Unlocking Reduced Obligations: How New Payment Facilitation Models Can Benefit
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.
Trends in Payment Facilitation
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.
Use of Reserves
The use of reserves and guarantees is a well-established risk management practice in the financial industry, including within embedded payment organizations. It is not exclusive to ISO (Independent Sales Organization) or a trick, but rather a standard method to mitigate financial risks.
Which is best: Using an FBO Account or becoming a Money Transmitter
Payment facilitators and other PSPs who wish to become part of the funds flow to their merchant clients (in other words, become responsible for moving settlement funds to merchants) must decide how to do so in compliant fashion. Taking possession of and transmitting funds that belong to another party is regulated by various government authorities and the activity itself must be licensed on a state or provincial level. Payment companies therefore must obtain the necessary licenses and become a Money Transmitter or leverage their sponsor bank’s license through use of an FBO (For Benefit Of) account structure.
The Changing Face of Fraud
Fraud metrics within an acquirer portfolio tend to be hard won as the knowledge is gained after the financial loss has occurred. The industry attempts to mitigate risk via ongoing transaction monitoring - – excessive chargebacks greater than .9% dispute ratio? Transaction volume exceeding 150% of expected?
Improving Time to Revenue with Embedded Payments
Time to Revenue (TTR) is a key metric that tracks how long it takes for a company to convert a lead to a paying customer, from the first interaction to a deal being won and revenue beginning to flow. For B2B vertical SaaS businesses that are often laden with lengthy and expensive sales cycles, improving TTR isn’t just imperative, it can be existential.
One of the winning virtues of vertical SaaS platforms is their ability to be the system of record for their SMB merchant clients, providing a single platform for everything customer records, accounting, inventory, to payment acceptance. For these vertical SaaS platforms, TTR can be heavily impacted by how payment solutions are deployed.
Managing Automated Underwriting
Everyone can agree. It saves time and resources to onboard a merchant for payment processing using technologies that can quickly manage your customer identification requirements. But Visa asks a tremendously important question in their Global Risk Standards:
Does your acquiring program, including any applicable sponsored third-party agent(s), use a risk-based approach where only merchants within predetermined parameters (payment volume, average sales draft amount, Merchant Category Code, acceptance method, contingent liability, etc.) are auto-boarded, and any merchants falling outside of such parameters is traditionally underwritten?
The Retail Payment Activity Act and its impact on Payment Service Providers in Canada
The Bank of Canada is Canada's central bank and is responsible for promoting the country's economic and financial well-being. In November 2023, the Bank of Canada published updated regulations for the registration of payment service providers (PSPs) under the Retail Payment Activities Act (RPAA).
PSPs located in Canada and those outside of Canada that are providing services to Canadian merchants are affected. Impacted PSPs are required to register with the Bank of Canada between November 1 and November 15, 2024. A fundamental aspect of the Act is that once it is in full effect, in September 2025, registration will need to be completed before the PSP performs any payment activities. Current providers who do not meet this year’s registration timeframe may be subject to a delay in approval.