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27 May 2019
All under one roof: The benefits of the Payment Facilitation model
Having a secure way to accept payments is a necessity for any online business. And when it comes to taking credit card payments, you have two main options. The first is to open a merchant account with a bank and the second is to use the payment facilitator model (PayFac).
Let’s deconstruct each option and what it means for your business:
A merchant account is a type of business bank account that allows you to accept credit and debit card payments. Keep in mind, this doesn’t include a card reader, payment gateway, or any of the additional services you’ll need to accept payments. It’s simply the bank account through which your business will receive the money.
There are advantages to taking this route but only in certain situations. A merchant account will take longer to set up and can involve quite a bit of paperwork including underwriting and estimates of your processing volumes. Often, businesses that process relatively small transaction volumes may find this service unnecessary.
So if you’re looking to start accepting payments immediately with very little hassle, the payment facilitator (PayFac) model could be the right choice for you.
This blog post discusses what PayFacs are and the five biggest benefits of using a PayFac model as opposed to creating your own merchant account.
PayFacs are essentially larger organisations that have sufficient infrastructure and compliance in place to process payments. They also have the capacity to deal with the risk involved in moving money. The payment facilitator model was established as a way for small businesses to accept online payments more easily.
Under the PayFac model, smaller businesses can sign up as sub-merchants under the PayFac’s master merchant account to start accepting payments from their customers. This means you can enjoy many of the benefits that come with having your own merchant account but with a lesser degree of paperwork and risk.
Here are some other features of the PayFac online platform:
It reduces the complexity of getting started when accepting payments.
It allows merchants to accept credit and debit card payments.
The payment facilitator controls the flow of funds and is responsible for paying these funds to its sub-merchants.
This saves you from having to establish a relationship with a bank or set up a payment gateway. That also means, you, as a small business with less bandwidth, can focus on the core competencies of your business and spend less time learning about online payments.
Setting up a traditional merchant account can feel daunting, especially if you’re new to payment processing. The PayFac model is a good option for small to mid-sized businesses that want an easy way to process credit card transactions.
If you’re considering using the PayFac model to accept online payments, you may be wondering what the advantages are. Listed below are five things for you to think about before going down this route.
Signing up for a PayFac account is fast and easy. Setting up a merchant account isn’t hard but it can be tedious and it takes longer. With a PayFac account, the onboarding process is quicker and you can begin accepting payments almost immediately.
Since the payment facilitator is the master merchant account, your business is considered a sub-merchant. There’s usually only a simple form to fill out and you don’t have to provide reams of documentation. So you can create an account and be ready to accept payments within minutes whereas it could take days or weeks on a decision about whether you’ve been approved for a merchant account.
Banks and payment processors take on a certain amount of risk by letting businesses open merchant accounts. Every transaction that goes through could be charged back and the bank is responsible for dealing with those funds. This is why businesses must go through an underwriting process before they can get approved to open a merchant account. The stakes are higher for the bank so they are more selective of who they let open an account.
Compliance typically entails a whole gamut of tasks like KYC, PCI compliance, tax reporting and more.
Fortunately, the PayFac model comes with fewer compliance requirements than signing up for a proper merchant account. This is because a big chunk of your compliance requirements are handled by your PayFac - this includes tokenisation to help you with PCI compliance and verification to help you tick off KYC boxes.
Since you are only considered a sub-merchant, the majority of the risk is passed on to the master merchant. Plus, though the fees tend to be higher, you only pay when a transaction is actually processed.
So if your transaction volume is still relatively low, this could be a good solution. Your PayFac may often charge a flat price based on the number of transactions you process, which gives you added transparency.
If you want to avoid hefty fines, then you’ll need to make sure your business is PCI compliant. Fortunately, when you use a payment facilitator, this is taken care of for you. Your master merchant is responsible for ensuring that their platform is PCI compliant, which means you as a sub-merchant also benefit from this.
Any business that handles credit card data is required to meet over 300 security controls specified by the PCI DSS, so being a sub-merchant under a PayFac does help you save time on compliance tasks.
It’s the responsibility of the master merchant to implement controls to identify and stop fraud and high-risk financial activity. In the event of chargebacks, as well, the onus is on your PayFac to submit evidence to card networks. This means more peace of mind for you as a sub-merchant.
The PayFac model works best for businesses that want to start accepting payments immediately without processing tons of paperwork. Essentially, you let someone else worry about your company’s payment processing capabilities and continue focusing on your core business.
However, there are several things you should consider before choosing a PayFac provider:
First, you should look for a company that facilitates as well as processes payments.
Next is ensuring that they have the highest PCI compliance so your sensitive data is protected too.
It also helps to ask your PayFac the right questions around onboarding so you can be up and running quickly with your payments.
Data analytics and API integration, as well as local support are the other important elements to look for.
And some payment facilitators have rules in place around how many transactions can be processed each month. So if your business grows to the point where you go past this limit, you may need to switch to a merchant account.
Bambora is a uniquely specialised payment facilitator in New Zealand but we also act as a payment aggregator and processor. So regardless of your industry, we have a solution to meet your payment needs.
If you want more information on what type of model works best for your business, feel free to reach out to our team.
Victoria Galloway is Bambora APAC's Technical Copywriter, and has been writing and producing in the payments and eCommerce space for a number of years in the UK, Australia and New Zealand.