payment facilitator

What is a Payment Facilitator? Everything You Need to Know about Payfacs

Payment processing is a vast and growing industry that has evolved with technology. Integrated payments segments like the payment facilitator space are rapidly gaining share.

The Role of Payment Facilitator in the Merchant Services Business

As technological advances proliferate, businesses are compelled to change how they operate to improve the buying experience of customers. From online shopping to bill payments, payment processing has radically progressed. 

Technology has made it possible to complete purchase and payment transactions in seconds through digital cards and smartphones. The integration of software and payments paved the way for new trends such as EMV, contactless and mobile payments, resulting in enhanced customer experience. 

Payment facilitators are emerging as one of the technological innovations that can significantly transform the merchant services business; their future is promising. This article illustrates how adapting the payfac model can boost merchant services.

What is a Payment Facilitator?

A payment facilitator or payfac is a service provider that affords small and medium-sized merchants the means to process debit or credit card payments more quickly, efficiently, and securely, allowing them more room to focus on their core business objectives.

Payment Facilitators offer merchants a wide range of sophisticated online platforms, making online payment acceptance considerably more manageable. Platforms like E-commerce, invoicing, fundraising, booking, travel, ticketing, etc., streamline the payment process, enabling merchants to provide more efficient customer service and differentiate their products and services from the competition.

These platforms do not require merchants to connect to a payment gateway or an acquiring bank. Using the payfac’s bank-sponsored master ID (MID), merchants can enroll in sub-merchant accounts to accept payments without the usual complexity of setting up a merchant account. 

Primary Roles of Payment Facilitator

Payment Facilitators perform four primary roles:

  • Underwriting & Onboarding

Payment facilitators eliminate the laborious underwriting and onboarding process and get merchants up and running in minutes– not days or weeks as traditional processing entails. They regularly perform underwriting simultaneously with processing merchants’ transactions.

Payfacs are vulnerable to serious risks and financial responsibility by having sub-merchants use their single MID to transact payments. Due diligence is critical to their operations, thus installing an infrastructure that accurately assesses sub-merchants and adequately monitors KYC (Know-Your-Customers) practices.

  • Transaction Monitoring

Control is vital to payment facilitation; monitoring is essential to control. Payment Facilitators established policies and procedures to manage suspicious transactions and take corrective actions. A payfac uses software to detect, track and record any abnormal activity for further assessment within the rules.

  • Chargeback Management

A chargeback occurs when consumers dispute a charge on their account and request refunds from their issuing bank. 

The chargeback process requires reversing a completed transaction, involving the Payment Facilitator and the acquiring bank. The payfac obtains supporting documents from the merchant and submits them to the acquiring bank to initiate the chargeback. Upon reviewing the documents, the acquiring bank proceeds to transfer the fund to the cardholder’s bank.

The chargeback cost is the merchant’s responsibility, but if the acquiring bank fails to recover it from the merchant, it incurs losses. Payment Facilitators have an infrastructure for managing chargebacks and addressing potential losses.

  • Merchant Funding

When sub-merchants are paid promptly, they are empowered to enhance their products and services. Payfacs strive to improve the funding process to help sub-merchants operate with less financial strain. 

Anyone who wants to be a Payment Facilitator must be prepared to take on the risk and compliance requirements that accompany merchant funding, like government, bank, and card brand regulations. Payfacs have a risk management system to address credit, money laundering, and other fraudulent issues. 

How Does the Payfac Model Work?

Payment facilitators set up and manage the systems and relationships in the payment ecosystem. They provide merchants with processing, funds settlement, and billing services.

Payment facilitators maintain a master merchant account with an acquiring bank to accept payments – especially credit card payments, collect fees, manage charges, and other levies.

Merchants need not undergo the complex application process of the conventional model. To obtain a sub-merchant account from a payfac, they enter a few key data points evaluated by an underwriting tool for real-time approval. 

Key Players in the Payment Facilitator Ecosystem

  • Payment Facilitators

The payment facilitator provides merchants with the infrastructure for the seamless end-to-end processing of credit card payments. The payfac is responsible for underwriting and onboarding merchants, transaction monitoring, managing chargebacks, and merchant funding. 

  • Sub-merchant

Merchants undergo a series of evaluations before they are onboarded as sub-merchants to transact under a payfac’s MID. There are two types of sub-merchants: physical storefronts accepting point-of-sale credit card transactions and online businesses accepting credit card payments electronically.

  • Acquiring Banks

The Acquiring Bank or acquirer, licensed by the card networks, enables payment facilitators to create an MID and provide their services to merchants. The acquirer underwrites a payfac before entering into an agreement with them to ensure they can operate efficiently. 

The bank sponsors the payment gateway provided by payment facilitators, which has an automated underwriting tool to prevent fraud and cut approval time.

The acquiring bank regularly monitors payment facilitators’ compliance with rules, including underwriting and onboarding sub-merchants. It also receives data and money from the card networks to pass on to the payment facilitator. 

The acquirer is liable for all processed transactions through its payfac customers, thus enforcing the most stringent requirements for compliance.

  • Payment Processors

The payment processor handles the processing and settlement of transactions commenced by the sub-merchants. The processor receives the initial authorization request to process credit card transactions and sends it to the corresponding card network for approval. They settle funds used in transactions daily.

The payfac and payment processor functions are integrated to ensure efficiency and proper routing of transactions. 

  • Sponsors

“Sponsor” refers to the combined functions of the processor and the acquirer. A sponsor is responsible for underwriting and approving the inclusion of a business in the sponsor’s payments technology stack to become a Payment Facilitator.


The challenges of growth in this digital age urge software companies to add payments to their core business, opening opportunities for better payment ecosystems. Payment acceptance is seeing an enormous shift toward technology. Online businesses are starting to realize the benefits of having a secure system for accepting payments – particularly credit card payments. 

The payment facilitator is one of the best systems, promising enhanced revenue streams and better customer experience management. 

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