What is a payment facilitator?
A payment facilitator, or PayFac, is a provider that simplifies the process of accepting electronic payments for merchants by acting as an intermediary between the merchant and the acquiring bank.
Unlike traditional payment processing models, where each merchant must establish a separate merchant account with an acquiring bank, PayFacs enables merchants to onboard quickly and efficiently under a single master merchant account. The payment facilitator also handles all the technical and administrative complexities of the payment process. . How convenient is that?
This model reduces the complexity and time associated with traditional payment setups which makes it easier for businesses, especially SMEs in the UK to start accepting payments.
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How does a payment facilitator model work?
The payment facilitator model involves certain parties who work together to ensure a smooth, secure and efficient payment process.
1. PayFac:
Role: The PayFac enables merchants to accept electronic payments (debit card, credit card, digital wallet, etc.) without having to establish their own separate merchant accounts.
Functions: It onboards, underwires and manages sub-merchants by handling compliance, risk management and the provision of required technology/infrastructure.
2. Acquiring bank:
Role: Partners with the PayFac to process transactions. It holds the master merchant account under which all sub-merchants operate.
Functions: It settles the transactions, ensuring funds move from the cardholder’s issuing bank to PayFac’s master account and from there to the sub-merchant.
3. Payment processor:
Role: It’s a third-party company that sits between PayFac’s sub-merchants and card networks to transfer the transaction data.
Functions: The payment processor handles the technical aspects of transaction processing. This includes authorisation, clearing and settlement. It ensures the payment information is securely transmitted and validated.
4. Sub-merchant
Role: They are businesses (you) that sign up under PayFac’s master merchant account to accept digital payments.
Functions: Sub-merchants conduct transactions with customers using the PayFac’s infrastructure.
What does a payment facilitator do?
Following are the basic tasks of a payment facilitator:
1. Underwriting and onboarding.
The PayFac conducts risk assessments and due diligence on sub-merchants before allowing them to join the platform. This involves evaluating the sub-merchant’s business model, financial health and compliance with regulations.
By doing so, it ensures that only legitimate and low-risk businesses are onboarded.
2. Providing payment processing infrastructure.
It offers the necessary technology and infrastructure to process payments. This includes integrating different payment gateways, managing transaction flows and ensuring secure data transmission. Their infrastructure is designed to handle various payment methods in the UK such as credit cards, debit cards and digital wallets.
3. Compliance management.
Another important function of a payment facilitator is to ensure that all transactions comply with relevant laws and industry standards in the UK.
This includes adhering to Payment Card Industry Data Security Standard (PCI DSS) requirements, anti-money laundering (AML) regulations and others.
4. Transaction settlement.
The PayFac allows the settlement of transactions and ensures the funds are submitted to the sub-merchants timely.
Once a transaction is authorised by the bank, the PayFac manages the settlement process by transferring the funds from the bank to its master merchant account and from there to the sub-merchant’s accounts.
5. Fraud management.
It monitors transactions for fraudulent activity and manages the risks associated with payment processing. If found, it takes preventive measures to mitigate them.
Benefits of a payment facilitator
Taking the services of a reputable payment facilitator earns you the following advantages.
- It streamlines the onboarding process for you, allowing you to start accepting payments quickly without the need for lengthy and complex application procedures for multiple merchant accounts.
- It handles PCI DSS compliance which minimises the administrative burden on you.
- It saves you costs as PayFacs provides the necessary payment infrastructure and fraud prevention tools, without needing you to invest in them independently.
- It improves the speed of transaction processing which leads to better cash flow.
- PayFacs support a variety of payment methods (just like payment gateways), enabling your customers to pay with their preferred method. This results in a higher conversion rate and better customer experience.
- You gain access to comprehensive reporting provided by PayFacs which allows you to track transactions, analyse sales performance and make better optimisation decisions.
Choosing a payment facilitator
An efficient payment facilitator can be crucial for your business’s growth. So you have to be careful when choosing the right one. No problem, we have done that bit for you. Consider the following questions and you’ll get to your dream facilitator.
- What are the fees and pricing structure?
Evaluate the fee structure including setup and transaction fees and compare these costs across different PayFacs to determine the most cost-effective option for your business.
- What payment methods are supported?
You should choose PayFac which offers payment methods aligning with your customer preferences.
- How robust are the security and compliance measures?
Verify that PayFac adheres to security standards like PCI DSS compliance to safeguard the sensitive payment information of your customers and prevent fraud.
- What are the settlement times?
Compare the settlement times across PayFacs to ensure timely access to your funds. Faster settlement times can significantly improve your cash flow.
- What is the reputation of the PayFac?
Research the reputation and reliability of the PayFac by reading reviews, testimonials and case studies. You can even contact their previous customers to gain deeper insight into their service.
- What are the contract terms and conditions?
Carefully review the contract terms including the length of the agreement, termination clauses and any penalty for early termination. Choose a provider with flexible and transparent contract terms.
Payment processor vs payment facilitator
Many people confuse PayFac with a payment processor. Although both of them play an important role in the payment process, they have different roles.
1. Role and responsibility:
A payment processor acts as a bridge between the merchant, the acquiring bank and the card networks. It manages the flow of transaction data, ensuring it’s securely transmitted and authorised.
A payment facilitator goes beyond processing transactions. It acts as a master merchant, allowing sub-merchants to process payments under its umbrella.
2. Onboarding process:
When working directly with a payment processor, each merchant has to go through a and time-consuming complex onboarding process e.g. financial approvals and documentation.
A PayFac eases the onboarding process for sub-merchants because it has already been vetted by the acquiring bank. The PayFac handles the underwriting process on behalf of the sub-merchants.
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