Payment Facilitation is the latest and hottest trend in payments sponsorship. Here is the Payment Facilitation business model and its advantages to help you determine if it is right for your enterprise.
What is a Payment Facilitator?
A Payment Facilitator is a master merchant that offers merchant services via aggregation to sub-merchants. In this arrangement, the sub-merchants no longer have their own MID and will be boarded under the MID of the Payment Facilitator. The Payment Facilitator will facilitate credit and debit card transactions for sub-merchants, and, thereby, incurs risk from the transactions processed by the sub-merchants within the payment ecosystem. Payment Facilitator is also known as “master merchant,” “Payment Service Provider” (“PSP”), and “payments aggregator.” Square and Stripe are well-known examples of Payment Facilitators that have innovated and opened up new market opportunities.
Payment Facilitation Business Model
The Payment Facilitation business can be quite profitable if executed properly. A Payment Facilitator essentially charges a fee for the services it renders and the credit risk it assumes on behalf of the sub-merchant. The revenue spread is the difference between the buy-rate (what acquirer networks charge the Payment Facilitator via a Schedule of Fees), and the discount rate (what the Payment Facilitator charges the sub-merchants). On average, the acquirer onboarding process for a Payment Facilitator takes about six to nine months, and requires significant time and capital investment.
- Extremely fast sub-merchant onboarding because of the streamlined client acquisition process and innovative technology. In most cases, provisioning of sub-merchants can happen essentially in real-time provided all KYC parameters are met.
- Reduced front-end boarding friction provides a lower cost of acquisition, thereby, opening new sales channel opportunities.
- Granular control over fees, reporting, and value-added services to sub-merchants.
- Onboarding process can be expensive and tedious, including stringent underwriting by the acquirer.
- Responsibility for ongoing regulatory mandates and credit exposure (e.g., AML/KYC, fraud risk, etc.).
- Investment in infrastructure (including settlement) to enable seamless solutions to sub-merchants.
- Customer support considerations associated with sub-merchant experience.
Engaging MAPP Advisors
Payment Facilitation is a lucrative business proposition for a payments company looking to build enterprise value provided they invest the appropriate amount of resources to the strategic endeavor. MAPP Advisors has extensive hands-on experience advising companies on all aspects of a Payment Facilitation sponsorship initiative. To get a more comprehensive overview of Payment Facilitation and decide if it is right for your enterprise, please contact MAPP Advisors using the form below or at: [email protected]. Visit: www.mappadvisors.com. Follow MAPP Advisors on LinkedIn and Twitter for exclusive news and updates.