Payment Facilitator Attorney

What is a payment facilitator?

In the most general terms, it’s an aggregator that sponsors merchants. Historically, the card brands prohibited aggregation, and many states even made it illegal. They reasoned that it was fraught with fraud risks.

Yet the advent of the internet forced the card brands to relax that position. Today, some of the most valuable payment companies depend on the payment facilitator model. Two of the most well-known are PayPal® and Square®.

Common course – within limits.payment facilitator attorney

An acquirer must sponsor a payment facilitator for registration with the Card Brands. Card Brand Rules require that the acquirer contract with the payment facilitator, and the payment facilitator then contracts directly with each of its merchants – known as a “sponsored merchant” under Visa Rules and as a “sub-merchant” under MasterCard Rules – to provide payment acceptance services.

Certain mandatory contractual terms must be included in the acquirer’s agreement with the payment facilitator. The payment facilitator is responsible for monitoring the sponsored merchants’ compliance and receiving settled transactions from the acquirer on the sponsored merchants’ behalf.

A sustainable model.

Payment facilitating reduces the cost of signing and support all merchants – especially those with low sales volume or specialized needs. As a result, payment facilitators can serve a broader range of merchants at more favorable rates than a traditional ISO. Many payment facilitators also provide sponsored merchants with additional products and service – like enterprise software solutions for small and medium-sized businesses.

But there are limits to what a payment facilitator can do.

Payment facilitators cannot:

  • Be cross-border from the acquirer
  • Be listed on MATCH
  • Act as a sponsor for another payment facilitator

Visa Rules mandate that an acquirer must contract directly with any sponsored merchant whose annual transaction volume exceeds $100,000, even though the payment facilitator may continue to serve the sponsored merchant. Because of this, you must have a system in place for merchants to roll over to the acquirer automatically when they hit certain transaction processing volumes. The Card Brands also flatly prohibit payment facilitators from sponsoring certain merchant categories – including internet pharmacies, outbound telemarketers, and merchants with high-risk MCC codes.

Depending on how and where you are doing business, you may be subject to federal registration requirements with the Financial Crimes Enforcement Network (FinCEN) persuant to the Bank Secrecy Act (BSA). Or you may be subject to licensure requirements – like a Money Services Business or Money Transmitter –  in most states.

As payment facilitator attorneys, we have represented many payment companies just like you, navigating these issues.

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