ETA Expert Insights: Roundtable on PayFac Definitions – Key Takeaways

By: Nicole Meisner, Jaffe, Raitt, Heuer & Weiss, P.C. and Tom Humphrey, Till Payments
An ETA Payment Facilitator Committee Initiative

Words can be confusing in this industry. We often use different words for the same thing or the same words for different things. Standardizing language is key to consolidating our collective understanding of terms and business processes in the payment facilitator space. In this effort, the ETA Payment Facilitator Committee has a working group called “Ecosystem Mapping & Definitions” which is a space for members to document trends, organizations, and terms relevant to the payment facilitation field and set a precedent for industry language and ecosystem mapping.

In 2020 — the group released the “Payment Facilitator General Guide & Definitions”. After working for almost a year on a subsequent list of terms, the group will be publishing a second set of definitions that will include “common usage” terms, including the card brand definitions (Visa & Mastercard) if defined by the card brands.  Working group members went through the lengthy process of identifying key terms, grouping them into subcategories, debating until the group came to a consensus on common usage, followed by a lengthy group review. This process highlighted how the industry is using terms differently depending on their use case. In early February, Nicole Meisner of Jaffe Law and Tom Humphrey of Till Payments presented this project to the wider committee before publishing, and below are some key takeaways from the discussion that sneak peek what will be presented in the forthcoming definitions.

Key Takeaways for the U.S. Region

• Consistent Terminology is Key. When conducting business in the payments industry, it is important to normalize common understanding of the same term to avoid misunderstandings. Even seasoned payments professionals use common terms differently!
• Classifying Participants. While coming to a common consensus on terms to classify the various participants in the payments space is helpful, ultimately, the classification will be driven by the participant’s conduct and activity under the card brand rules. Several common classifications used in the industry are not recognized by the card brands, thus those participants will be classified based upon their conduct (one common example is “Managed Payment Facilitator” or “Payment Facilitator Lite” as the card brands do not differentiate between different types of payment facilitators).
• Buzz Words Not Always Recognized by Card Brands. The terms “Merchant of Record” or “Master Merchant” are commonly used to refer to the participant that will submit card transactions for processing.  But more often than not, such participant is acting more as a payment facilitator and not as a “Merchant” as defined by the card brands. Neither term “Merchant of Record” nor “Master Merchant” is defined or used by the card brands despite that they are common buzz words used in the industry.
• Who is the acquirer? This group suggests using the term “acquirer” to refer only to an acquiring bank, not processors or other participants in the acquiring processing chain. Acquiring banks have a direct relationship with Visa and/or Mastercard and provide other participants with access to the card brands’ systems through contractual relationships.
• Jurisdiction Matters. When working globally, it is important to consider the accepted usage of terms to your business context. The definitions that will soon be released pertain to the U.S. marketplace.

Interested in joining the committee? Over the past year, we have worked to harness the collective expertise of ETA and its members through our committees to help navigate industry wide opportunities and challenges. In conjunction with ETA’s Payment Facilitator Committee, for example, we released the third edition of the ETA Payment Facilitator Guidelines to help our members mitigate risk in U.S. card acceptance. The revised document includes updates related to COVID-19, ecommerce, privacy, compliance, graduation of submerchants, and enhanced review of certain marketing practices. Participation in the ETA Payment Facilitator Committee is open to ETA Members and meets the first Friday of every month. Email Sarah Brown-Campello, Senior Manager of Industry Affairs, to join or with any questions: [email protected].

About
Nicole Meisner is a partner at Jaffe, Raitt, Heuer & Weiss, P.C.  where she co-chairs the Electronic Payments group. Her legal practice is exclusively focused on electronic payments with a particular emphasis on the acquiring side of the industry.

Tom Humphrey is the Global head of Risk & Compliance at Till Payments.  He has twenty plus years’ experience in merchant acquiring working for an Acquiring Bank, ISO, and Payment Facilitator leading underwriting, monitoring, and compliance teams with great interest in all the minutiae of the Rules!