Key Takeaways

• Payment facilitators (payfacs) simplify electronic payment acceptance for businesses, streamlining onboarding and integrating secure payment gateways with merchant accounts.
• Payfacs protect businesses from the burden of regulatory compliance, risk, and data security by managing regulatory compliance and fraud detection.
• Managed payfacs provide great scalability, flexibility, and technology, allowing businesses to scale faster and providing the development tools for a superior user experience.
• Knowing your payfac fee structures and what hidden costs may be lurking underneath their surface is key to making an informed decision and steering clear of financial surprises.
• Choose the payfac partner that works for you by focusing on fast and easy onboarding and extensive payment acceptance. Make sure they have strong security and will process international transactions!
• Payfacs provide added value beyond payment processing, including support for multiple payment methods, enhanced customer experiences, and improved revenue flow for U.S. businesses.

A payfac, or payment accelerator, is a form of service provider. It provides a way for small businesses to accept credit card and digital payments without needing to establish their own separate merchant accounts.

As one example, in the United States, payfacs serve as intermediaries between merchants and payment processors. They take care of payment compliance issues, daily risk checks, and settlement so business owners don’t have to, which is an incredible time save.

With transparent pricing and quick onboarding, most payfacs open the door to payment tools and merchant dashboards that allow merchants of all types to begin accepting payments immediately. Consumer-facing brands that you’re probably familiar with like Stripe, Square and PayPal operate using the payfac model.

To select the ideal payfac, it’s useful to understand how their features, fees, and support align with your business requirements. Our central feature is all about how payfacs operate and what to look out for.

What Exactly Is A PayFac?

A Payment facilitator, or PayFac, serves as a conduit between the businesses they work with and the payment networks that transfer funds electronically. A PayFac enables thousands of these smaller merchants to be onboarded under one parent account. This removes the burden of having a separate merchant account for each individual business.

This simplifies the process of accepting payments, reduces the time needed to get set up, and helps organizations maintain operations with less red tape. PayFacs take care of a lot of the leg work. They handle compliance with card network rules, protect the security of transactions, and ensure that everything complies with U.S. Laws regarding security and privacy.

1. The Core PayFac Function

A PayFac combines the two services—payment gateways and merchant accounts—into one convenient package. Whether a merchant is taking payments online or in-store, the PayFac is helping to ensure that everything runs smoothly behind the scenes.

They manage card network regulations, take on risk such as fraud or chargebacks, and stay abreast of compliance such as PCI-DSS. This alleviates a considerable burden of stress from merchants. With their own single master merchant account, PayFacs are able to process payments for thousands of businesses simultaneously.

2. Streamlined Merchant Onboarding

With a PayFac, onboarding takes place in minutes, not weeks. Merchants provide minimal information and are approved in hours or days versus weeks.

Cut out the time-consuming process of establishing a separate merchant account. No more waiting for a bank approval to process payments! This allows the little guy, whether that’s a small business or a new startup, to begin accepting payments almost immediately.

3. How PayFacs Process Payments

PayFacs employ advanced payment gateways to ensure the secure flow of funds. When a consumer makes a payment, the PayFac automatically routes the transaction, performs fraud checks, and deposits funds into the appropriate merchant’s account.

They allow businesses to accept credit cards, debit cards – and in some cases, even digital wallets.

4. Understanding Sub-Merchant Models

Sub-merchants are any business that is connected underneath the PayFac’s primary account. This arrangement is excellent for the long tail of small businesses who crave accessible payment solutions without major upfront investments.

The PayFac handles the risk requirements checks and maintenance of accounts in accordance with regulations.

5. PayFacs: More Than Middlemen

Payment facilitators, as essential payment service providers, offer a suite of additional services, including fraud detection and chargeback processing, significantly enhancing the customer experience through quicker and more secure online payments.

Managed PayFacs: SaaS Superpowers

Managed payfacs provide a perfect solution for SaaS businesses. They create pathways for other companies to control payments without the massive lift of becoming a full payfac.

In contrast to traditional payfacs which demand substantial investment and technical prowess, managed payfacs offer plug-and-play infrastructure, backing, and regulatory adherence. It allows SaaS companies to accept payments, automate invoicing and take care of recurring billing—without taking their eyes off the ball of running their core business.

Your costs are suddenly a lot more predictable! Transaction fees typically range from 0.50% to 1%, as opposed to the need for a million-dollar spend on legacy implementations.

A Managed PayFac is purpose-built to scale. For startups and growing firms, managed PayFacs can have new merchants up and running the same day.

Operations remain efficient even as businesses grow, powered by automated invoice creation, customizable workflows, and flexible integration support. You’ll be happier with less manual work and compliance-related headaches. The provider handles KYC vetting, data protection and maintenance of regulatory obligations in perpetuity.

Boost Seamless User Experience

Managed payfacs provide intuitive dashboards that help create seamless payment flows that are simple for your staff and customers to navigate. Customized branded payment screens, automatic payment reminders, and clear transaction tracking help create a better experience at every touchpoint.

For the end users of SaaS services, this results in easier renewals, less payment failure, and an overall better experience.

Accelerate Your Revenue Flow

Automated billing, streamlined onboarding, and rapid settlement keep cash flowing for businesses and reduce payment lag times, enhancing the customer experience. Monetization opportunities, such as offering customized payment plans or payfac solutions, create additional revenue streams for SaaS providers.

Slash Compliance Burdens

We absorb PCI and other regulatory burdens, allowing businesses to focus on their core activities with a lower burden of risk and compliance. Our payment facilitation service ensures that continuous updates and best practices are always followed, regardless of when regulations shift.

Scale Your Business Faster

Managed payfacs evolve with your business scale, handling increased transaction volumes and entry into new markets seamlessly with no technology overhaul required.

Processing payments allows organizations to focus their time and money on core projects.

The Managed PayFac Advantage

Managed payfacs provide exceptional speed and savings, offering access to advanced payment processing services that equip SaaS companies with a tangible advantage in a hyper-competitive payments ecosystem.

PayFacs Vs. Other Payment Models

The payment environment in the U.S. Is highly fragmented with many options, each with its strengths and weaknesses. Enter payment facilitators—often called PayFacs—who are uniquely positioned to provide merchants with an expedited onramp to card acceptance.

How does this model compare to the traditional players? Here’s a brief overview of how PayFacs stack up against processors, ISOs, payment gateways, and aggregators.

PayFac Or Payment Processor?

Feature	PayFac	Payment Processor
Merchant Account	Shared (sub-merchant model)	Dedicated for each
Onboarding Speed	Hours	Days to weeks
Risk/Compliance	Handled by PayFac	Handled by merchant
Extra Services	Often bundled (e.g., billing, fraud)	Usually add-ons

PayFacs provide merchants with a faster onboarding experience, taking advantage of the PayFac’s aggregated account structure. Because processors still need their merchants to open their own account, it’s a much longer onboarding process.

PayFacs take on the risk and compliance burdens for their sub-merchants, a boon to small businesses. On top of that, they tend to include services such as chargeback assistance or recurring billing—services that processors might make you pay more for.

PayFac Or ISO Distinction?

Feature	PayFac	ISO
Merchant Account	No individual account	Individual account
Onboarding	Fast, digital	Slow, manual
Risk/Compliance	PayFac handles	Merchant handles

ISOs sell as a sales agent of the acquirer, for each merchant creating a custom account. On the upside, there is more control, but on the downside, it requires more paperwork and takes longer to set up.

PayFacs make things faster and take on the risk, but merchants cede more control over operations.

PayFac Or Payment Gateway?

Feature	PayFac	Payment Gateway
Merchant Account	Shared	None
Risk/Compliance	Managed by PayFac	Not managed
Integration	Full-stack, end-to-end	Pass-through only

Gateways only transport payment information to payment processors, while payment facilitation offers businesses a complete system to get set up and paid quickly, creating a simple path for online businesses to enter the market—all in one place.

PayFac Or Payment Aggregator?

Feature	PayFac	Aggregator
Merchant Account	Sub-merchant	Master account
Services	Full suite	Basic collection
Scale	Small-to-medium businesses	Micro-businesses

For a lot of these very small merchants, aggregators and payment facilitation solutions are a great way to get merchants paid fast. By comparison, PayFacs offer robust features and compliance support to help shops flourish.

Overcoming Key PayFac Hurdles

Payment Facilitators, or PayFacs, are at the center of today’s payment ecosystem, facing significant hurdles in the payment facilitation landscape. The need to balance speedy merchant onboarding with stringent compliance regulations creates an ongoing push and pull. The market is looking for rapid take rates in the payments industry.

The expenses and regulations associated with PCI compliance, merchant management, and underwriting can frequently soar into the high-six-figures. Add in long-term maintenance — with annual costs often exceeding $800,000 annually — and the bill climbs even higher. PayFacs are subject to oversight from their banks, the card networks, and regulators, making it essential for payment processing services to be robust.

That means their systems cannot afford to have holes in them, especially as they navigate the complexities of merchant acceptance and compliance requirements.

Master Risk And Fraud Effectively

Risk and fraud are issues that should be constantly in focus for PayFacs. This is because each new merchant brings with them new risks. Automated underwriting and KYC tools can reduce the time to onboard to just a few minutes.

They can detect trouble like those bad actors before they create any mischief. Most PayFacs are already doing extensive transaction monitoring at scale. They use AI-powered software to identify red flags like unexpected increases in transaction volume or atypical payout behavior.

They are constantly monitoring chargebacks and disputes. They use specialized merchant management software that requires more than a $500,000 initial investment, but that software identifies issues up front. Routine audits ensure the system remains free from fraud and abuse.

Navigate Complex Regulations

Regulation is a second major hurdle for PayFacs. PayFacs are required to adhere to standards imposed by the banks, card brands, and federal regulators. Each of these entities has their own set of regulations concerning data privacy, movement of funds, and reporting.

Avoiding regulatory pitfalls requires 24/7 documentation, monitoring of systems and support, and regular updates. The optimal way is to incorporate compliance into the day-to-day—from onboarding all the way to payout. Most PayFacs leverage plug-and-play APIs that allow them to stay ahead of rule changes without massive system re-writes.

Ensure Robust Data Security

Data security should be above reproach. Just the cost of PCI compliance is an estimated $500,000, and the cost of not doing it is even greater. To protect this data, PayFacs require strong encryption, tokenization, and access controls on each transaction.

Frequent training and updates ensure that staff are able to identify these threats before they have a chance to propagate. Meeting and maintaining all industry standards, such as PCI DSS, not only shield customer data but establish credibility with banks and merchants.

Decoding PayFac Pricing Structures

United States PayFac pricing models have become increasingly complicated along with the advancing world of digital payments. With a combination of fixed and transaction-based merchant fees, it is difficult for merchants to compare the value between providers.

These structures aren’t just quibbles—they have real impact to your bottom line and everyday operations. Understanding the details is key before signing any deal, as the wrong choice can lead to unexpected costs and headaches later.

Common PayFac Fee Models

Common PayFac Fee Models include flat per-transaction fees (i.e., $0.25 per swipe or 2.9% of sale), monthly account or platform fees, and licensing and registration costs (typically $50,000-$500,000+).

Additionally, there are chargeback or dispute fees, refund processing fees, account management or support fees, and compliance and security costs. Each one of these models alters what a merchant is charged and how.

Take, for instance, a flat per-transaction fee – simple to allocate in a budget, but costly in aggregate for a high-volume business. Licensing and compliance costs may be high, particularly for larger merchants or those with more complex requirements.

Payfacs can provide multiple tiers of pricing, with increased fees associated with enhanced support or additional features. Merchants should always read the fine print and ask for full breakdowns to make sure the model fits their volume and business style.

Watch For Hidden Costs

Hidden costs can be a common occurrence within contracts. These hidden costs can come in the form of chargeback, refund or even data export fees.

Others add on fees for compliance audits or annual reviews. This is what merchants should be watching for in the fine print before signing on the dotted line.

Doing all of this with clear, upfront communication will prevent nasty surprises and build good faith. A thorough read-through of the contract will help make sure you understand exactly what you’re paying for and will help provide some predictability to your payment processing.

Select Your Ideal PayFac Partner

Choosing the ideal PayFac partner can help ensure that U.S. Businesses of all types and sizes can more easily manage payments with reduced friction and associated costs. Not every PayFac operates the same way, so aligning the partner’s strengths with your business requirements is essential.

Consider the variety of payments you’ll be processing. Think about the level of control you want to have over the payment flow and the level of support you need. Other partners require large upfront fees or require rigid onboarding that can delay progress or increase expenses. Always consider how much support and flexibility you’ll receive, along with potential liability or added burden on your side.

Demand Smooth Onboarding Always

Smooth onboarding is the first step to ensuring an exceptional merchant experience. An easy, straightforward sign-up allows merchants to onboard quickly and reduces the chances of abandonment.

Smooth onboarding should equal quick approval, readily available transparent processes, and real assistance every step of the way. Leading PayFacs are increasingly leveraging digital forms, dedicated support teams, and other technology solutions to reduce paperwork. This further saves time and establishes a collaborative atmosphere from the outset.

Confirm Broad Payment Support

Supporting broad payment methods is more than a nice-to-have. Third, it’s table stakes if you want to actually meet your customers’ needs.

A great PayFac offers versatility so your merchants can accept credit card, debit card, ACH, and now even new digital wallets. This increases both top-line business and helps ensure that merchants stay on the cutting edge of experiences such as Apple Pay or contactless payments. The ability to adapt to new payment technology is what will keep your business ahead of competitors.

Verify Top Security Measures

Security is more than just a checklist. A PayFac you can trust will be PCI DSS compliant as well as comply with other U.S. Security standards and use effective fraud tools.

Be sure to look for frequent audits and established procedures for data use. Each layer of security helps create stronger trust with merchants and their customers, reducing risk and increasing peace of mind.

Check Global Payment Reach

A PayFac with global reach is key to accessing these additional markets. If you plan to sell internationally, especially outside the U.S., consider partners that have the ability to process international cards and other payment methods.

That can translate into increased revenue and a wider brand presence, which is critical if you have plans to scale.

Conclusion

PayFacs make it easy to do business, for merchants and customers alike. They accelerate the onboarding process, reduce bureaucratic red tape, and allow innovators to engage with payments easily. Payment facilitators allow SaaS companies to deploy payment capabilities quickly and avoid the hassles associated with traditional payment integrations. They help businesses determine which is the right fit by comparing rates and service. They need to weigh how well each choice integrates with their own technology. Choosing the appropriate PayFac can result in reduced downtime and an increased level of control over your cash flow. Looking to develop a more strategic mindset when it comes to payments? Keep an eye out for fee increases and rule changes. Don’t be afraid to inquire about the product that the providers are bringing to the table! Do some more research, ask the right questions and ensure that your decision aligns with your objectives.

Frequently Asked Questions

What is a PayFac?

What is a PayFac? A PayFac, or payment facilitator, assists companies of any size in streamlining their payment processing needs by enabling customer payments digitally and quickly. This payment facilitation model simplifies onboarding, compliance, and payment processing, allowing businesses to start selling more efficiently.

How is a PayFac different from a payment processor?

A payment facilitator will serve as a master merchant, enabling sub-merchants to process payments under its umbrella. Unlike traditional merchant accounts, which require each business to navigate a lengthy payment process with extensive paperwork, the payment facilitation model streamlines this for many merchants.

What are the benefits of using a managed PayFac for SaaS companies?

Managed PayFacs provide essential payment facilitation services, handling compliance, risk, and onboarding. This enables SaaS companies to focus on their software rather than the payment process, facilitating rapid scaling and the addition of new revenue streams.

How do PayFacs make money?

PayFacs, as payment facilitators, take a percentage on every transaction, which can include both a set amount and a per transaction percentage. Additionally, some may implement a fee structure with setup and/or monthly fees, depending on the payment processing services provided.

Are PayFacs secure for handling payments?

Yes. Reputable payment facilitators are always PCI compliant and adhere to industry security standards. They leverage advanced encryption and fraud detection tools, ensuring secure online payments for businesses and customers.

What should I look for in a PayFac partner?

Expect to see transparent pricing, quick and easy integration with your payment facilitation partner, excellent support, and proven security. Look for a partner that has a strong reputation and deep expertise in your industry.

Can PayFacs support multiple payment methods?

While most payment facilitators allow you to accept credit cards, debit cards, ACH, and digital wallets, this flexibility enhances your payment processing services, enabling you to reach a broader customer base and increase your business opportunities.