Table of Contents
Introduction
How Do Payment Facilitators Work?
Key Considerations Regarding Facilitation Payments
Conclusion
Introduction
The payment processing landscape has been rapidly evolving since the early days of credit card payments. However, in recent times, with the explosion of cloud-based software, e-commerce, and mobile payments, a significant portion of transactions now take place online. Therefore, these changes in payment tech trends have paved the way for Payment Facilitator (PayFac), the most uncomplicated payment model that aids merchant accounts in the enrollment process, allowing B2B businesses to accept payments more easily. Being a master merchant, PayFac also operates as a sub-merchant, which reduces the complexity and time required for each business to separately establish a merchant account with a bank or payment processor.
In today’s exclusive Fintecc Buzz article, we will focus on how payment facilitation (PayFac) solutions look at the inner engineering of the payment facilitator model.
How Do Payment Facilitators Work?
With PayFacs, distributors of goods and services don’t need to apply for a Merchant ID (MID), as these solution providers already have a relationship with acquiring banking networks. These facilitators operate by aggregating funds from multiple merchants into numerous accounts and conducting online processing via various payment methods. As a result, numerous merchants can run their B2B businesses under a single MID, managing all aspects of transaction processing. PayFacs specializes in lowering the barrier to access for small to midsize businesses when it comes to acknowledging digital payments by proposing a more straightforward onboarding process.
Key Considerations Regarding Facilitation Payments
PayFacs is sometimes referred to as unethical and, illegal, as it involves small yet unofficial payments made to expedite routine services that are generally not reflected in the tax payment. Therefore, when dealing with Payfac solutions, businesses, and finance teams should be aware of all the legal aspects, as some payments might be prohibited in many jurisdictions. There also might be potential consequences, such as damage to reputation and legal repercussions, if the facilitation payments are not resorted to properly, there is no transparency, or there is no adherence to strict compliance.
Becoming a payment facilitator is not an easy task, as it is assumed to have many more responsibilities than independent sales organizations (ISOs), as these solutions provide a broader expanse of payment processing services directly to the merchant. While the ISOs serve as outsourcers, they also handle bulk risk management, software development, and compliance with the customer’s payment processing or bank payments. The facilitator must conduct a thorough underwriting for each sub-merchant to evaluate risk and assure compliance with all applicable laws and payment industry prototypes, such as PCI DSS.
Facilitators are also obligated to monitor transactions for signs of unusual activities or fraud and implement security measures to safeguard against unauthorized transactions. The payment facilitators are also responsible for guaranteeing timely and accurate funding of sub-merchant accounts after transactions are processed. They need to provide support to sub-merchants for matters related to payment processing, including technical backing and advice on the best techniques for transaction management.
Conclusion
The rise of PayFacs as an alternative yet new-age merchant account management process has simplified merchant onboarding, managed compliance, and provided centralized control in the financial sector. However, selecting the payment facilitator describes a strategic edge for software firms and businesses striving for seamless payment processing integration without the intricacies associated with traditional processors.
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