Introduction

The purpose of this guide is to familiarize users with funds distributions logic and the way it is implemented in the gateway.

Intended Audience

This guide will be useful for administrative users that want to understand how distributions module works within the system and to choose the best distributions module that will meet the requirements basing on use cases.

Funds Distribution Overview

The purpose of this document is to familiarize users with funds distributions logic and the way it is implemented in the gateway.

Traditionally, 100% of funds that a merchant processed were deposited to the merchant with the exception of processing fees which could be deducted at the time of funding or withdrawn at a later time.



With the development of the marketplaces, it has become necessary in some instances to split the funds that are processed on behalf of a merchant into several payments that are not necessarily sent directly to the merchant.



In general, funds distribution module handles payments between a sender of a payment and one or more recipients of the payment. In addition to the merchant as recipient of the payment, recipients list may also include resellers, vendors, holding accounts.

More detailed definition of different recipients is given in terminology.
This logic simplifies the work for businesses that use convenience fee, because it allows them to automatically receive convenience fee without having to do a separate transaction or an explicit withdrawal from the merchant. They can simply rely on distribution system to direct appropriate funds to them.

Use Cases

Funds distribution logic was designed and developed based on three specific use cases. To learn how to manage these use cases within your gateway, review Managing distributions lesson.

Convenience fee handling

As an example, convenience fee handling use case may be used by a merchant that has to send a specific fixed amount from every transaction to the reseller. Additionally, it is needed to send a certain amount (for example, 3% out of every card transaction) to gateway to cover future merchant service fees.

The requirements for this use case are the following:

When payment is processed, we need to surcharge $4.99 service fee and additional 3% processing fee. At the moment of funding, $4.99 service fee has to go to a particular reseller with the software company charging its fee to provide the service, and 3% must be kept by the gateway to cover future merchant service fees.

1.1. for direct debit transactions our scenario could look as follows:
- a client pays $1,000, and additionally convenience fee of $4.99 is added to this amount. As a result, the total amount will be $1,004.99.
- at the time of funding, $4.99 is deducted and sent to the reseller, while $1,000 is sent to the merchant.

1.2. for CC transactions our scenario could look as follows:
- a client pays $1,000, 3% of $1000 and $4.99 are added to this amount as convenience fee. As a result, the total amount will be $1,034.99.
- at the time of funding, $4.99 is deducted and sent to the reseller, the rest of the convenience fee amount ($30) is moved to convenience fee balance, processing cost is deducted from it, $1,000 is sent to the merchant.

Tax management

As an example, tax management use case may be used by online store that needs to keep taxes collected in a separate bank account, and has to send a certain reserve amount to another bank account. Additionally, convenience fee amount may be sent in a sale request.

The requirements for this use case are the following:

When payment is processed, we need to surcharge 3% convenience fee and additional 8% as tax. At the moment of funding, 3% convenience fee has to go to convenience fee balance, and 8% must be sent to a separate bank account associated with taxes, and 10% of remaining net amount is moved to reserve.

In this case our scenario could look as follows:

- a client pays $1,000. $30 is added as convenience fee (3%), $80 is added as tax (8%), the total amount will be $1,110.
- at the time of funding, 100% of fees ($30) is moved to convenience fee balance (this money can later be used to cover merchant services fee), 100% of taxes ($80) is moved to a separate bank account associated with taxes, 10 % of remaining net amount ($100 out of $1000) is moved to reserve, the rest of the amount ($900) is deposited to the merchant.

Marketplace automation

The requirements for this use case are the following:

According to a preliminary agreement between a merchant and a vendor, a merchant expects to get a certain percentage (for example, 10%) from a vendor's amount. When payment is processed, the total amount includes parts of funds that will be sent to merchant and vendor(s). At the moment of funding, a certain percentage (for example 10%) of vendor’s amount is sent to merchant, the rest is sent to vendor.

In case of 3 vendors with 10% rate our scenario could look as follows:

- a customer purchases 3 items at $50 each from 3 different vendors in 1 order, the total transaction amount based on these items would be $150.
- at the time of funding, merchant gets $15 (10% of $150) in total, each vendor gets $45.

In case of 3 vendors with 10% rate our scenario could look as follows:

- a customer purchases 2 items $75 each from 2 vendors for the same total,
- at the time of funding, the merchant would still get $15 (10% of $150), but the vendors would get $67.50 each.