Becoming a Payment Facilitator

Stripe and WePay(now Chase) have made a significant impact on the eCommerce world through their cutting edge UI and easy to integrate API’s. These Payment Facilitators or PayFacs, along with Square have changed customers expectations of payment processors. These companies help set new expectations for boarding, funding controls and ease of integration.

The industry has since caught up and much of the technology they provide has become ubiquitous.  As early adopters, they enjoyed a brief runway, servicing many direct merchants and software providers with relatively high pricing and little to no, residual share for integrated partners. We are going to focus on the relationship between ISVs and PayFacs.

Integrated software providers continue to target ISVs, guiding them through a roadmap from integration to channel adoption. Many ISVs start with a referral relationship which requires the least amount of time, resources and commitment. From there they often progress to a fully automated experience or un-registered PayFac structure, and can eventually move to a fully registered Payment Facilitator. Some providers offer one or two paths for partnership; Stripe and WePay limited by the fact that they are Payment Facilitators themselves and not actual processors. Each step generally requires a more robust integration and stronger commitment which mirrors a scaling compensation structure when using more traditional payment processors. Most processors understand that larger companies with a clear, significant interest in payments want to work towards ownership of their portfolio.

ISVs can always recognize the revenue from a payments partner, however becoming a full Payment Facilitator gives larger ISVs ownership of the merchant contract and an increase in their valuation multiple as a result. Growing into a true payments facilitator can seem like a daunting task. It creates challenges, has strict requirements and generally a time frame extending out to longer than a year.

A new group of payment servicers have emerged. These companies recognize that although painful, becoming a PayFac is the right strategic decision for larger technology platform with $50-$100M or more in volume. These companies offer tools and APIs to handle some of the most painful parts of becoming a PF and bridging the connection that must be created between the ISV and Processor/Sponsor Bank. Ultimately, for large fast growing ISV, a processor, not an another PayFac is the best path for strategic growth.

Real Time Payments (RTP)

We have seen many new technologies emerge in payments. Most of the innovation has been based around traditional payment processing credit/debit rails. From issuing to acceptance, merchants, acquirers and issuers have improved the way we accept, handle and settle transactions but the core functions are virtually unchanged. Crypto-currencies have struggled with mainstream adoption while its underlying technology of blockchain continues to explore various applications. Various disruptive systems have struggled to gain adoption given payments perpetual chicken and egg ecosystem. In the world of B2B payments, we believe the landscape is about to change drastically.

Real Time Payments(RTP) was born from a consortium of 25 banks and launched in November 2017. It is also the first new payment rails deployed in 40 years. It is a completely new, closed loop infrastructure with massive, market-wide applications. Payment applications like Zelle, Venmo and Square Cash have gained popularity with in Person to Person(P2P) transactions, we believe RTP will have the same effect in B2B payments.

RTPs ownership structure, built on and by The Clearing House, and the fact that 50% of US customers will be given access natively through their existing banks interface create the potential for a massive adoption and deployment.  RTP is posed to make a substantial impact. Funds are secure, can be requested or pushed and happen immediately without waiting for a batch. They also meet Good Fund Laws required by certain industries like real estate and follow the ISO 20022 message specifications.

While the technology is new and use is limited, the applications and impact potential seem to be enormous.

Here is the Mastercard Deck for RTP

Top 5 features to look for in Virtual Terminals

Virtual Terminals can offer a great, low cost vehicle for accepting payments. They are inexpensive, easy to deploy and access can be implemented on almost any employee’s computer that is connected to the web. Here are the top features we recommend looking for when choosing a Virtual Terminal for your business.

Multiple Permission Levels: Keeping tight controls on payment access for employees can be vital to insuring the integrity of your payments and accounts receivable process. Look for functionality that will limit reporting visibility, transaction type and volume thresholds based on the individual users.

B2B Payments: If your company sells Business-to-Business it will be key to accept level 2 and level 3 transactional data(see more HERE). Certain Government(B2G) and Purchasing Cards (B2B and Large Transactions) will require this in order to authorize, approve and settle a transaction.

Interchange Optimization: Employees will always choose the path of least resistance when inputting transactional data which means higher interchange costs. Be sure and choose a virtual terminal with optimization options allowing merchants to save on costly Visa and Mastercard expenses. Certain processors and/or the gateway can assist with the additional data.

Reoccurring Billing: Taking a payment is one thing. Tokenizing and securely storing it is an entirely different animal. Reoccurring payments are important not just for membership-based businesses but for companies looking to support follow-on transactions, upsells or for any transactions occurring at a later date. If you are looking to set regular timing intervals, make sure the VT can support custom frequency and allows you to alter the transaction amount.

Security: PCI security is paramount to any company who accepts payments. Ensuring your Virtual Terminal is PCI Compliant is a must have, however it doesn’t necessarily lower your exposure. Sniffing software and Malware can live on individual computer stations or networks, scraping PAN data. Using P2PE devices will help limit card numbers from being collected on an infected device or workstation. As with any company accepting credit cards we recommend you follow your SAQ schedule and best practices.



Fighting Interchange

Merchants large and small have fought against the cost of accepting credit cards for decades. There have been numerous legal battles between retailers of every size and the card brands or acquirers, all over merchant fees and interchange. Merchants of all shapes and sizes constantly work to lower their processing costs and return margin back to their businesses. Large retailers like Target, Walmart and Costco have all waged this battle on multiple fronts.

Today were going to talk about the largest expense for accepting credit cards, interchange. Interchange is generally charged and dictated by card brands such as Visa, MasterCard, Discover and American Express with revenues going back to the card holders issuing bank.


Avoiding the Card Brands

Retailers route consumer cards through their preferred(generally least expensive) debit networks. This allows retailers to negotiate with the debit networks directly, prompting  consumers for their PIN number as an alternative to their signature. Ever since the Durbin Amendment, card issuers must support more than one debit network, giving retailers multiple routing options. This transaction path has only been traditionally available for card-present transactions. The rise of “PINless debit” allows for debit cards to be used for online purchases, avoiding core interchange charges for eCommerce transactions.  Acquirers can also participate in the value chain; routing to preferred networks where merchants are often indifferent, unaware or unable, to access routing technology.


Interchange Breaks

Large merchants solicit the card brands directly for pricing breaks. Through lobbying, lawsuits and sometimes boycotts (See the Kroger Boycott) merchants with larger processing volumes are given pricing discounts. Merchants with large volumes, “Threshold Retailers” (See chart below)   generally employ most, if not all, of these strategies to limit their costs.


Interchange Rebates

The largest issuers often give discounts to enterprise merchants to entice them to accept and even promote their cards. Some companies are competing for both the issuing card holders and merchants services like CapitalOne Merchant Services, Wells Fargo Merchant Services and Bank of America Merchant Services. Large RFPs for “Threshold Merchants” can often include issuer rebates. American Express has long supported separate interchange costs for their enterprise customers.

Will it Change?

European merchants enjoy a capped interchange rate .30%, roughly 1/5 of what the average US merchant pays. Even with their lower interchange they are still able to drive and lead merchant innovation for EMV, 3D Secure and Contactless payments. I believe it will only be a matter of time before the US landscape will more closely reflect the European regulatory environment given the size and scope of the pressure exerted by US retailers.

Facebook, Payments and Securing Customer Data

What happens when, as an industry focused on security, we continue to use, engage and advertise on platforms that are clearly abusing our customers data?

Read more

Visa's Supplier Locator

Developer Center

Visa makes available a number of development tools on their Developer site. The descriptions can be fairly vague but they also list a number of use cases. The APIs can be applicable for:


-Small Business





Visa's Merchant Locator

Visa's Supplier Locator

Level 2 & Level 3 Processing

Business-to-Business Payments Overview

In ~2016 Visa and MasterCard saw an opportunity to move card acceptance forward and take on the check and ACH industry.They created programs for Business-to-Business(B2B) payments, Business-to-Government(B2G) payments and Large Ticket Transactions. These programs were specifically designed to allow businesses servicing other businesses to receive more competitive pricing, different from traditional consumer or retail transactions by providing certain data fields. Read more

Navigating B2B eCommerce

A Growing Market

Forester predicts that by 2020 B2B eCommerce will be twice the size of B2C eCommerce. This segment of the market has drawn significant attention from technology providers, digital marketing agencies and payment providers. Technology platforms like Big Commerce, Shopify and Salesforce Commerce Cloud(formerly Demandware) all have targeted B2B ecommerce campaigns. Payment processors have acquired companies that specifically focus on B2B payments,  Vantiv has purchase Paymetric was a great acquisition that accelerated their foothold in the space.

Working with ERPs

Some ERP’s offer their own eCommerce functionality like Netsuites CloudSuite Commerce and others leverage true eCommerce platforms and shopping carts like Fishbowl who works with Magento, Volusion and Big Commerce. If an ERP is in place, working with a platform and processor that can communicate with that ERP is critical to streamlining workflow and reconciliation.

Unplanned Expenses

Wholesalers, distributors and manufactures all have specific payment needs requiring the appropriate support from the shopping cart, ERP platform and payment processor. Interestingly enough Shopify does not support Level II and Level III transaction processing(according to their support section). If you combine that lack of functionality with the 1% surcharge Shopify charges to enable a third-party processor that does support B2B and B2G transactions, it could cost the merchant an additional 1% per transaction to accept a credit card payment.

Choosing the Right Partners

Big Commerce and Salesforce offer a vast array of integration options including Level II and Level III support, ACH and some ERP plugins. Integrating to provide the proper data fields can save a merchant .50%- .80% per transaction based on Visa and MasterCard Interchange rates. Choosing knowledgeable partners can help navigate the complex course of B2B eCommerce.


Top 5 Reasons Digital Agencies and Marketing companies should have a Payments Partner

Whether you are focused on optimizing SEO, converting web traffic or simply building websites, payments is a part of your clients needs. Some organizations see payments as an ancillary service, distracting them from their core offering. Some companies choose to go as far as owning their own payments company and bring the process in house. Whatever your appetite for involvement, a payment strategy is a critical part of any marketing organization.


1. If you aren’t capturing payment revenue, someone else is.

Most shopping carts and platforms are quickly moving to capture a portion of the eCommerce revenue for sites built on their technology. Shopify mandates that you use their in-house payments called an ISO(Independent Sales Organizations) or they charge 1% to use another provider, excluding the agency and marketing partners from vital revenue. Magento has recently launched Magento Payments which they claim to be neutral but will in inherently compete with their existing reseller relationships.

2. A reputable payments partner creates a better customer experience.

Building a client’s website is a process containing many steps and moving parts. Payment companies can provide competitive pricing while decreasing the number of tasks required by a client to complete the build out. At the end of the day, it is easier to work with an endorsed relationship than for your clients to go out and source their own.

Choosing a payments provider will insure your clients have all of the latest ways to take payments: Google Pay, Apple Pay and Amazon Payments to name a few.

3. Streamline the checkout process and increase traffic conversion.

Many platforms are accessed through plugins and API certifications. Using a trusted, proven, reliable connection will ensure your client’s website maintains maximum uptime and a seamless check out process. Choosing a payments provider will insure your clients have all of the latest ways to take payments: Google Pay, Apple Pay and Amazon Payments to name a few.

4. Reoccurring revenue can increase an agency’s cash flow even if the client leaves.

When agencies work directly with payment providers, they share in a portion of the revenue made from their clients sites and converted traffic. Partnering payment companies are built on relatively thin margins over long periods of time giving them stable cash flow and high valuations. Creating a separate revenue stream from services like payment processing can help create a business models that moves from transactional to reoccurring. This cash flow can add up to a meaningful amount of revenue which increases the value of the business, creating a stable income model. Even if the client leaves the Agency, they will still share in the revenue collected as long as the client processes payments.

5. B2B Payments should not be treated like B2C Payments.

Accepting payments on a consumer facing website has different requirements than accepting payments on a Business to Business(B2B) website. Simply adding or will cost your clients significant revenue. Visa and MasterCard recognize that B2B payments require different data fields and carry unique costs. Your payments partner can guide you through this process and insure your client’s sites are set up correctly.