Becoming a payment facilitator can be a great opportunity for you and your clients. When considering your next strategic move as a company, remember that the path to become a payment facilitator is different for every company. It depends on your goals, your industry, and your willingness to commit to life as a payment facilitator.
However, every new payment facilitator must overcome the same hurdle: getting accepted by an acquirer.
An acquirer is a financial institution that helps a payment facilitator process transactions (usually large banks). Their job is to back the payment facilitator. If the payment facilitator fails in its ability to process transactions, the acquirer is ultimately on the hook.
Because of the potential liability involved, acquirers are very selective about the types of companies they choose to work with. They won’t accept just any company who wants to become a payment facilitator. They want companies who are financially and operationally stable, are differentiated in their service within their industry, and who have invested in a strategic payment facilitator approach.
If you feel as though you’re ready to start your journey toward becoming a payment facilitator, finding the right acquiring partner should be at the core of your planning. If you don’t get accepted by an acquirer, or end up choosing the wrong one, your sights on becoming a payment facilitator will be greatly hampered. Below are a few items to consider as you work to impress an acquirer.
Being a payment facilitator comes with an inherent level of risk and liability. You’re responsible for processing your customers’ credit card transactions and directing those funds to the correct places. Your customers will depend on you for timely processing and stable cash flow. Their customers (card holders) will depend on you to process transactions correctly and to handle things like refunds, chargebacks, and even fraud protection.
Your acquirer is ultimately responsible for those tasks if you mismanage this process. They are backing you as a processor of the payments, so they assume all the risks that you do. And as you likely know, banks and other financial institutions aren’t in the business of taking on excess risk.
To limit their liability, your acquirer will review (in addition to your payments strategy) your business and financial history. They want to ensure that you have maintained a sustainable, responsible operation, and that you can effectively manage cash flow. They’ll look for a sizable amount of assets compared to your debt. And they’ll want to see that you have the resources to back up your obligations.
While the exact requirements may vary by acquirer, they will all prioritize operational and financial stability.
Once an acquirer analyzes your business history, they’ll look specifically at your payment strategy. The first step in their evaluation will be to examine the industry you operate within and how you plan to grow into your payment facilitator services.
Ideally, acquirers want to see a defined, deep market in which you have extensive experience. For example, if you plan to offer payment services as a supplemental service to your existing software, you might be a good fit. Conversely, if you plan to leverage payments for services separate from your core business, the acquirer will likely hesitate.
Another cause for their concern is if you intend to initially offer payments services across a variety of different industries. Each industry is susceptible to a unique set of risks. The restaurant industry, for instance, is generally a low risk environment. Average transaction costs are low, chargebacks are minimal, and the good / service is consumed at the time of payment.
Dentistry, as an example is a higher-risk industry. Transaction costs are higher, and payment disputes are probably higher than that of the restaurant industry. It is unlikely that you could responsibly support both of these industries, operationally and financially speaking, especially as an organization new to the payments industry.
Acquirers want to be in business with payment facilitators who are likely to have long-term success. And the reality is that payment facilitator works best when it is coupled with existing, related solutions, in an established market, within an industry they are already experienced in managing.
Your Payments Strategy
Finally, an acquirer is likely to a deep-dive analysis on your processes and infrastructure. Specifically, they’ll look at the technology, risk controls, process guidelines, and partners you’ve chosen to help manage your payment business. They want to ensure that you’ve wrapped up all of your tools and resources into a serviceable product for a customer-base in need. And that you’re doing it in a financially responsible way.
They’ll also look to see that your payments infrastructure is aligned with your core business, and it’s designed to service your specific industry. Will your customers be processing high-volume, low-dollar transactions or vice versa? If it’s high-volume, you’ll need a process to quickly manage those transactions without manual input. If it’s high-dollar, you’ll need reserves to backup your potential liability. Your infrastructure needs to be aligned with your payments strategy, which should be based on the industry you’re operating in
Ultimately, a big portion of early success in an acquirer partnership is positioning yourself as a payments expert. If that’s not you, aligning with one can help you throughout process of becoming a payment facilitator, and afterwards as you operate as one.
They can help to align your business with the right payments strategy, navigate and negotiate the right legal, compliance and technology partners, and ensure you have the right operational support in place to run smoothly once you’re up and running.
The acquirer approval process is too important to go it alone. Work with a strategic partner who can help you improve your odds of acceptance.
Stay tuned for more payments strategy guidance
Payments may not be your core business, but it may present a strategic opportunity for you to better serve your customers. Is it the right decision for you?
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