What is a payment facilitator?
When it comes to payment processing today, it’s essential for online businesses to be able to offer their customers digital payment options. For many businesses, that includes the ability to integrate credit and debit cards into the payment process.
However, even though a credit card transaction appears to only take seconds, it’s actually a complicated process with many players involved. Some of those players include payment facilitators, payment processors, and payment gateways. Here’s everything you need to know about the differences among them and how they work:
What is a payment facilitator?
Businesses choose to partner with payment facilitators because they help create a more streamlined payment experience for customers while also optimizing how efficiently the seller side operates. Essentially, they’re an important part of making the payment processing system easier for businesses.
A payment facilitator (also called a PayFac) is a type of payment infrastructure that makes it possible for submerchants to accept credit card payments. A payment facilitator’s job is to underwrite and onboard submerchants and then give them the necessary technology they need to process digital transactions, including access to a merchant account.
What is a merchant account?
A merchant account is the specific kind of bank account you’ll need if you want your business to accept credit card payments from your customers.
A merchant account represents an agreement among you, your bank, and the payment processor or payment facilitator you’ve signed up with.
What is a submerchant?
A submerchant is similar to a merchant; this term refers to the payment facilitator’s customer that the facilitator actively onboards so that the submerchant can then start accepting electronic payments from their customers. Submerchants can either be physical retail locations that want to accept credit and debit card transactions or online businesses that want to accept these kinds of transactions. For physical stores, these are called card-present transactions since customers are swiping, tapping, or inserting their cards. On the other hand, when it comes to online businesses, the types of transactions they engage with are called card-not-present transactions since the customer is usually manually entering in her payment information as opposed to physically swiping her card at a payment terminal.
What is a merchant acquirer?
For a payment facilitator to work properly, they need to enter into an agreement with what is known as a merchant acquirer – e.g., an acquiring bank or payment institution that holds their merchant account. The acquiring bank must be licensed by the card networks so that the submerchant can receive the funds from its customers. It’s important to note that the acquiring bank is responsible for assuming the risk of the payment facilitator, which is why the acquiring bank has to make sure the payment facilitator has all the necessary infrastructure, technology, security, and systems put in place to work correctly.
Merchant acquirers are responsible for monitoring the payment facilitator and ensuring that the facilitator is compliant on all fronts. These banks are also responsible for other merchant acquiring activities, such as underwriting and onboarding submerchants responsibly.
Finally, the merchant acquirer is in charge of receiving the data and money from the card networks, then sending that information and those funds to the payment facilitator.
What is merchant acquiring?
Merchant acquisition is an essential part of processing credit card transactions. To put it simply, merchant acquiring just refers to the activities performed by the acquiring bank, and they reflect the merchant life cycle, which involves recruitment, underwriting, terminal deployment, support and service, chargebacks, and account closure. Let’s take a closer look at each of these terms:
- Recruitment: this is the process of conducting retailer needs analysis and bringing sales negotiations to a close to onboard retailers (i.e., merchants or businesses).
- Underwriting: this is when an acquiring bank pledges to accept liability for all credit and fraud-related risks.
- Terminal deployment: if the retailer wants to collect payments via their website, terminal deployment allows the merchant acquirer to establish an internet payment gateway.
- Support and Service: this includes all retailer inquiries and usually includes processes like reconciliation, updating one’s address, and any issues that relate to terminal deployment.
- Chargebacks: a chargeback occurs when there is a cardholder dispute. Here, the disputed funds will be held from your business until the card issuer can get to the bottom of the issue and choose which course of follow-up action to take. If the bank rules against your business, the funds will be returned to the cardholder. If the bank rules in favor of your business, you’ll receive the disputed funds.
- Account closure: when retailers close their accounts, merchant acquirers are sometimes held responsible for collecting fees and chargebacks that are still in the system. This usually only happens if the retailer goes out of business.
What is a payment processor?
Sometimes, it can be easy to confuse payment facilitators with payment processors, but they are two distinct things.
Payment processors are also known as merchant processors, and they are vendor businesses that manage the process of accepting credit and debit card payments. A payment processor or merchant processor acts as the middlemen between the merchant and the customer’s bank, and they authorize payments by verifying your customers’ billing information, confirming the funds are available, and finally, transferring the money to the acquiring bank – the bank that’s associated with your business’s bank account.
The reason that businesses use payment processors is because they are the easiest way for businesses to get linked to a merchant account. Payment processors also bundle businesses’ access to merchant accounts with a suite of other services, which makes them especially attractive to growing businesses.
If you want to read more about payment processors, make sure to read our blog here.
What is a payment gateway?
A payment gateway is a mechanism that reads and transfers payment information from a customer’s bank account to a merchant’s bank account by capturing the necessary data and verifying that the funds for the desired transfer are readily available. Essentially, it’s the gatekeeper of your customers’ payment information and ensures there are enough funds available in your customer’s account before the purchase is made.
To learn more about payment gateways, make sure to check out our blog here.
What is the best solution for online B2B payments?
While payment facilitators and payment processors both offer ways for businesses to take credit cards online, it’s important to remember that credit card payments still have their downsides: namely, when it comes to their punitive transaction fees. Credit card fees can be as high as 3.5%, meaning you’re getting charged simply to accept your own revenue from your customers.
Luckily, there are B2B payment solutions that make it possible to process digital payments – without transaction fees that drain your revenue. If you’re interested in learning more, you can schedule a demo with us here.