Payment facilitation is a relatively new phenomenon which stems from the rapid expansion of payment providers who are keen to act as an intermediary between acquirers and merchants.
Initially, those payment providers acted as Merchants of Record or Merchant Aggregators, but then from around 2010 the international schemes (Mastercard, Visa) put in place rules and procedures requiring such providers to undergo a formal registration with them, under the sponsorship of an already licensed acquirer. Consequently, it has become almost a type of sponsored membership for acquiring services with the schemes.
The reason this sector grew extensively is that acquirers have realised that their ability to service multiple verticals (including very newly formed ones) was limited – and therefore working with third parties, willing to take both the liability and the challenge of onboarding merchants, was a great way of growing volumes with relatively low risk.
There are currently five distinct types of payment facilitators.
Whilst there are just over 1,000 payment facilitators registered with Mastercard and 600 registered with Visa, there are arguably many more which are still not formally listed and are, most likely, treated as Merchants of Record by their acquirers. On the face of it, this is not compliant with the schemes’ specific rules.
The benefits of acting as a payment facilitator are clear – the provider is able to onboard its merchants quickly and independently of the acquirers’ processes, it keeps the percentage margin of the transaction volume rather than just a flat transaction fee, which is the case with simple gateway payment providers, and it can service a much broader range of industries with their highly specialised technology and sophisticated tools. Acquirers, in turn, are keen to grow their volumes in this broad range of industries and to benefit from effectively outsourcing the onboarding and servicing of merchants to a much more nimble partner.
So, what challenges, if any, does such a wonderful set up represent? Well, some payment facilitators are fully aware of the risks of signing up merchants, which often come from new and previously unknown verticals (e.g. digital goods, marketplaces). They understand their responsibilities and set out to tackle these with a solid set of procedures and a full-stack technology. However, some are less diligent. That can present big challenges to acquirers with whom they work – from financial impact to losing their acquiring status with schemes, in some extreme cases.
Below is a summary of some of these challenges.
The best ways to overcome these problems can broadly be grouped into three areas of focus:
- the payment facilitator and the acquirer must be clear about the roles each party plays;
- the processes which the acquirers enforce payment facilitators to follow must be clearly defined – from onboarding merchants to monitoring fraud and reporting transactional information;
- the use of modern and up to date tools must be mandated wherever possible.
If acquirers are able to provide a set of such tools to their payment facilitators, they may give themselves peace of mind – as well as make additional revenues from cross-selling these features (for example, KYC validation or risk monitoring tools). In some cases, payment facilitators may also want to build or buy such tools to both protect themselves from potential risks and optimise merchant experience, creating a frictionless journey.
In any case, it is clear that intermediaries such as payment facilitators are not only here to stay but they are very likely to grow, as more and more technology companies embrace payment processing as a vital feature of their overall offering to their clients (i.e. merchants). Think of Uber – would their services be as appealing as they are if customers had to get their card out of their wallet to pay for the journey whilst getting out of the cab?
Regulation and scheme rules are likely to get more strict but hopefully also more detailed and clear as to what is expected from each party in payment facilitation. Accordingly, both aspiring and existing payment facilitators must ensure that they are compliant and well set up to weather any storms which may be presented by changes in regulation or problematic merchants. As for acquirers, many have already started shutting down some merchants where they realised that those were, in fact, unregistered payment facilitators – an understandable but very costly exercise from the loss of revenue point of view. Thankfully, as technology, verification and validation tools, and monitoring systems evolve, there are more and more ways to ensure that any client who wishes to become an intermediary, such as a payment facilitator, should have an opportunity to do so easily and in a compliant fashion. Afterall, acquirers stand to benefit greatly from new volumes, and payment facilitators can bring payment services to the ‘masses’ of new and existing merchants. Such is the Payment Facilitation Revolution!
About Masha Cilliers
Masha is a Board Advisor to Limonetik as well as a Specialist Partner at Be | Shaping the Future, Principal Consultant at Payment Options Ltd and a Non Executive Director at two UK fintechs PaySME and Trust Payments. She brings over two decades of experience working within the payments industry, and prior to consulting she held a number of senior appointments within the payments industry – including at Mastercard, Visa, Microsoft, Cybersource, and Ingenico. Her core focus is within online and mobile commerce, and she has a track record in delivering complex payment solutions for payment facilitators and marketplaces.
Limonetik is a disruptive B2B payment platform providing payment services to gateways, acquirers, and international merchants and marketplaces (B2B and B2C).
Limonetik’s platform supports over 250 local payment methods, reduces complexity of settlement by aggregating multiple financial flows into one settlement, and supports these services with comprehensive reconciliation and reporting tools – all via one state-of-the-art API. Limonetik is one of the earliest developers of the marketplace payment solution, and it has over seven years’ experience in this relatively new sector.