PayFac – most of us have heard the term, but how many know the ins and outs of its’ meaning? For starters, the abbreviation stands for Payment Facilitator. The technology behind PayFacs and the innovation they offer the payments space cements them as a merchant product that is here to stay.  Let’s take a look at the basics of what it means to be a Payment Facilitator.

Defining PayFac

In short, the design of PayFacs makes merchant services seamless. With one, there is no need for a merchant to establish a traditional merchant account. Payment facilitators own a master merchant account and offer to board merchants underneath their main account. In this setup, a sub-merchant no longer needs its own MID.

Square and Stripe might be two mega-entities you think of that operate in the fashion, and you are spot-on with that train of thought. This setup is effective and efficient. A company wishing to process electronic payments is no longer required to go through traditional underwriting screenings and risk assessments. A PayFac is already sponsored by an acquiring bank and authorized to board merchants underneath them.

Sounds sublime, right? While there are many benefits to utilizing a Payment Facilitator, we also want to make you aware of the most significant shortcomings they face:

  1. Flat-Rate Pricing – As a PayFac is a shared merchant account, it can be challenging to offer varying rates for each sub-merchant. Typically they offer one fixed and constant transaction rate, no matter what type of payment is being processed. While this can be expensive, it is transparent.
  2. Volume Limitations – Be aware that card brands have put annual volume caps on how much a sub-merchant can process under a Payment Facilitator. For example, Visa and MasterCard cap this at $1,000,000 – sub-merchants processing over that annually must obtain their own distinct MID.

PayFac Responsibilities

It’s easy to see how a PayFac merchant model simplifies the payment process. But what are they responsible for? It’s essential to know the nuances of the particular PayFac you will be working with, but generally speaking, they should provide:

  • PCI Compliance
  • Manage Onboarding and Ongoing Processes
  • Mitigating High-Risk Sub-Merchant Activity
  • Meeting KYC, OFAC, and AML Regulatory Compliance
  • Deposits Funds to Sub-Merchant

Getting Approved for a PayFac Account

Many high-risk businesses are quickly drawn to the PayFac payment model. This is due to acquiring banks’ stringent guidelines for boarding a company in a risky vertical. While the approval process for a sub-merchant in the PayFac scenario is significantly reduced, expect to provide business basics to the PayFac. These data points are reviewed instantaneously, and a decision is reached in realtime.

Industries Benefitting From PayFac Merchant Setup

Payment Facilitators heavily skew to online or e-commerce merchants. Whether a traditional business or a high-risk merchant, many find the speed and ease of the payment solution beneficial. These include:

  • Travel Agencies
  • Charitable Donations and Fundraising
  • Online Retail Businesses
  • Collection Agencies
  • Delivery Services
  • Online Pharma

Is a PayFac Payment Model Right for your Business? 

The question is more complicated than a simple yes or no. While there are numerous benefits to a PayFac merchant setup, there are equally as many costs and risks to consider. Many businesses lean toward a Payment Facilitator setup as they do not believe they will qualify or be approved for their own standalone merchant account.

At Payment Savvy, we’ve provided high-risk merchants in numerous industries across the country with reliable, compliant, and innovative payment solutions. Whether a startup business or well-established in your field, our multiple banking relationships gives us the ability to place you where your chances for approval are the greatest. All while creating a perfect payment product for your needs. As we celebrate our 10th anniversary, we invite you to learn more about our offerings and become a valued client for the years ahead.