What is a Payment Facilitator?

Financial technological breakthroughs in the integrated payments space have led to the increasing popularity of the payment facilitator model. Merchant services providers that are ready to take the next step are realizing the vital role it can play in differentiating their products and services.

This operating model taps into a new revenue stream in the process. It also enables businesses to create customer stickiness by delivering a better onboarding and payment experience. So, what is the payment facilitator model, and how can you leverage it to grow and scale your business? We answer these questions and more in this blog.

Payment Facilitator 101

A payment facilitator is an entity that holds a payment processing account that allows other businesses (sub-merchants) to accept payments under its master merchant account. To get started, the business must register a master merchant account with an acquiring bank, which provides the funding needed to open sub-merchant accounts.

Once the acquiring bank has issued the merchant identification number (MID), the master merchant can start adding sub-accounts under its umbrella after assessing the risk. Businesses can then expedite the onboarding process for sub-merchant accounts. In turn, sub-merchants can immediately start accepting payments once onboarding has been completed.

What Types of Businesses Are a Good Fit for the Payment Facilitator Model?

In 2019, there were over 1,075 businesses registered as payment facilitators worldwide. By 2025, this number is expected to grow by 390%. Leading the charge in the unprecedented growth in the payment space are software companies. 

Software companies stand to benefit most by offering merchants a comprehensive payment ecosystem that also enables them to increase revenue. Just a few examples of the types of independent software vendors (ISV) or software businesses that are a good fit for this business operating model:

• Health and medical software
• Accounting and financial software
• Fundraising and donor management software
• Order management software 

3 Benefits of Becoming a Payment Facilitator

While payment facilitator solutions were initially introduced to the market to make accepting electronic payments easier for merchants, advancements in technology have also provided additional benefits for merchant services providers. Benefits that make adopting this business model more attractive and profitable such as:

1. Earning a larger revenue share: Tapping into a new revenue stream is a big incentive for businesses. As the master merchant, a business can monetize every transaction processed through their platform by earning a percentage of the sub-merchants’ processing fees. The earnings double with every sub-account that the master merchant onboards, resulting in an uptick in top-line revenue.

2. Owning the user and payment experience from end-to-end: Ask any merchant what they want from their payment process experience, and they’ll often cite convenience, speed, and service. Becoming a payment facilitator enables a business to deliver on all three.

With more control over the onboarding experience, companies remove the friction of setting up a payment account by eliminating the need to engage a third-party payment processor—enabling merchants to provide customers with more electronic payment options.

3. Increasing customer loyalty: Fewer obstacles in addition to expert payments and compliance guidance are attractive factors to sub-merchants. And businesses that adopt the payment facilitator approach will be rewarded with their business and loyalty.

Businesses can promote the speed of getting payments up and running to attract new customers that appreciate the accelerated approval for payment acceptance. Likewise, the more pleasant user experience, plus comprehensive and intuitive onboarding, will go a long way to increasing customer loyalty.

4 Key Considerations Before Adopting the Payment Facilitator Model

The option of becoming a payment facilitator is more widely available than ever before. Every day more and more service providers are creating new plug-and-play payment facilitator solutions that enable merchant services providers to set up the model faster than the traditional route.

Businesses considering this operating model should first answer the following questions before embarking on this journey:  

1. How will you benefit from bringing payments in-house? If you answered improving customer experiences, enhancing customer relationships, tapping into a new revenue stream and driving faster growth, then this business model is a viable solution for you.
2. How do you want to offer this to your client? Today’s consumers want to pay how and when they want. So, consider the type of payments options you’ll offer clients to expedite onboarding.
3. Are you open to investing in payments as an offering? Offering payments to customers is more than just plugging a payment facilitator solution into your operating model. You also have to consider investments in setting up development, operation, and legal teams in addition to managing the payment and payout system, merchant onboarding, and compliance monitoring software. Doing so goes a long way in delivering an exceptional merchant experience.
4. How do payments factor into your business's future growth? The payments ecosystem is changing rapidly, and you will need to keep up with the latest offering to remain competitive today and beyond. Therefore, it’s important that you have a clear understanding of how this business model will impact your company’s future growth.

Redefining What it Means to be a Merchant Services Provider

With the payment facilitator market expected to hit $15B by 2025, more and more businesses are turning to services like MerchantE to provide customers with a comprehensive payments ecosystem. In doing so, they’re positioned better to drive more revenue growth for the business and increase customer stickiness by delivering added value to their customers.

Interested in learning how you can get in on the action? Explore the possibilities by connecting with a MerchantE specialist today.