Recently a fair amount of clients have been asking us why they’re better off using a payment facilitator rather than doing it themselves.
In order to effectively answer this great question let’s look at the different options available for online platforms to take and process payments.
The simplest form of payments online is for a company that sells a product or service and requires payment. This is a basic model as there is only one flow of funds from the buyer of the product or service to the company selling.
When Things Get Complex
Things start getting more complicated when there are multiple parties on either side that need to pay or be paid part of the transaction. Obviously this is a rather common scenario with online marketplaces as well as service platforms where the site itself isn’t the receiver of funds (e.g. “Drop Shipping”).
Complexity increases when the site and/or other parties want to receive a portion of the funds for their service.
Firstly, you can go to a bank and have them provide you with your own merchant facilities so that you can take credit card payments online. Once you have this you can build some forms in your site to collect credit card information and start accepting payments. Unfortunately with this model you have a vast amount of risk and regulation that needs to be considered.
The second option is to partner with a payment facilitator who can provide you with merchant facilities as well as remove a lot of risk and regulation requirements.
Risks & Compliance Hurdles
Online transactions are unfortunately an open market for fraudsters to take advantage of the fact that their physical presence is hidden. This allows them to use stolen cards to make purchases which result in the true owner of the card raising a request for the funds to be returned. The owner’s bank will then find the party that received the funds and take them back.
In the case of online marketplaces, this also leaves them open as they’re providing the platform for the transaction to occur on.
This is a standard for the payment card industry that requires all companies that process, store or transmit credit card information to maintain a secure environment.
AML & KYC checks
These are checks that need to be performed by any financial entity on all parties they’re paying funds to which ensures they aren’t part of a money laundering ring or a terrorist entity. This is a requirement for any platform that needs to make payments to any entity other than themselves.
In order to do payments yourself all of the above need to be considered. On the other hand, if you don’t want to do it yourself the next question then becomes, “Are all payment facilitators the same?”
Unfortunately not all payment facilitators are the same. As with any technology and service-based business, some companies do some things better than others as well as some providing more or less services than others.
You will need to consider exactly what services you require from your payment partner. Some of the services that you should consider are:
- Available Payment Types: Credit Card, Direct Debit/ACH, Bank Transfer, BPAY, Escrow, BitCoin, Cheques, and other third party payment services such as PayPal or Mobile Wallets etc.
- Disbursements: Do you have a requirement for funds to be settled to multiple parties?
- Merchant/Seller Onboarding: Does your partner require your merchants or sellers to go off-site to sign up or can they do this entirely within your platform?
- Customer Service: What level of support needs to be provided?
- Fraud Protection: What level of fraud protection will you have access to?
- Dispute Resolution: Will your partner help if there’s a dispute raised over a transaction?
In conclusion, the answer to the question concerning DIY Payment Systems vs. Payment Facilitators, is answered when your company decides whether they want to build their own payments capability and teams in-house or whether they want to have somebody else worry about that so you can focus on what you’re best at.
October 15, 2015