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How to Become a Payment Facilitator: PayFac Model, Features and Development

How to Become a Payment Facilitator: PayFac Model, Features and Development
Alex Malyshev
How to Become a Payment Facilitator: PayFac Model, Features and Development

There are many players involved in accepting card and mobile payments. These include payment facilitator and payment processors. Both help to enable the acceptance of payments. But what’s the difference?

This article delves into the key differences between payment facilitators and processors, and their potential impact on your payment processing strategy.

What is a payment facilitator?

A payment facilitator, also known as a PayFac, is a system that enables businesses to accept electronic payments from their customers. It acts as an intermediary between the merchant and the payment processor, streamlining the payment process and providing a seamless experience for both parties. 

Instead of each individual business or merchant setting up its own merchant account with a payment processor, a payment facilitator aggregates multiple merchants under its own master merchant account.

The PayFac model was created to enable companies specializing in payments to reduce the complexity of entering the online payments space and offer services to a broader range of businesses, allowing them to focus on their core competencies.

When it comes to merchant account providers, there are two options:

  • An Independent Sales Organization (ISO)
  • A Payment Service Provider (PSP), also known as a Payment Facilitator (PayFac)

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What’s the difference between an Independent Sales Organization (ISO) and a Payment Service Provider (PSP)?

Both of them can help you with payment processing equipment and services. However, the main difference between the two is that with an ISO, you will get your own merchant account, whereas with a payment facilitator, you won’t have your own merchant account provider.

How does a payment facilitator work?

See a short breakdown of the process: : 

1. Merchants register with a payment facilitator by providing basic information like their company name, tax ID number, and banking information. 

2. The payment facilitator assesses the merchant’s risk to ensure they meet the requirements for processing digital payments. They investigate the merchant’s legitimacy, as well as past financial transactions, and look for any signs of fraudulent activity. 

3. Once approved, the merchant can start accepting payments using the payment facilitator’s platform. The facilitator collects transactions from multiple merchants and deposits them into a single account. 

4. After deducting their monthly fee and any other costs, the payment facilitator transfers the remaining funds to the merchant’s account.

How to Become a Payment Facilitator: PayFac Model, Features and Development

Source: PayPro

Payment facilitator vs payment processor: what is the difference?

A payment facilitator is a service that combines multiple businesses under a single master account. This simplifies the onboarding process and integration for businesses. PayFacs also assume some risk, manage and process transactions themselves, and charge sub-merchants based on a percentage of the transaction volume.

A payment processor, on the other hand,  requires each business to create its own merchant account. Payment processors provide technological infrastructure like systems and frameworks to businesses for accepting payments and offer a direct connection to consumers.

FeaturesPayment processorPayment facilitator
Merchant accountsEach merchant has its own account.Stores multiple merchants under a single master account.
Onboarding processIndividual merchants go through a more complex and time-consuming onboarding process.Streamlines onboarding, making it quicker and simpler for sub-merchants.
Risk managementIndividual merchants are primarily responsible for managing their own risk.Assumes a role in risk management, often conducting underwriting for sub-merchants.
IntegrationProvides infrastructure and connectivity for businesses to accept payments.Offers easy integration with APIs and SDKs, allowing seamless embedding of payment processing.
Business modelGenerates revenue through transaction fees and charges for processing payments.Charges sub-merchants a fee based on a percentage of transaction volume.
Example companiesWorldpay, AdyenSquare, Stripe, PayPal (as a payment facilitator in certain scenarios)

Summing up, a payment facilitator enables companies to concentrate on delivering an exceptional user experience to their customers, with integrated payments being only a part of it. 

On the other hand, payment processors focus on establishing a direct connection between a business and its consumers, enabling them to start receiving payments quickly and easily.

The must-have features of a payment facilitator 

A payment facilitator, or PayFac, is an important tool that enables sub-merchants to smoothly accept credit card payments online. PayFacs undertake multiple essential functions to enhance the overall payment processing experience, including:

Underwriting and onboarding

Underwriting involves analyzing a merchant’s credit history and financial records to ensure that a business has the necessary resources to fulfill its obligations to customers. This process can be slow and requires many steps.

Payment facilitators significantly streamline the underwriting, which helps expedite onboarding. This efficiency allows merchants to start operations quickly, reducing the typical delays associated with traditional onboarding procedures.

Transaction monitoring

PayFacs play a crucial role in safeguarding the payment system’s integrity through transaction monitoring. By controlling and detecting any signs of suspicious, fraudulent, or anomalous activities, these systems ensure a secure payment environment.

Sub-merchant funding

PayFac models differ from traditional ones in that they play a crucial role in enabling smooth financial transactions for their sub-merchants. They ensure timely funding, actively participate in revenue sharing, and foster closer relationships within the payment ecosystem. 

This hands-on approach enhances financial control and operational efficiency, making sub-merchant funding a key element of the PayFac model.

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Chargeback management

Working alongside acquiring banks, payment facilitators serve as intermediaries in the chargeback process. This software assists merchants by submitting necessary documentation during chargeback disputes. They facilitate the transfer of funds back to the cardholder, ensuring a smoother resolution process.

In summary, payment facilitators are more than just transaction facilitators. They also can accelerate onboarding, enhance transaction security, and manage chargebacks. 

How to become a payment facilitator?

  1. Register your business with card associations

Begin by registering your business as a payment facilitator with card associations like Visa and MasterCard through your respective acquirer. Be prepared for an annual registration fee, typically around $5,000 per year.

  1. Establish partnerships with an acquirer bank

Building strong partnerships and relationships with payment processors and acquiring banks is crucial for the success of a payment facilitator. The crucial aspect of this partnership is your transaction processing terms and costs/fees. 

  1. Ensure legal and regulatory compliance

Payment facilitator has to comply with KYC regulations by implementing robust customer identification procedures to prevent fraud and money laundering. PayFac also needs to establish AML protocols to detect and report suspicious activities, adhering to global AML standards.

  1. Create a strategic pricing approach

Your pricing strategy should be aligned with your transaction volumes. There are various pricing models, such as:

  • Mark up payment costs

You can set your pricing by adding a markup to the per-payment processing costs. This approach works well for attracting a broad user base without imposing overly burdensome fees.

  • Tiered plans 

Another option is to incorporate payments into various pricing plans, each tailored to different customer needs. These plans may include flat fees alongside marked-up per-payment costs. You can also offer additional payments-related services, such as chargeback protection, to add value.

  • Revenue share

You can enter into a revenue-sharing agreement with your PayFac to establish a mutually beneficial partnership. This collaborative approach aligns interests and can be an attractive proposition for both parties.

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  1. Implement security measures 

Prioritize the implementation of robust security measures, ensuring compliance with PCI DSS standards to safeguard sensitive financial information. This involves implementing and maintaining secure systems and processes to safeguard sensitive cardholder data throughout payment transactions.

  1. Build technological infrastructure

When creating a payment facilitator, the development approach you choose can significantly impact the efficiency of your product’s technological infrastructure. There are two ways to build your payment solution: creating software from scratch or using ready-made software like FinTech Platform.

In-house software development

Building your financial software from scratch gives you complete control over features, scalability, and updates. This approach allows you to align with your unique requirements and business model, but it also demands substantial resources in terms of time, manpower, and financial investments. 

You must be ready to hire a technical team and long-term development of the FinTech architecture of your solution, which can take from several months to years.

Using a ready-made software

Ready-made solutions significantly reduce development time, providing a quicker market entry. Despite limitations in terms of customization, pre-developed solutions are more cost-effective than building from scratch, especially when factoring in development and maintenance expenses. solution as a shortcut to becoming a PayFac

With payment acceptance software you can become a payment facilitator  faster and launch your payment services without having to build your solution from scratch. Our pre-developed FinTech Platform serves as a flexible foundation for building any PayTech products, accelerating time-to-market.

The solution offers a streamlined payment acceptance process, providing maximum flexibility to customize the payment transaction flow. This solution enables merchants to offer frictionless transaction processing, both in-store and through a secure payment gateway for online transactions. 

Explore the key features of software:

  • transaction initiation
  • payment acceptance
  • regular payouts
  • receipts generation
  • refunds initiation
  • merchant’s digital wallet 

Additionally, it supports an unlimited number of currencies and allows merchants to accept various payment types, including card payments, digital wallet transactions, bank debit card payments, and more.

Wrapping up

Payment facilitators help businesses to simplify payment processing, and provide services to a wider range of clients more efficiently. They underwrite and onboard the sub-merchants and allow them to process electronic payments and seamlessly receive the funds.

To become a payment facilitator you have to ensure legal and regulatory compliance, create a strategic pricing approach, and build your payment infrastructure. 

To accelerate your product launch you can use a pre-developed Platform like the one by and this way, monetize your solution faster.

How to Become a Payment Facilitator: PayFac Model, Features and Development


What is a payment facilitator?

A payment facilitator, also known as a PayFac, is a software that enables businesses to accept electronic payments from their customers.

It acts as an intermediary between the merchant and the payment processor, streamlining the payment process and providing a seamless experience for both parties.

What is the difference between a payment facilitator and payment processor?

A payment facilitator aggregates multiple merchants under its master account, streamlining onboarding and simplifying integration. In contrast, a payment processor requires each business to have its own merchant account, offering a direct connection to consumers.

What are the key functionalities of a payment facilitator?

Payment facilitators undertake crucial functions, including streamlined underwriting and onboarding, transaction monitoring for security, active involvement in sub-merchant funding, and chargeback management to facilitate smoother dispute resolution.

How does a payment facilitator work?

The payment facilitator is a company that offers the necessary infrastructure for sub-merchants to start accepting credit card payments.

They assess and approve the sub-merchants and then provide them with the required technology for processing electronic payments and receiving funds from those payments.

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