August 16, 2022

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What Is eCheck Fee Processing?

While in the not-too-distant past, eCommerce was a relatively small niche only pursued by tech-savvy...

While in the not-too-distant past, eCommerce was a relatively small niche only pursued by tech-savvy businesses, it is now the norm, and virtually all businesses are now offering online shopping experiences for their customers. 

It’s also no secret that the global COVID-19 pandemic has further accelerated the adoption of online shopping and online transactions all over the world, forcing many businesses and even individuals to look for better ways to add online payments and financial services functionality for their customers.

Using the service of a payment facilitator is one of the best ways to add online payments to a website or platform, making the payment facilitator business a lucrative opportunity pursued by many software companies at the moment. 

In this post, we’ll explore the feasibility of the payment facilitation business, and we’ll learn about:

  • What is a payment facilitator?
  • Why it pays to be a payment facilitator
  • How you can become one

And more. 

Without further ado, let us start right away. 

The Payment Facilitation Model

As discussed, it’s the norm for many businesses nowadays to offer online transaction functions for their customers. However, in practice, the process of getting these online payment capabilities is not so simple.

A business that is looking to start receiving online credit card payments must first sign up for an account with a bank or a bank-sponsored firm that is authorized to acquire credit card transactions (called an acquiring bank). Essentially this company must first get a Merchant ID (MID) from this acquiring bank before they can start accepting online credit card payments. 

The sign-up process, however, will involve a lengthy and complex underwriting process, as the acquiring bank must make sure the applicant has the required infrastructure and capabilities of processing online transactions. 

As a result, these applying companies had to become experts in payments on their own, while also focusing on their core products/services and businesses. 

What’s worse, even after all this lengthy underwriting process, there’s no guarantee of being approved. 

The payment facilitation model emerged to solve this issue. 

A payment facilitator, essentially, is a company that has been approved as a merchant by an acquiring bank and has received a master Merchant ID or Payment Facilitator ID (PFID).

With the PFID, this payment facilitator company is authorized to share or aggregate its ability to accept online payments to other companies, and so:

  • The payment facilitator business can get paid by sharing its online payment capabilities with other companies.
  • Other businesses can use the payment facilitator’s services to start accepting online payments without needing to undergo a time-consuming underwriting process.

In short, a payment facilitation model provides a tangible solution to a real problem, making it a lucrative business opportunity. 

Why It Pays to Be a Payment Facilitator

Is becoming a payment facilitator the right business choice for you? Here we will address some of the unique advantages of becoming a payment facilitator, and why it pays to become one: 

1. Larger transaction volume=lower processing costs

One of the key advantages of starting a payment facilitator business is the ability to onboard a large number of businesses as sub-merchants by sharing your merchant ID. 

As a result, you as the payment facilitator business will potentially process a larger combined volume of transactions, the sum of all transactions from your sub-merchants. Due to this larger transaction volume, you can potentially negotiate the costs per transaction, which can lower your overall expenses. 

In short, the more transactions you process, the more profitable the payment facilitator business can be.

2. Stable and predictable source of revenue

As a payment facilitator, you make revenue on each transaction received by each sub-merchant. As discussed above, a payment facilitator can negotiate for a lower processing cost, and typically the basic cost of payment facilitation is around 2.5% of the transaction. 

To make profits, the payment facilitator typically charges around 3% (with an optional fixed fee on top of it), and in this case, the payment facilitator will make 0.5% in profit. 

With this model, the payment facilitator can get a stable and predictable source of revenue. With the example above, if we can attract enough sub-merchants receiving $1 million in total transactions per year, then you’ll make 0.5% x $ 1 million=$5,000 in net profit. 

3. Offering better client experience

Becoming a payment facilitator allows your company to provide quality service to your sub-merchants. Acting as a primary provider of payment (you are the only party your sub-merchant is in contact with), the sub-merchant wouldn’t need to contact another party for any issues in their transaction processing. 

By offering a better client experience, you can attract more clients while maximizing retention, which ultimately will translate into more revenue. 

4. More control of the underwriting process

By acting as a payment facilitator, you can develop your own policies and regulations when underwriting and onboarding your sub-merchants. You can ensure a frictionless and quick underwriting process, and yet you can also have total control of the whole process from start to finish to ensure security.

How To Become a Payment Facilitator

To become a payment facilitator, you’ll need to apply for a payment facilitator ID (PFID) to an acquiring bank and a payment processor (your sponsor). However, you’ll first need to develop the required policies and procedures, as well as invest in the required infrastructure, including:

  • Policies for underwriting sub-merchants
  • Policies and procedures for preventing frauds
  • Procedures for investigating high-risk transactions
  • Building/investing in an automated underwriting tool

Only after the needed policies/procedures and infrastructure are in place can you apply for a PFID, but as we know, there’s no guarantee for approval.

This is where payments consulting can help your business get approved with a much higher likelihood of approval. Professional payment consultant will help you develop the required policies, ensuring your team’s compliance with these policies, and also make sure you have the adequate infrastructure to ensure approval. 

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