TABLE OF CONTENTS
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.
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:
- 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 processed. While this can be expensive, it is transparent.
- 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.
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
What is PayFac?
Payfac is a type of payment processing that allows businesses to accept credit and debit card payments without having to set up a merchant account. This can be a convenient option for businesses that do not want to go through the hassle of setting up a merchant account, or for businesses that do not accept credit cards as a form of payment.
What is a PayFac model?
A PayFac model is a type of payment processing model in which a merchant account provider acts as a facilitator between the merchant and the customer‘s bank. The merchant account provider typically provides the merchant with a way to accept credit and debit card payments, as well as ACH payments, and then forwards the payments to the customer‘s bank.
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. For example, the approval process for a sub-merchant in the PayFac scenario is significantly reduced. The documentation required is minimal, and a decision is reached quickly in real-time.
Industries Benefitting From PayFac Merchant Setup
Payment Facilitators heavily skew to online or e-commerce merchants. Therefore, whether a traditional business or a high-risk merchant, many find the payment solution’s speed and ease beneficial. These include:
- Travel Agencies
- Charitable Donations and Fundraising
- Online Retail Businesses
- Collection Agencies
- Document Preparation
- Online Pharma
Is a PayFac Payment Model Right for your Business?
In conclusion, should you work with a PayFac 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. Most importantly, we create 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.
High-Risk Business with Stripe, PayPal, Square, Venmo
Certain activities, or the industry you work in, may cause payment processors to characterize your merchant account as high risk. It isn’t uncommon for some businesses to process online payments and get higher-than-average returns, but your reputation and industry play an important role. Having your merchant account suspended will undoubtedly lead to revenue loss and…
Instant ACH Transfers Online
Our current era has been shaped by digitization with a fundamental impact on all sectors, including banking and finance, where it has brought unprecedented convenience, security, and efficiency. The backbone of these developments is none other than America’s Automated Clearing House (ACH) which facilitates seamless electronic transactions between banks and financial institutions within its network.…
A Comprehensive Guide to FedNow
The Federal Reserve Bank is currently developing a new instant payment service called “FedNow” that will allow financial institutions to make instant payments. The FedNow Service will begin operating in July 2023 and it is the first U.S. government-created and -backed portal that will enable financial institutions to send and receive payments in real-time 24…