The payment processing structure has been changing over the years, mainly triggered by the rise of online marketplaces and software platforms. Now there are new connections between buyers and sellers, as well as payment services that offer new purchase experiences.
In this article, we will uncover payment facilitators (PayFacs, also abbreviated as PF) and throw more light on their functions.
So, What Are PayFacs?
A PayFac, short for Payment Facilitator, is a company that simplifies the payment process for businesses. They act as a middleman between you and the traditional payment processors, streamlining the entire payment ecosystem.
Traditionally, merchants have to set up an account with an acquirer (typically a bank or bank-sponsored firm) to be able to accept payments via credit cards. However, the process of setting up a merchant account, dealing with underwriting, and managing all the technical complexities was a tad overwhelming, not to mention time-consuming. This fostered the creation of the PayFac model.
These days, all you have to do is choose a PayFac platform tailored to your business, and you can skip the hassle of going through the traditional merchant account application process to get up and running quickly.
Who Are the Main Players in the PayFac Model?
Now, you might be curious about the players in the payment facilitator ecosystem. Well, let us introduce you to the main characters:
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Payment facilitators
These are the companies providing the PayFac platform. They have the necessary infrastructure and partnerships to simplify the payment acceptance process for their customers (submerchants).
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Sub-Merchants
These are the businesses that sign up to use the PayFac platform through the payment facilitator. They could be individual sellers, small businesses, or even large enterprises.
By joining the PayFac ecosystem, sub-merchants can leverage the platform’s resources and expertise to accept different types of payments smoothly.
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Acquiring banks
This is the financial institution that oversees the main part of the transactions being handled by the payment processor for the PayFac. An acquiring bank receives the money and card data sent by card networks and then sends them over to the PayFac.
It’s the responsibility of an acquiring bank to monitor the PayFac and ensure that they are compliant and are onboarding their customers(submerchants) responsibly.
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Payment Processors
The payment processor has a close relationship with the PayFac and the acquiring bank. Their main function is to process and settle the transactions that the submerchants under the PayFac’s merchant account initiate.
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Sponsors
This term is used to refer to the players that enable the PayFac’s admission into a payment system. In a case where an acquiring bank and the payment processor have been grouped, they will collectively become the sponsor.
What functions does a PayFac have?
PayFacs are mainly tasked with:
1. Onboarding and Underwriting
One of the most important functions of a PayFac is onboarding submerchants. They expedite the onboarding process so that their customers can start accepting payments swiftly.
A PayFac also handles the underwriting process, which includes assessing risk and compliance factors.
2. Merchant funding
Rather than using the traditional model where the acquiring bank funds the merchant based on a pre-determined schedule, a PayFac should fund their submerchants and reconcile the transactions. That way, submerchants can enjoy a smooth payment process.
3. Transaction monitoring
Considering that PayFacs assume liability for the transactions that the submerchants initiate, they are also supposed to monitor such transactions. That reduces the chances of suspicious or illegal transactions going through successfully.
If a particular transaction does not meet the PayFac’s policies, the processing is put on hold and the transaction is placed under review.
4. Chargeback management
Where chargebacks are necessary, it’s the work of a PayFac alongside the acquiring bank to verify the validity of the chargeback.
They do so by requesting the necessary documentation from the submerchant and then passing it on to the acquirer bank for execution.
There you have it!
A glimpse into the world of PayFac platforms. They simplify the payment process for businesses, making it easier to accept payments from your customers.
And from the information above, it’s clear that payment processing is not a straightforward task for every business owner that wants to enjoy the capability to accept payments.
Therefore, by partnering with a payment facilitator, you can focus on what you do best – running your business – while leaving the complexities of payment processing in capable hands.
