Once upon a time, it wasn’t easy for retailers, restaurants, and other merchants to accept credit cards. Merchants had to work directly with each credit card company. This required that they negotiate and structure merchant agreements and establish merchant accounts with a processor, such as Vantiv or FirstData. That process was often complex and costly, limiting many businesses’ ability to accept and process card payments.
Over the past several decades, the credit card market has undergone a major evolution, driven largely by the rise of the internet. Digital payments companies, like Paypal, were on the forefront of this evolution by innovating and simplifying online credit card processing for merchants.
Today, there are many companies, known as payment facilitators, that offer that same simplicity and efficiency to businesses that wish to accept credit card payments. A payment facilitator streamlines the merchant experience and eliminates much of the regulatory and administrative burdens that retailers previously faced with credit card transactions. This allows you to focus on selling your core services without the distraction of managing payments for your business.
How does payment facilitation work?
A payment facilitator eliminates the need for a merchant to process payments directly with a credit card company. Instead, the payment facilitator serves as the merchant. Retailers, restaurants, and other businesses then contract with the payment facilitator as sub-merchants. They then process all their payments through the payment facilitator’s merchant identification number.
Payment facilitation has a number of practical benefits for the business:
- They don’t have to contract directly with a processor, which is both time consuming and expensive
- They don’t have to process the payments or manage the backend functions that come with credit card processing, an expertise that puts a business that is unfamiliar with payments at further risk
- The burden for meeting regulatory requirements falls on the facilitator, not the merchant, so that you can focus on serving your customers instead of administrative tasks
The merchant simply operates a system that is integrated with the payments facilitator’s software. This is used for both card-present applications, generally seen in brick-and-mortar businesses, and card-not-present for online transactions. When cards are swiped or inputted into the system, the information is transmitted to the payment facilitator, who handles the process going forward. That allows merchants to focus on better serving their customers and growing their business.
What types of companies are best-suited to become payment facilitators?
Becoming a payment facilitator could be a wise move. However, it’s important that your business is prepared to handle the operational requirements.
Some of the best candidates to become payment facilitators are companies who already provide a related service. For instance, a company that offers point-of-sale systems may become a payment facilitator to bundle credit card processing with its other services. Or a software company may become a payment facilitator to better monetize its SaaS product, or as a value-add to encourage other developers to build on its software platform.
Android’s app store, Google Play, is a great example of payment facilitation embedded into a larger software platform. Google Play uses Google Payments Corp. as its payment facilitator. That helps app developers to easily generate revenue for their work by allowing them to accept credit card payments and monetize their software.
Just as Google Play uses their own in-house payment facilitator, many software companies choose to become a payment facilitator to monetize their payments and improve their product overall. Their payment facilitation capabilities drive additional revenue and make their solution more valuable to their clients.
It’s also helpful if a payment facilitator operates in a specific niche, like restaurants or certain types of retailers. That way the payment facilitator can use their experience and specific knowledge to help the merchant implement an efficient and profitable credit card process.
Finally, it’s also important for the facilitator to have the staff and resources to handle the operational aspect of payment facilitation. Payment facilitators have to coordinate transactions between merchants and card companies to ensure that money ends up in the right location. That’s easier said than done. If a company doesn’t have the team and resources necessary, they may struggle to provide quality service.
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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