Perhaps no relationship is more important to a payment facilitator than the one they have with a merchant acquirer.
The terms acquirer or merchant acquirer can be confusing. Essentially, the terms refer to an acquiring bank – a bank that offers merchant accounts and is a member of the card networks, such as Visa and Mastercard.
But in many cases, a payments processor, through their relationship with an acquiring bank, may enable access to merchant accounts. Or a large acquiring bank may also offer payments processing. These one-stop-shop entities are often collectively referred to as acquirers.
To manage payments for its submerchants, a Payfac needs all of these functions. It needs to obtain a merchant account, and it must be sponsored into the card networks by a bank. It also needs a connection to a platform to process its submerchants’ transactions. A relationship with an acquirer will provide much of what a Payfac needs to operate.
Payment Facilitator Oversight
In addition to providing many of the necessary functions, an acquirer is the entity that allows the Payfac to have access to the card networks as its sponsor. Payment facilitators are not direct members of the networks; they are overseen by acquiring banks.
This means that, when it comes to complying with card network rules and other regulations that affect the payments industry, the Payfac answers to its acquirer. Acquirers have responsibility for protecting the payments system from bad actors, and they are financially responsible for the activities of the Payfacs in their portfolio. So each acquirer has its own set of Payfac requirements regarding things like underwriting, risk monitoring, funds settlement, and other policies and procedures.
Many software companies that decide to become a Payfac, rather than referring payments to a third party, view control over their merchant experience as a significant reason why. They may want to make their own risk decisions and control the speed at which merchants are onboarded. They may want to control when and how reserves are used or manage their submerchant funding.
While Payfacs do have more control than companies in referral relationships, they will still need to abide by their acquirers’ requirements. How much that oversight affects the Payfac’s business practices depends on the acquirer.
For example, some acquirers – often those with well-developed payment facilitator programs and deeper experience with the Payfac model – may be more comfortable leaving many decisions and day-to-day operations to the Payfac as long as they adhere to the requirements. Others may take a more hands-on approach. Payfacs should choose an acquirer that is a good fit for them.
Acquirers aren’t all about oversight, however; they also serve as important resources and sources of information for payment facilitators. Payfacs should expect open channels of communication with their acquirers.
As the entities that own the relationships with the card networks, acquirers will communicate important card brand changes and guidance directly to their Payfacs . They are also likely to have deep expertise in regulatory compliance, government relations and legal issues related to the payments industry that Payfacs can benefit from. When establishing a relationship with an acquirer, a Payfac should ask about communication channels to experts in areas that are important to them.
Ultimately, a Payfac’s relationship with an acquirer goes well beyond a simply transactional relationship with favorable terms. It’s about establishing a rapport with a partner that understands the business and helps enable the Payfac to provide the best possible experience in a safe environment.