What Is a PayFac (Payment Facilitator)? The Modern Payment Solution

What Is a PayFac (Payment Facilitator)?

A Payment Facilitator (PayFac) acts as a merchant services provider, enabling businesses to quickly set up electronic payment solutions. By partnering with PayFac, you can accept payments seamlessly, whether online or in person.

PayFacs simplifies the payment onboarding process by eliminating the lengthy paperwork and complicated approvals associated with traditional merchant accounts. The PayFac model streamlines processes like underwriting and payment setup, making it easy for your business to start accepting payments quickly.

Example of a Payment Facilitator

Imagine you own a retail store and want to start accepting card payments online and in-person. Partnering with a payment facilitator makes this process quick and straightforward.

Take Square as an example. Instead of going through a long and complicated process to set up a traditional merchant account, you can sign up with Square in just a few steps. Once registered, you get access to their platform, which allows you to start accepting payments quickly.

PayFacs takes care of the technical and administrative tasks, such as payment processing and compliance, so you can focus on running your business. Whether it’s a small shop or an online store, partnering with PayFac means you don’t have to worry about complicated integrations or lengthy approvals.

How Do Payment Facilitators Work?

Payment facilitators follow a streamlined process to help you start accepting payments with minimal effort. The onboarding procedure begins with a simple application that requires just 7-8 essential data points about your business.

Once you submit the application, these data points are assessed in real-time using advanced underwriting tools. This rapid evaluation determines whether your business is approved or declined. If approved, a pricing agreement is finalised, and cutting-edge payment technology is integrated into your system.

Finally, your business is onboarded as a sub-merchant under the master merchant ID owned by PayFac, and your payment gateway is activated. This efficient process allows you to start accepting payments swiftly and securely.

Features of a Payment Facilitator

1. Easy Merchant Onboarding:

Payment facilitators make onboarding quick and straightforward by reducing paperwork and automating the approval process. This allows businesses to start accepting payments without unnecessary delays or complications.

2. Aggregated Payment Processing:

Instead of setting up individual merchant accounts, PayFacs uses an aggregated model to process payments for multiple businesses under one account. This simplifies payment handling and reduces operational overhead for merchants.

3. Risk Management and Fraud Prevention:

PayFacs handles risk assessment by monitoring transactions for fraud and suspicious activities. They use advanced tools and strategies to protect your business and maintain the integrity of the payment system.

4. Seamless Payment Settlements:

Payments processed through PayFacs are settled promptly, ensuring faster access to funds. This improves cash flow and minimises delays in receiving payments for your business.

Benefits of Using a PayFac

1. Faster Onboarding for Sub-Merchants:

With PayFacs, the onboarding process for sub-merchants is efficient and quick, often completed within hours. This saves you time compared to the traditional merchant account setup, which can take weeks.

2. Simplified Payment Processes:

PayFacs integrates essential services like payment processing, gateways, and risk management into a single platform. This reduces the need for multiple providers, making payment handling more convenient for your business.

3. Cost Savings for Smaller Merchants:

Smaller businesses save money by leveraging the shared infrastructure offered by PayFacs. This eliminates the high setup costs typically associated with traditional payment systems.

4. Improved Customer Experience:

PayFacs ensures smooth and secure payment processing, which leads to faster checkouts and fewer transaction issues. This creates a better overall customer experience, building trust in your business.

Challenges and Risks of PayFacs

1. Risk Management for Sub-Merchants:

Managing risks like chargebacks or fraudulent activities for sub-merchants can be complex. This becomes even more challenging when dealing with a large number of merchants, as each requires careful monitoring to ensure secure transactions.

2. Regulatory Compliance Issues:

It must comply with various financial regulations and industry standards. Failure to meet these requirements can lead to fines or service interruptions, which may negatively affect your business operations.

3. Fraud Monitoring and Prevention:

PayFacs uses advanced systems to detect and prevent fraud, but these systems need regular updates to stay effective. Keeping up with emerging threats requires ongoing investments in technology and expertise to ensure robust security.

PayFac vs Traditional Payment Processors

Who Should Use a PayFac Solution?

A PayFac solution is ideal for businesses that manage payments for multiple small sub-merchants. Whether running a SaaS platform, an online marketplace, or a service-based business, PayFacs simplifies payment processes by consolidating them under a single master merchant ID.

If your business relies on onboarding numerous sub-merchants, PayFac can help you streamline the process with faster approvals, simplified compliance, and integrated payment technology. This makes it a valuable solution for businesses aiming to scale while maintaining efficiency in payment management.

Frequently Asked Questions (FAQs):

1. Are Payment Facilitators safe for small businesses?

Yes, Payment facilitators are safe for small businesses. They use advanced underwriting tools and compliance measures to ensure secure payment processing. By managing risks and offering fraud prevention tools, PayFacs provides a reliable way to handle online and in-person transactions.

2. What is a PayFac vs ISO?

A PayFac directly underwrites and processes payments for merchants, acting as the intermediary between the business and the payment network. An ISO (Independent Sales Organisation), however, primarily acts as a sales partner for payment processors, helping businesses secure a traditional merchant account but without offering direct processing capabilities.

3. What is a PayFac vs Payment Processor?

PayFac bundles services like underwriting, compliance, and payment technology into one platform, streamlining the onboarding process for merchants. In contrast, a payment processor focuses on facilitating the movement of funds between customer and merchant accounts, requiring businesses to manage compliance and setup separately.

4. What are the benefits of PayFac?

PayFacs offers faster onboarding, simplified compliance, and access to advanced payment technologies. They eliminate the complexities of traditional payment setups, allowing businesses to focus on operations while handling everything from underwriting to payment gateway activation.

5. Is a PayFac a payment gateway?

PayFac is not a payment gateway, but it often integrates one as part of its service. While PayFac manages onboarding and underwriting, the payment gateway ensures secure transmission of payment data between the customer and the merchant.

6. How does PayFac make money?

PayFacs generates revenue by charging a fee per transaction processed through their platform. They may also earn through additional services, such as setup fees or subscriptions, but their primary income comes from the percentage or flat fees deducted from each transaction.

7. What industries benefit the most from PayFac solutions?

Industries like SaaS platforms, online marketplaces, service providers, and subscription-based businesses benefit the most from PayFac solutions. These businesses often deal with multiple small merchants or recurring payments, making PayFacs an efficient choice for managing payment processes.