Payment Facilitator vs. Payment Processor

These two words show up often during payment research: payment facilitator and payment processor. Some people use them interchangeably, but they really have very different points of view relative to the type of business you are in and how you want to accept payments. The growth of eCommerce is going to hit $8.1 trillion by 2026 according to eMarketer. This growth number should be considered a wake-up call to create efficiency in your payment stack in order to dramatically increase revenue, market coverage, and customer satisfaction. Let's quickly define what payment processors and payment facilitators are, and then look into how they work, some of the big differences, and which one is the shoe to fit based on your business.

What Is a Payment Processor?

A payment processor, very literally, sits between the merchant, customer, and their respective financial institutions, and the nuts-and-bolts process behind moving electronic payments from these various parties. Afterward, it also manages data transfer between the acquiring bank and the issuing bank, making certain funds are available, and subsequently facilitates the actual transfer and settling of funds. Payment processors are absolutely a key piece in managing transaction flow and remaining compliant with security standards, like PCI DSS 4.0. Using the example of PayPal again, it not only helps facilitate a secure transfer of details surrounding the transaction between the merchant and opposing banks but also verifies funds and receives authorization on transfers.

What Does a Payment Facilitator Do?

A payment facilitator is a platform or services provider that stands for the concept of simplified merchant account enrollment for small businesses by allowing them to process under a single master merchant account. Square, for example, offers a full range of services that reduce the bureaucratic and technical barriers that are often associated with setting up a merchant account directly through a bank or through traditional processors. PayFacs manage sub-merchant accounts, but unlike underwriting an actual merchant account directly with a bank, the smaller merchant doesn't have to go through making sure they can handle all the technical aspects of creating and then maintaining direct relationships with banks or other traditional processors. This speeds up payment acceptance and relieves the merchant from the burden of back-end activities, such as dispute resolution, fraud prevention, and fund disbursement.

Differences Between a Payment Processor and a Payment Facilitator

Although this is a company that usually focuses on the mechanics of enabling the transfer of funds from a customer to a merchant, so it usually upholds these functions for a very wide class of businesses, the latter is a more specialized term that refers to a company handling the payment infrastructure attached to, for instance, an online aggregator of merchants. This nuance is very important when selecting the solution that's best for one's business. Now that we know the two kinds of service providers, we need to scan the two as seen from the merchant's perspective:

• Scope of Service: While payment processors serve merchants directly, payment facilitators manage the relationships with sub-merchants under their umbrella.
• Relationship with Financial Institutions: Processors have direct relationships with multiple banks and financial networks, while facilitators typically manage a single relationship with an acquiring bank like JPMorgan Chase.
• Regulatory and Compliance Responsibilities: Both entities must and generally do adhere to industry standards, but payment facilitators are also required to oversee compliance across their sub-merchants.
• Customer Interaction: Payment processors rarely interact directly with the end customer; they are usually those that take care of the financial transactions behind the scenes. Payment facilitators provide more customer-facing services, such as support and troubleshooting, to increase customer experience.
• Flexibility and Control: Payment facilitators provide much more control over the user experience and branding in the payment flow. For some organizations, this can be truly critical in terms of preserving brand identity.

Do Businesses Need Both?

More often than not, the need for payment facilitators, payment processors, or both may be made depending on the business size, transaction volumes, and specific operational needs. Large businesses with more complex and more varied requirements for accepting payments are more likely to benefit in terms of savings from having a direct relationship with a payment processor in order to cut out third-party transaction fees. Using both may be a little bit more manageable for a SME or SMB and, in some instances, can drive up efficiency and coverage to ensure every base is properly covered.

How Both Work Within Payments Orchestration

Payments orchestration is a strategic process that allows businesses to optimize the way in which transactions are handled across an enterprise or a basket of payment gateways and systems. It offers businesses the possibility to route transactions intelligently based on multiple predefined criteria, like success rates, costs, and customer locations.

Processor, for instance: A global online retailer like Amazon might use a payment processor to orchestrate transactions across a number of different countries, each with its own preferred payment methods and PCI regulations. By integrating with a payment processor that supports multiple gateways or connecting to many different payment gateways, businesses can finally ensure that every single transaction is routed to the best-performing gateway in that particular market. In so doing, businesses can grow success rates and customer satisfaction.

Payment Facilitator: If, for example, it's a popular fitness application that sells membership and personal training sessions in the whole world, then it is going to ease its billing and subscription management through having a payment facilitator. In contrast, it will have a payment orchestration layer to be able to figure out the best payment methods and schedules automatically for the user's location and preference, making the whole experience better and drastically increasing failed transactions.

Make Your Payment Strategy Better with Spreedly

A payment orchestration framework, such as Spreedly, can greatly enhance the integration of both payment facilitators and processors for changing your payment capabilities. Spreedly allows businesses an open ecosystem for payments, giving security, efficiency, and scalability to them. It is infrastructure that Spreedly provides to ensure an organization, whether big or startup, meets its payment needs effectively. 

Reach out to Spreedly to establish whether a payment processor or a payment facilitator is suitable for your business.

Download the Payments Orchestration eBook Below

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