PayFac — The Effortless Payment Processor
The never-ending game of whack-a-mole was running them ragged!
The endless loop of compliances, fee changes, service change, security updates had them scratching their head.
Wait, who’s them?
The merchants, of course….
They were on the lookout for someone who can handle all the above for them and they can focus on their business.
And they did find that “someone” called the “Payment Facilitator aka PayFac”.
PayFac
Payment Facilitator aka PayFac is a third-party service provider that simplifies electronic payment processing for businesses. By using a master merchant account, PayFacs enable smaller businesses to quickly and easily accept payments without needing their own dedicated merchant account.
Instead of each merchant directly acquiring its own merchant account, they operate under a single Master Merchant ID (MID) issued to the PayFac. This speeds up the onboarding process, making it ideal for businesses with lower transaction volumes or those needing to start accepting payments swiftly. Common PayFac platforms include e-commerce, travel and ticketing, fundraising, retail, ridesharing, and food delivery services.
How PayFacs Works?
It functions by utilizing an acquiring bank’s license to offer payment services to sub-merchants. Their process involves three main steps:
1. Partnership Establishment: partner with acquiring banks to obtain sponsorship for processing payments.
2. Integration: integrate payment gateways to facilitate online transactions.
3. Compliance: ensure data security by obtaining PCI DSS certification and other required compliance licenses as applicable.
PayFac Responsibilities
The PayFac is primarily responsible for managing its sub-merchants and processing all transactions on their behalf which includes
- Setting up onboarding processes,
- Ensuring compliance requirements are met,
- Paying out funds on an agreed schedule.
- Underwriting and risk assessment,
- Dealing with chargebacks and disputes
How PayFac Model Differs?
The PayFac model represents a modern approach to payment processing that diverges significantly from the traditional merchant services model.
Underwriting and Onboarding:
- Traditional: Involves rigorous upfront underwriting of each merchant, often with heavy paperwork.
- PayFac: Underwriting is ongoing and often automated, evaluating merchants continuously based on transaction data. This leads to significantly faster onboarding, sometimes even in real-time.
Liability:
- Traditional: The acquiring bank assumes the primary liability for each merchant account.
- PayFac: The PayFac itself assumes the liability for underwriting and managing sub-merchant accounts.
Flexibility and Innovation:
- Traditional: Offers limited flexibility in terms of features and customization.
- PayFac: offer a wide range of value-added services to merchants, such as recurring billing, card updates, and custom branding, all within a streamlined platform.
Well, you likely understand how PayFacs aids sub-merchants!
But…the payment ecosystem is quite complex, involving multiple parties such as payment processors, payment gateways, and others.
Here’s a clearer breakdown of how Payment Processors, Payment Gateways, and PayFacs differs!
Conclusion:
Precisely, PayFac can significantly streamline operations for businesses, particularly those with numerous sub-merchants. By handling onboarding, risk management, and compliance, PayFacs allow businesses to focus on what matters most.
However, it’s important to weigh potential downsides, such as higher processing fees, dependence on the PayFac’s stability, and restrictions based on their policies. The choice to use a PayFac should be based on a careful assessment of the business’s unique needs and a thorough comparison of available options.
Happy New Year, Readers!
We’re incredibly grateful for your continuing support and engagement throughout the year and the years to come because that’s what makes our journey truly special!
