Not long ago, mentioning the word aggregation would make any e-commerce risk analyst cringe. Thats now changed as payment facilitators have emerged as a key value add for acquirers and processors.
They are changing the payments landscape, making it possible for small businesses to start accepting online payments and bringing solutions to merchant verticals that, until recently, was not possible through traditional merchant/acquiring relationships.
A payment facilitator is a merchant registered by an acquirer to facilitate transactions on behalf of sponsored merchants. By creating rules and regulations around the payment facilitator model in 2012, MasterCard created a massive opportunity for technology companies looking to be in the payments space, as well as others already in the space but operating without formal support from card brands. Fast forward to 2015, and payment facilitators continue to thrive and bring value to card-not-present (CNP) payment processing that had historically not been involved in traditional merchant/processor relationships.
Payment facilitators are different than traditional processors because they focus on verticals and smaller merchants that dont have the payment processing history to be underwritten by a traditional Acquirer. Overall, the payment facilitator model makes it more attractive for companies to get into payments and further profit on the vertical markets they serve.
Payment facilitators own the aggregate risk of the merchants they sponsor, but if they dont have a solid front-end defense to protect themselves it can take one bad actor to bring down an entire portfolio. In fact, some merchants have gone under because their security problem was so severe.
To insure that instances of fraud and friendly fraud dont impact an entire portfolio of merchants, payment Facilitators should consider utilizing a third party tool that can reduce overall risk and prevent chargebacks from becoming problematic. In addition merchants need to be vetted on the front-end to help ensure they are not on the OFAC list or the MasterCard Match File. There should be more core processes put into place to minimize fraud risk.
Navigating the endless chargeback reason codes is also difficult for payment facilitators. Each acquirer has its own set of chargeback reason codes, even though the categories are very similar. Overall, these chargeback reason codes are highly complex and require a certain level of knowledge to fully understand.
Many payment facilitators have multiple points of entry, making them more susceptible to fraud. A single point of entry is needed to lower fraud potential. Enlisting the use of a third party that knows the payments space can provide a more comprehensive risk management solution on both the front and back end.
A comprehensive chargeback solution is key to minimizing fraud risk for many different reasons. For instance, payment facilitators can have thousands of individual merchants, but arent necessarily connected directly to card brands. When they need of a back-end solution to support their merchants needs, they are somewhat at the mercy of their Acquiring partners product roadmap and competing priorities.
Using an established third party who knows the ins and outs of the chargeback process and offers solutions that dont rely on enhancements by their acquirer enables payment facilitators to give their merchants access to front-end agnostic and direct fraud prevention tools. As a result, payment facilitators can bring themselves to the forefront of the payments industry and focus their efforts on generating revenues and managing their business.
Jason Gromyko is business development director for Verifi.
