Trends in Payment Facilitation

Payment Facilitation (PayFac) models have evolved significantly, offering various options for businesses to handle payments more efficiently. Here's an overview of the main models and trends in the industry, especially focusing on those who are registered but seeking to reduce their obligations.

Models of Payment Facilitation

1. Full PayFac Model:

• Description: The business acts as a master merchant, with sub-merchants operating under them. The PayFac handles underwriting, onboarding, and compliance for sub-merchants.

• Pros: Complete control over the payment process, potential for higher revenue through service fees and transaction fees.

• Cons: Significant regulatory, compliance, and operational responsibilities.

2. Managed PayFac Model:

• Description: A third-party service provider manages the PayFac operations, including underwriting and compliance, while the business maintains the customer relationship.

• Pros: Reduced operational burden and regulatory risk, while still benefiting from the PayFac model.

• Cons: Potentially higher costs due to outsourcing fees.

3. Hybrid PayFac Model:

• Description: Combines elements of the Full and Managed models. The business handles some aspects of PayFac operations while outsourcing others.

• Pros: Flexibility in managing compliance and operations, can optimize cost and control.

• Cons: Complexity in managing multiple aspects and coordination with third-party providers.

4. Referral/Partnership Model:

• Description: The business refers its customers to a third-party PayFac provider and receives a commission for referrals.

• Pros: Minimal regulatory and operational responsibilities, easy to implement.

• Cons: Limited revenue potential compared to being a full PayFac.

Trends Toward Reducing Obligations

1. Increased Use of Third-Party Providers:

• Businesses are increasingly partnering with specialized third-party providers to manage the complex aspects of payment facilitation. This helps reduce regulatory burdens and operational challenges.

2. Technological Advancements:

• The adoption of advanced payment technologies and platforms allows businesses to streamline operations, automate compliance processes, and reduce the need for extensive in-house expertise.

3. Regulatory Changes:

• Evolving regulations and compliance requirements are pushing businesses to seek models that offer more support and flexibility in managing these obligations.

4. Focus on Core Business:

• Many businesses prefer to focus on their core competencies and leave payment facilitation to experts. This trend is driving the adoption of managed and hybrid models.

5. Cost Optimization:

• By outsourcing complex functions, businesses can better manage costs associated with compliance, fraud prevention, and transaction processing.

6. Risk Mitigation:

• Reducing direct involvement in payment processing can mitigate risks related to fraud, chargebacks, and compliance violations.

Conclusion

The payment facilitation landscape is shifting towards models that allow businesses to reduce their regulatory and operational burdens. By leveraging third-party providers, advanced technologies, and focusing on their core operations, businesses can still benefit from the PayFac model while minimizing obligations. This trend reflects a strategic approach to handling payments efficiently and effectively in a complex regulatory environment.