Introduction to Payment Facilitator model

Welcome to IROAS Payments Academy introduction module on payment facilitators (PayFac). Before we dive into our presentation, let's discuss the significance of this workshop. IROAS has been engaging in conversations with experts and organizations to fully comprehend trends in digital payments .Through partnerships with industry leaders, partners and regulators, we are dedicated to facilitating dissemination of knowledge in the payments industry. This module specifically addresses Payment Faciltation. We are excited about the potential benefits that payment facilitators (PayFacs) bring, and today, we are eager to explore this opportunity with all of you. The core objective on our session today is to unpack the crucial role that PayFacs play in enhancing the digital payment landscape..

[Audio] This training is designed to provide a clear understanding of payment facilitators (PayFacs), their functions and their pivotal role in the payment ecosystem. As we dive into this subject, we will first explore the evolution of digital payments, discuss the complexities and nuances of payment facilitation and finally underscore their importance in today's payment landscape. We will then finish the session with a Q&A..

Evolution of Digital Payments. IROAS ACADEMY TRAINING PROGRAM.

[Audio] When it comes to card processing, the framework that underpins the flow is referred to as a “four party payment model”—simply because it involves four distinct parties, each with specific roles and responsibilities within the payment card ecosystem. This payments ecosystem used to be quite straightforward, but it has changed with the introductions of new stakeholders assuming intermediary roles. Before we go there, let’s touch on these four primary participants or parties in the card processing flow: 1. Cardholder (customer): Think of the cardholder as you, the customer. You hold a payment card, which could be a credit, debit or prepaid card. The network provides you with a secure and widely accepted means of making payments. 2. Merchant (seller): The merchant is the business or store where you shop. They accept payment cards as a payment method. The network ensures that merchants receive payments securely and quickly. 3. Acquirer (merchant’s bank): The acquirer is the financial institution that provides services to the merchant. They enable the merchant to accept card payments and handle the transaction processing. The network works closely with acquirers to ensure smooth payment processing. 4. Issuer (cardholder’s bank): The issuer is your bank or financial institution. They issue your payment card and manage your account. When you make a payment, the issuer validates and processes the transaction..

[Audio] As we have just alluded to, the payments ecosystem today has seen the introduction of new participants on both the acquiring and issuing sides, which has added complexity and diversity to the ecosystem. Let's explore these new participants. On the acquiring side: Acquirer processor: Performs processing services on behalf of the acquirer Independent sales organization (I-S-O--): Acts as extensions of the salesforce of banks Payment service provider: Provides value added services to merchants and connectivity to payment networks; they act as intermediaries between merchants and acquirers Payment facilitator: Signs merchant agreement directly with sponsored merchants and provides payment services POS/ATM vendors/ATM network/independent software vendors (I-S-V--): Provide infrastructure for specific purpose On the issuing side: Issuer processor: Performs processing services on behalf of the issuer; they ensure cards are properly activated, authorized and serviced Mobile network operator (M-N-O--): Provides infrastructure for the transport of transactions that are conducted via mobile devices Card manufacturer/card embosser: Facilitates the making of cards, including embossing the cardholder's information and adding security features..

[Audio] Payment service providers have become more creative in the needs of online and offline merchants. Advancements in technology, affordability of hardware and shifting consumer behavior are paving the way for improved shopping experiences in merchant services. Let’s look at how that technology has evolved: Standard P-O-S--: In the past, traditional point of sale (P-O-S--) systems were solely designed for processing payments, such as card swiping, without offering additional functionalities like inventory management. Introduction of mobile P-O-S (mPOS): Later, mobile point of sale (mPOS) solutions emerged, revolutionizing payment processing by enabling transactions anywhere within a store. These systems not only facilitate convenient payments but also provide valuable inventory insights. The rise of smart P-O-S--: The evolution continued with the development of smart P-O-S systems, which boast advanced capabilities. These intelligent devices can seamlessly integrate with various applications, offering features such as gaming and interactive store maps to enhance the overall shopping experience with more analytics and loyalty features. The Omni P-O-S revolution: Today, we have reached the pinnacle with Omni P-O-S solutions, offering unparalleled versatility. These systems seamlessly accept online payments through mobile apps, enabling cashless transactions. Moreover, they offer a wide array of payment methods, including cards, direct debit, credit transfers and digital wallets. Smartphones serve as versatile remote controls, enhancing the omnichannel shopping experience for customers?.

[Audio] Following the P-O-S evolution, this expansion has opened doors to new possibilities for emerging payment related entities, with new players shaping the payment ecosystem. Today, numerous players offer a wide array of solutions, introducing innovative payment methods and greater diversity in payment options. However, this proliferation also brings complexity. With an increasing number of participants, there's a surge in data flow, additional steps in the payment process, and a growing need to adhere to various regulations. Effective collaboration among these participants is essential to ensure seamless communication and compliance with numerous rules and regulations that uphold safety and fairness. In essence, the payments landscape has become more diversified and complex, with networks and schemes playing a central role in orchestrating the dynamics of this evolving landscape..

[Audio] Partnering with third party agents (TPAs) can be a game changer for acquirers looking to expand their reach. To make this process as easy as possible, schemes typically lay out some straightforward steps. Following these steps ensures a smooth onboarding but it's essential to accurately identify T-P-A's before initiating the process. To initiate the partner programme enrollment process, visit your acquirer's partner portal. After your the scheme Online enrollment is approved, make a request to P-R-M--, which can be found on the scheme Online. Click on the P-R-M link within the scheme Online to complete your P-R-M registration. Email your acquirer's partner support team if you require assistance. Before proceeding with registration, make sure you understanding the nature of the agent being engaged and the needs to be undertaken. Prepare all required documents for upload during the initial P-R-M registration process, such as PCI DSS and D-B-A filing..

What is Payment Facilitator. IROAS ACADEMY TRAINING PROGRAM.

[Audio] In the traditional merchant account model, businesses can choose to sign a direct acceptance contract with an acquirer, which is a financial institution that handles payment processing. Why merchants choose direct contracts: Enterprise merchants (great): Large businesses with high transaction volumes often choose direct contracts. They have the negotiating power to directly engage with acquiring banks to secure favorable terms, pricing and service levels. This gives them more control, potential cost savings, and the ability to customize payment processes to their specific needs. It's great for them because they have the resources to manage the complexity. They also need robust reporting and analytics to manage transactions across various channels. Mid Level merchants (okay): Medium sized businesses may find direct contracts okay but may face some challenges. They have moderate transaction volumes and resources. It can be manageable, but they might still prefer simplicity. They seek a balance between customized solutions and standardized payment processing. Direct contracts offer flexibility to choose among different payment processors or acquiring banks to find the best fit. Small medium enterprises (not so good): Small and medium sized enterprises (SMEs) often find direct contracts with acquirers less favorable. They have limited resources, and the complexities of managing payment processing can be burdensome and costly. They prioritize cost effectiveness and simplicity in payment processing. S-M-B's favor straightforward onboarding processes that allow them to start accepting payments quickly..

[Audio] PayFacs serve as aggregators that process, and sometimes settle, transactions on behalf of their registered sub merchants. They streamline the merchant onboarding process, reducing the time and complexity involved in setting up a merchant account. They are responsible for other service delivery including settlement, reporting and exception processing. A fundamental role of PayFacs is aggregation. This entails consolidating numerous small businesses into a unified entity. By uniting these businesses, PayFacs streamline payment management into a singular, efficient system that serves multiple businesses, sparing each from the need to create individual setups. When a customer conducts a transaction with one of these businesses, the PayFacs assume the responsibility. They oversee the payment processing process, serving as intermediaries that facilitate the seamless transfer of funds from the customer to the respective business..

[Audio] The PayFac model is a modern approach to payment processing that essentially simplifies the acceptance of card payments for merchants. Let's break down the PayFac model and explain how it benefits both acquirers and merchants: 1. Access to more merchants: PayFacs have the ability to onboard a large number of merchants quickly. This is because they streamline the process, making it simpler and faster for businesses to start accepting card payments. Traditional acquirers might find it challenging to onboard numerous small merchants individually. 2. Reduced technical support costs: PayFacs often provide comprehensive technical support and resources to merchants. This reduces the burden on acquirers to offer extensive technical assistance to each individual merchant. PayFacs can handle common technical issues, helping merchants more efficiently. 3. Expanding card acceptance: PayFacs play a crucial role in expanding card acceptance. They reach a wide range of businesses, including small and micro merchants that might not have considered accepting cards previously. This growth in card acceptance benefits acquirers by increasing transaction volume. 4. Addressing cash pools: By encouraging more businesses to accept card payments, PayFacs contribute to a reduction in cash transactions. This can lead to a decrease in traditional cash pools, making payments more secure and traceable, which benefits acquirers and the overall payment ecosystem. 5. Additional services for cardholders and merchants: PayFacs often offer value added services such as reporting, analytics and fraud prevention to both cardholders and merchants. These services enhance the overall payment experience, reduce the risk of fraud, and improve financial transparency. 6. Streamlined onboarding: The PayFac model simplifies the onboarding process for merchants. Merchants can sign up with a PayFac and start accepting card payments without navigating the complex process typically associated with acquirers. 7. Accessible to various merchant types: PayFacs cater to a diverse range of merchants, from small local businesses to online stores and service providers. This inclusivity ensures that card payments are accessible to a broad spectrum of businesses..

[Audio] The payment facilitation model allows micro, small and medium businesses that traditional acquirers would not take on to offer card payments to their clients. Here's a simplified overview of how the process works: A PayFac signs up for a single master merchant account with an acquirer. Once they have this account, PayFacs can start accepting merchant applications and underwrite merchants’ sales on behalf of the acquirer. The individual merchants they sign up as sub merchants fall under the PayFac’s master merchant relationship with the acquirer for transaction clearing and settlement. the scheme Rules specifically limit the size of sub merchants to 1 million dollars in annual debit/credit card sales volume. Merchants onboarded under a PayFac that are larger than 1 million dollars, or who grow to reach the 1 million dollars annual threshold, are permitted under the rules to remain under the servicing umbrella of the PayFac but must have a standard merchant account with the acquirer..

[Audio] Payment Facilitators (PayFacs) have the flexibility to adapt their services to accommodate a wide range of merchant sizes, needs, and resource levels. This adaptability has given rise to a diverse spectrum of PayFacs. Let’s take a look at the three primary categories of PayFacs. 1. Payment companies: Payment companies specialize in delivering tailored solutions to businesses, including local establishments, to facilitate seamless payment processing. These organizations possess advanced technology and expertise, enabling them to efficiently orchestrate payment processes. 2. Independent software vendors (ISVs): Independent software vendors are highly skilled software developers. They specialize in designing customized software, such as applications, which cater to the specific needs of businesses for accepting payments. Essentially, they create tools that empower businesses to effectively manage financial transactions with their customers. 3. Marketplaces: Marketplaces function as dynamic hubs. They serve as centralized platforms that unite various businesses, connecting both sellers and buyers within a single, convenient location. This centralized approach simplifies the shopping and payment processes, allowing individuals to effortlessly browse, purchase and make payments for items offered by a diverse array of sellers..

Why Payment facilitators are important. IROAS ACADEMY TRAINING PROGRAM.

[Audio] The payment facilitator model expands access to sellers in many ways: Real time underwriting: The payment facilitator model streamlines the underwriting processes, ensuring that businesses can get up and running faster, reducing delays in accepting card payments. Easy onboarding: With simplified onboarding procedures, a broader range of businesses can easily incorporate card payments. Advanced technology: Payment facilitators leverage cutting edge technology to provide seamless payment solutions. This technological advantage enhances the overall payment experience for both sellers and customers. Faster innovation: The PayFac model encourages a culture of innovation. With the support of acquirers and schemes, payment facilitators can introduce new features and services quickly, keeping pace with the rapidly evolving payments landscape. Extends acquirer reach to small and micro businesses: The PayFac model extends the reach of traditional acquirers to smaller and micro businesses that may have been previously underserved. This inclusivity opens up new opportunities and markets for card payments. New use cases: As more sellers come on board through payment facilitators, new use cases for card payments emerge. These use cases can range from mobile payments to online marketplaces, creating a more diverse and vibrant payment ecosystem. New markets and niche merchant segments: Payment facilitators help acquirers tap into new markets and niche segments of merchants. This expansion broadens the scope of card acceptance, benefitting businesses and consumers alike..

[Audio] Payment facilitators bring significant value to the payments ecosystem, addressing unique challenges and opportunities that traditional acquirers may not fully tap into: They serve as crucial aggregation points, as their unique selling proposition is to develop or customize solutions for small and medium sized merchants often overlooked by acquirers due to the high cost of integrations. PayFacs are at the forefront of driving innovation at a much faster pace and play a significant role in accelerating the adoption of technologies such as Tap to Phone or QR-based technology enablement. They hold a distinctive position in influencing product adoption among smaller businesses, especially in mature markets where many banks lack specialized partnerships or dedicated support teams for serving small and medium sized merchants. Additionally, many PayFacs focus on specific business categories, specializing in domain understanding and catering to customer needs. Even acquirers rely on PayFacs to expand their revenue opportunities with minimal costs in these sectors. Looking ahead to the future: Some PayFacs may evolve into acquirers as they expand and scale their operations. PayFacs may explore fintech avenues, including buy now, pay later (B-N-P-L-) solutions or integrated financial offerings. Several PayFacs express interest in launching digital wallets, integrating cryptocurrencies, or accepting government approved stable coins. The growth of players like Paystack, Dlocal, and A-P-S presents collaborative opportunities in new markets..

[Audio] PayFacs have seen impressive growth in the Central Europe, Middle East and Africa (C-E-M-E-A) region. In 2018, there were 58 PayFacs in the region, and by 2023, the count has surged to more than 300—and this growth trend is set to continue. PayFacs empower various segments, such as retail, small businesses, delivery, transit, financial services and insurance, to bring payment acceptance to their customers in several crucial ways: In segments like financial services and insurance, PayFacs can help extend financial services to underserved populations by providing them with accessible and affordable payment options. This not only enhances the customer experience but also contributes to business growth and financial inclusion in a rapidly evolving payments landscape..

[Audio] Schemes and acquirers adhere to core principles that underpin their collaboration with PayFacs to ensure mutual benefits. Let’s examine these guiding principles: 1. Value recognition: The payments landscape is evolving rapidly. It is essential to close the existing gaps in payments acceptance and represent the interests of PayFacs effectively. Across the industry, we acknowledge PayFacs as essential clients, attentively listening and catering to their specific requirements. 2. Quick response: The dynamic nature of PayFacs’ business demands speed, adaptability and swift reactions to their inquiries and assistance requirements. 3. Unity and cooperation: it is essential for PayFacs to feel understood and represented. Achieving this requires a collective effort, working together effectively to achieve common objectives. 4. Supporting growth: Many PayFacs are emerging businesses, but sometimes acquirers don’t have the required know how and scale to support their ambitions. It is therefore important to support PayFacs from the inception, which not only contributes to their success but also unlocks new opportunities for everyone. 5. Clear communication: PayFacs rely on communication with acquirers, but the transmission of information is not always effective. One of the guiding principles is recognizing the need to develop improved communication strategies to ensure clarity and honesty across all parties. In essence, the focus is on a cooperative growth trajectory!.

[Audio] There are a number of rules and guidelines that PayFacs must follow to ensure that payment processing is safe, fair and reliable. Let's break down these aspects: Regulations (guidelines and rules): PayFacs must ensure adherence to industry and government standards, including securing the right licensing to provide payments services or trading licensing to operate in certain sectors. PayFacs must also navigate tax regulations that are tailored to their operations, ensuring proper compliance with their tax obligations. Security (ensuring safety): Security is of paramount importance, and there are several critical aspects to implement to ensure robust safeguarding of sensitive information against potential misuse or theft. These measures include rigorous identity verification (know your customer); a strong framework to control access to sensitive data (privacy); and strict adherence to regulations for transparent, compliant financial operations (money laundering and tax evasion). Infrastructure (building a reliable system): Just as security is a top priority, the reliability of this payment infrastructure is equally essential to a seamless payment process. The payment infrastructure requires meticulous attention, and PayFacs are responsible for building a solid foundation that ensures secure fund transfers during transactions. This includes managing costs like device imports and ensuring affordable Wi Fi solutions for small businesses. Education (teaching and learning): PayFacs play a role in guiding businesses with the necessary knowledge and tools to handle payments effectively..

[Audio] This concludes the introduction to PayFacs training. The payments industry's rapid growth has introduced complexity, particularly in terms of risk management, as numerous companies participate in the ecosystem. PayFacs emerge as essential enablers in this landscape. They have the opportunity to exploit new markets opportunities with solutions to accommodate a diverse range of merchant requirements. The value PayFacs bring is substantial, as they drive cost effective acceptance solutions, enable broader acceptance capabilities, and uphold sound guiding principles, making them indispensable contributors to the payments ecosystem's evolution..

Thank you. IROAS ACADEMY TRAINING PROGRAM.