If you’re looking to accept credit and debit payments from one client on behalf of another client, you’ll need specialty credit card processing.
Called “platform” or “marketplace” payment processing, this special type of merchant account enables you to securely accept payments when you run a marketplace instead of a direct-to-consumer business. In this article, we’ll take a look at a few major players: Wepay, Stripe Connect, and Heartland for Platforms.
This article assumes that you already have a basic familiarity with credit card processing. If you’re totally new to taking cards, start with our explanation of merchant accounts or our guide to credit card processing.
- What is platform payment processing?
- What type of businesses use platform processing?
- Stripe Connect
- Heartland for Platforms
- Are there alternatives to using a platform payment processor?
- PayFacs / PSPs
- Choosing a Platform Solution
What is Platform Payment Processing?
Platform-style payment processing, also sometimes called marketplace payment processing, is a specialty subset of payment processing. Instead of your business selling directly to a consumer, you connect a buyer and a seller, taking a cut of the sale for providing that lead to the seller.
Essentially, your business acts as an intermediary between two or more other parties. (Think Etsy.)
Since this isn’t the standard buyer/seller merchant account, you have to choose a processor that specifically enables this type of selling.
What type of businesses use platform processing?
Software-as-a-Service (SaaS) and fundraising companies are among the most common users of platform processing. Others include physical goods marketplaces (where sellers offer items through a third-party marketplace) and services marketplaces (where sellers offer services through a third-party marketplace.)
In some cases, the marketplace “vets” the sellers for the buyer, providing further value to justify their fees.
As the payment processor behind GoFundMe, Wepay has a long history of processing for platforms. The company was purchased by Chase in 2017, but still maintains its core function of platform style processing solutions.
Wepay offers a choice of different integrations, with some requiring your client to sign up with Wepay / Chase and others keeping the entire signup process within your platform. Additionally, some of the “lower integration” packages also mean that Chase handles compliance issues and funding clients. At the more involved integration levels, compliance would fall to you and you will be responsible for client funding.
The most basic option (called “Link”) is more of a simple referral. You send clients to Chase to complete their signup process. While this option is the simplest, you’ll also have the least control and the least amount of direct involvement.
The white-label option (called “Clear”) lets you control most aspects of the client relationship while Chase / Wepay handle compliance. You’ll be able to set the pricing for card acceptance for your clients, and you won’t need to direct them to Chase for payment processing. You can build your own checkout form or customize Wepay’s iFrame.
The last option (called “Core”) essentially requires becoming a payment facilitator. This level of involvement is the most time-consuming and expensive. For better or worse, you control every aspect of the payment process, from compliance and onboarding to client payouts. I’ll address the pros and cons of becoming a payment facilitator later in this article.
Free Trials and Customer Opinions
It’s easy to test WePay, since a free version is available for a trial period. It can be integrated with a host of applications, including Apple Pay and Android Pay for the Web and mobile POS systems. It can also be integrated with Zoho CRM, FreshBooks, and the online fundraising platform Classy.
Customer reviews have been mostly positive. The platform has been singled out for the ease of setting up an account, its low cost fees and the capability to make recurring payments. Email alerts or Instant Payment Notifications (IPNs) are sent when a customer makes a payment and also when the funds are transferred to the bank. Other popular features are the automated recurring billing and the ease of billing clients. Funds transferred to a bank account typically appear the next business day. Moreover, the amounts are automatically posted to the business’ accounting system.
Wepay only publishes costs for the Link referral program, as that’s the only one for which they set the final cost. If you use the Link plan, your clients will pay 2.95% + 25 cents per transaction.
For the Clear and Core plans, Wepay will provide you with base buy rates and you will set the pricing for customers.
Stripe Connect is the platform solution available from popular payment processing company Stripe.
The company offers a selection of pre-made UI components that allow businesses to launch faster and simplify operations. Areas open to customization include setting up new accounts, setting payout times (number of business days), money transfers, and creating reports. Stripe Connect is now operational in 34 countries.
Stripe Connect claims its routing and payout engine makes it easy to send money to recipients, regardless of business model. Connect automatically tracks balances, batches earnings into payouts, times transfers with local cutoffs, and will even retry failed transfers. The system also incorporates advanced funds flows like account debits and one-to-many payments. With Stripe Connect, payout timing for platform users can be specified. Options include “Instant Payouts”, which allows users to receive funds within minutes for an additional fee.
Stripe lists different payment scenarios on its website. “One-to-One” is the typical buyer-seller scenario, which doesn’t apply for platform payments. “One-to-Many” is where a payment on a platform is split between sellers. “Many-to-Many” payments means multiple buyers and multiple sellers. For example, that could be a subscription service that acts as an intermediary between providers and subscribers.
Stripe Connect manages payments compliance issues such as card network rules, money transmission, Know Your Customer verification, and tax reporting, e.g. 1099 support. The system employs secure credit card data tokenization to help your business meet its PCI obligations. And Stripe’s money transmission licenses in the U.S. and Europe make international funds transfers as easy as domestic ones.
The main Stripe platform gets a lot of praise from developers for its comprehensive documentation, and that’s the case for Stripe Connect as well. However, it’s a little difficult to find reviews specifically separating Stripe Connect from the main Stripe solution. If you’ve used Stripe Connect, let us know what you think in the comments!
Stripe Connect charges you $2 per active account per month plus 0.25% of volume. (Meaning funds sent to an account by your platform.) ACH payouts cost 25 cents per payout.
These costs cover your Connect services, including onboarding and customer verification, 1099 tax reporting, platform reporting tools, and more.
Heartland for Platforms
It takes a little more digging to find information on Heartland for Platforms, but you’ll be glad you did.
That’s because Heartland’s platform solution offers the best of both worlds (customization capabilities and offloading compliance to Heartland) while providing transparent interchange-plus pricing.
Heartland offers APIs in multiple programming languages, making it easy to integrate quickly. Additionally, the company offers a simplified process for sub-merchant onboarding, meaning you can spend less time on the hassles of setup and more time building your business.
Heartland offers encryption and tokenization for security and works with you at every step of the way.
If it was hard to find Stripe Connect reviews, it’s impossible to find Heartland for Platforms reviews. Don’t get me wrong, there are plenty of general Heartland reviews, many of which praise the company for transparency and good pricing for merchant accounts. However, those reviews don’t single out Heartland for Platforms, making it difficult to determine if customers have specific likes or dislikes about the marketplace processing solution. Do you have any insight? If you use Heartland for Platforms, we’d love to hear from you! Leave a note in the comments at the end of this article!
Because Heartland uses interchange plus pricing, the costs will be specific to your business. As such, Heartland doesn’t publish pricing or starting costs. Not to worry! You can see real rates without sitting through sales calls by using CardFellow’s private rate request tool. Simply fill out some information about your business (we won’t share your contact info!) to see instant quotes.
Are there alternatives to using a platform payment processor?
Yes, but not ones I’d usually suggest. The alternative is to become a payment facilitator (payfac), also sometimes called a payment services provider (PSP.)
PayFacs / PSPs
Technically, PayFac is a Mastercard term and PSP is a Visa term, so both can apply to one business. In practice, you’ll usually only see one term used for one company.
A payment facilitator or payment service provider is a specific type of company that offers merchant services to other companies. Essentially, a payfac provides processing capabilities to “sub merchants” under its own merchant account rather than opening a merchant account for every seller.
For example, let’s say that you run a software company. As part of your software offerings, you want to provide clients with the ability to accept credit cards from their clients. In the PayFac model, you would set up your client as a “sub-merchant” in order to allow them to process payments.
In taking that role, you’re responsible for all aspects of that client’s “merchant account.” Funds from your sub-merchants will go to you, and it’s your responsibility to disburse those funds appropriately. You’re also responsible for dealing with chargebacks and fraud, PCI compliance, following money transmission procedures, and everything else.
Pros to Becoming a PayFac
While there are pros to becoming a payfac, they’re somewhat limited.
Pros to becoming a payfac:
- Seamless onboarding for your clients
- More control over rates for credit card processing
If you become a payfac yourself you can seamlessly onboard your clients for payment processing. However, it’s not a huge selling point when you realize that onboarding through a platform solution isn’t much more complicated.
Another “pro” is that you have more control over the rates for credit card processing. However, you’ll still need to set pricing high enough to cover your costs, so this isn’t likely to offer a great savings to your clients.
Cons to Becoming a PayFac
There are numerous drawbacks to becoming a payfac as part of a SaaS or other business offering. Expense, compliance requirements, and the staff needed to properly undertake the payfac role can all be overwhelming.
Drawbacks to becoming a payfac:
- Compliance and regulations
- Integration time
- Extra staff or dividing current staff time
A key component is the “Know Your Customer” (KYC) regulation, which requires you to verify specific information about a customer in order to prevent money laundering and other illegal and fraudulent activities. Failing to properly follow KYC protocols can lead to fines and other headaches.
The industry source Pymnts.com published an article heavily citing Wepay co-founder Richard Aberman as he lists a multitude of negatives to becoming a payfac. Of course, he has a vested interest in not encouraging competition to Wepay, so his commentary shouldn’t be taken as gospel truth. However, he does bring up some valid points about the costs and time requirements of running a payfac. It’s not unusual for compliance and implementation costs to run upwards of 6 figures.
In my opinion, the biggest reason to skip the payfac process is that it’s usually not worth the time and expensive if that’s not your primary business objective. The payfac route might be a great option for businesses that want to get involved in payment processing as a core service. But if you’re a software company focusing on developing your software or if you’re a marketplace working on building up your userbase on both sides of the buying equation, the last thing you want to do is split resources and start diverting more time to a component that may be better outsourced.
Choosing a Platform Solution
If you’ve decided to move forward with a platform solution, your next step is narrowing down your choices. In this article, we covered three of the most popular options: Wepay, Stripe Connect, and Heartland for Platforms.
Each solution does the same basic thing, but it’s a good idea to talk directly with the companies to ensure that they integrate with your systems and can do anything special that you might require.
Another consideration is cost.
Both Wepay and Stripe Connect operate on a flat rate pricing model, meaning that on basic models, they set one fee for all businesses. Currently, the flat fee is set at 2.9% + 30 cents per transaction. If you opt for a more advanced plan, you’ll receive custom rates and can set the pricing for your clients from there.
Heartland Payment Systems typically prices on a more transparent interchange plus pricing model instead of flat rate. While it may look more complex, interchange plus provides greater opportunity for lower processing costs.
Read more about interchange plus pricing.
If you’d like to see what it would cost your business to use Heartland for Platforms, you can use CardFellow’s price comparison tool to see actual rates. It’s free and there’s no obligation. Try it now!