Worldwide, the e-commerce industry has earned USD$5.7 trillion in 2022, a figure that’s estimated to expand by at least 10% this year—proving that online transactions have grown considerably in the last few years.
The sector’s exponential boom wouldn’t have been possible without online payment processing, which has been evolving alongside the financial technology realm. In the latest digital model, payment processors with expanded services are known as payment facilitators (PayFac).
If you’ve heard about payment facilitators but are too afraid to ask, you’re on the right page. After exploring some payment facilitator examples, it helps to learn more about this payment model and how it helps simplify e-commerce transactions.
The Basics Of Online Payments
The digital payment ecosystem may sound simple, but various steps are involved in processing credit cards, debit cards, bank fund transfers, and other payment options. As the field of financial technology is constantly evolving, so is the need to improve customer service and convenience across all levels.
Traditionally, an e-commerce store must apply for a merchant ID, a payment processor, and a payment gateway to start accepting online payments.
A payment processor handles the transaction and links the merchant, bank, and card networks. Meanwhile, a payment gateway is responsible for securely connecting the payment processor and an online merchant’s site.
Understanding Payment Facilitators
A payment facilitator is a company providing e-commerce merchants with adequate payment infrastructure and services, allowing them to accept electronic payments using the facilitator’s platform or app.
Payment facilitators have established relations with financial institutions or an acquiring bank. This relationship enables them to acquire a master merchant account, allowing them to sign up sub-merchants and turn them into their clients.
As all payment transactions automatically fall under a PayFac’s merchant account, its sub-merchants don’t have to go through the traditional and lengthy process of underwriting, approval, and onboarding. While exercising some levels of autonomy, the acquiring bank will take charge of vetting and monitoring payment facilitators.
How Payment Facilitators Streamline E-Commerce Transactions
Before being accredited as a PayFac, organizations must prove that they have the right infrastructure and employ the latest technologies to operate efficiently and securely.
- Accelerated Merchant Underwriting And Onboarding Processes
Under the payment facilitator model, instead of applying for a merchant ID, payment facilitators offer sub-merchant accounts to online sellers who want to avail of their service. The facilitator acts as the main merchant and assumes all the risks and liabilities incurred by their sub-merchants.
With this scheme, e-commerce sellers don’t have to go through the traditional merchant ID underwriting processes, which can take up to two weeks. By availing of payment facilitator services, merchants can start accepting electronic payments typically within two days following the approval process.
- More Comprehensive Solutions
Choosing a payment facilitator requires an understanding of your business needs and how each payment model works. Generally, though, processors focus on a seamless and secure transaction, which is a primary concern among users.
Comparatively, payment facilitators provide more comprehensive services, including underwriting, managing funds, chargebacks, and disputes—ensuring regulatory compliance, online security, and consumer data protection. By taking a multifaceted approach, payment facilitators help clients focus on their operations instead of managing payment disputes and issues.
- A More Efficient Chargeback Management
Chargebacks protect credit card holders and consumers by filing a dispute with an acquiring bank in cases of fraudulent transactions or purchases that have been canceled, returned, or lost.
The chargeback process can be tedious and time-consuming for the cardholder, merchant, and bank. Moreover, it can cost businesses additional fees and penalty charges.
With payment facilitators, clients don’t have to go back and forth with their documents. PayFac platforms offer tools and resources that let clients submit the necessary documentation online and manage the entire process electronically. A streamlined chargeback filing and management helps merchants improve buyers’ experience and satisfaction.
- Faster Merchant Funding Processes
Merchants in the traditional payment scheme often wait for the acquirer or bank’s funding schedules before they can access fresh funds. These schedules are primarily dependent on the bank’s fraud and risk policies, processes, and limitations.
On the other hand, payment facilitators don’t have to rely on banks to manage their funds. Because payment facilitators directly transfer cardholder funds to the sub-merchant, online sellers don’t have to wait to access their sales money.
Overall, payment facilitators have better control over funding flow and schedules for their sub-merchants, leading to improved processes and shorter waiting times.
Concluding Thoughts
The payment facilitator model is a welcome development, eliminating the need for merchants to undergo tedious underwriting processes. Working with payment facilitators gives merchants more access to comprehensive services to address their common needs and challenges.
Doing so streamlines online purchasing without sacrificing consumer protection and data security. More importantly, providing a better customer experience makes it easier to encourage repeat purchases and establish trust among online shoppers.