Introduction: why become a payment facilitator
Nowadays more and more software platforms adapt payment facilitator operation models, allowing them to service their clients, i.e. merchants, more efficiently. While at first glance franchise-based businesses do not seem to be ideal candidates for becoming payment facilitators, they can also benefit from adoption of the concept. In this article we are going to consider some of the advantages of becoming a payment facilitator, specific for franchising companies.
The levels of control over business operations vary across different franchising companies. For instance, some of these companies control marketing aspects but not the actual operations. However, while franchisers do not always control all operations-related aspects, they, generally have an opportunity to impose particular requirements upon their franchisees. This opportunity provides a pre-condition for smooth adaption of a payment facilitator model.
Let now us address specific advantages of becoming a payment facilitator that a franchising company can benefit from.
Consolidated processing volume and processing costs reduction
The first advantage that franchisers have is consolidation of payment processing and processing cost reduction. That is, if a franchiser becomes a payment facilitator, it can turn all its clients (franchisees) into sub-merchants. As a result, in the context of the relationship with the processor, the franchiser will represent (in terms of processing volume) the combined volume of all its franchisees. Consequently, due to larger transaction processing volume, processing costs will become negotiable. Thus, per-transaction price negotiated on the basis of total volume will, naturally, be lower than the price based on fragmented volume and negotiated individually by each merchant with its local bank.
Favorable conditions for smooth merchant underwriting and on-boarding
The second advantage is, in a way, inherent, to payment facilitator model. We should remind that payment facilitators can service their merchants more efficiently due to smooth underwriting, on-boarding, and funding processes. However, such efficiency has its price: taking active part in merchant underwriting and funding processes, a payment facilitator assumes considerable responsibility and risks, associated with chargebacks, merchant and consumer fraud etc. In order to protect themselves from these risks, payment facilitators need to have background verification and KYC (know your customer) mechanisms. Most franchisers already have some background research procedures in place to check their potential franchisees (subscribers). They also perform meticulous monitoring of their existing franchisees’ operations. It means that KYC process is an integral part of the franchisee monitoring mechanism that almost all franchises have one way or the other. So, minor adjustments introduced into the business flow will allow a franchise company to integrate merchant account underwriting procedures into an already existing process. As a result, as a franchiser does not have to start implementation of merchant underwriting and on-boarding logic from scratch, this phase of becoming a payment facilitator much easier for him to complete. From the merchant’s perspective, when a franchisor becomes a payment facilitator, the processes of getting a merchant account and certification as a franchisee become less labor-intensive, because everything is now handled by the franchisor (and the merchant account doesn’t have to be acquired through a third party).
Optimization of merchant fees deduction
The third advantage is the optimized procedure for merchant fees deduction. Every franchiser has to deduct fees from its franchisees. Franchisers often experience problems during collection of these fees. For example, the funds may be unavailable on the franchisee’s bank account at the time when the franchiser attempts to withdraw the fees it is entitled to. After becoming a payment facilitator, the franchiser gets greater control over the cash flow (because as payment facilitator, it is participating in merchant funding process). As a result, it becomes easier for the franchiser to deduct the fees at the moment when the funds for processed transactions are deposited to the franchisee’s account. Consequently, the franchiser’s chances to get “his share” of the funds in time become much higher.
If you are a franchising company, it might make sense for you to consider adapting a payment facilitator model. We should note that you can achieve your goal even faster using some ready-made technological platform for payment facilitators, such as UniPay Gateway.