a scary proposition for a bank. In October 2010, MasterCard released their Payment Facilitator program and in July 2011, Visa follow suite and released their PSP (Payment Service Provider) program. For conversation purposes, these programs are similar, and effectively let technology companies remove the friction of adding a merchant account and let their sub merchant process transactions through their merchant account.
Why would a company become a Payment Facilitator?
For context in may be helpful to understand the “traditional” process for a business to get a merchant account (This is not the process of becoming a Payment Facilitator). When a business wants to begin processing cards, they need to find a processor that will sponsor them. There usually is no shortage of ISOs (Independent Sales Organizations) or Processors (Vantiv’s, First Data’s) approaching them to win their merchant account. They then submit a long application, may have to supply many documents, sign a long term agreement. Then they must determine how they process (terminal, integrated payment solution, ecommerce), and then wait several days for those to be set up. A Payment Facilitator can do many of those things, “instantly” (think Square), or are an imbedded payment solution to the software system they use.
There are several reasons a company would choose to operate as a Payment Facilitator.
1. Does the “sub merchant” require it? Or the sub merchant isn’t a typical candidate for merchant processing, or processes so little, it isn’t worth the hassle of setting up an account. (sells merchandise at a flea market, or owns a property or two and wants to accept credit/debit as a form of payment).
2. Payment Facilitators usually monetize off the payment piece. Think Square for example. A person/merchant can add merchant processing for 2.75% for card present or 3.50% + $0.15/transaction for card not present. That is not the payment facilitators cost from the acquirer. So the idea that you can scale with volume/transactions that the individual sub merchants would never be able to achieve. From there, as the Payment Facilitator, you set pricing. With the potential to monetarize off of payments.
3. It allows a SASS company to control the merchant experience (reduce friction /decrease merchants time to accepting payments). For example, a SASS company sells their solution. Instead of the SASS company then waiting for the business to get a merchant account (see process above) somewhere and then provide merchant and gateway credentials, they can take care of all of that.
4. Multiple purchase options. For example. Sometimes you purchase several items from Amazon, and has the account/cardholder, you have one checkout experience. However, on the back end, the cardholder sees more than one charge as Amazon was not the seller for everything purchased. The front end of the transactions (checkout) was easy for the cardholder (one place to shop and one account to create/have) and the backend (actual authorization/settlement) occurred by the Payment Facilitator.
So, should any of these reason make sense and you would like to pursue becoming a Payment Facilitator, then how do you become one?
You will need to find an acquirer to sponsor your company. What do you need to have to be sponsored? (this may seem a little overwhelming, but let’s talk through this first)
1. The acquirer will need to underwrite you – what you need to provide:
* Company history, background and bio’s of executive and key team members
* What types of merchants will you process for (transit, parking etc), and volume estimates
* Financial Package – tax returns, financial statements etc
* Underwriting policy and procedures (how do you validate the merchants you will sponsor are who they say they are?)
* PCI Compliance
2. Connectivity to acquirer
* Gateway or direct connect
3. Legal Documents – sub merchant agreements
4. Settlement Flow - Does acquirer settle directly to the Payment Facilitator and then Payment Facilitator settles to sub merchant. (Vantiv has a settlement product where they can settle directly to sub merchant)
In addition – you will need to have a reporting structure to the sub merchants.
All of this may sound a bit overwhelming, which it will be helpful for us to discuss. Many of these decisions are less complex since you would be processing for a defined merchant set versus many different types of merchants. And others are “build versus buy” type that we can help you with.